The U.S. Supreme Court ruled in US vs. Quality Stores Inc. that certain severance payments made to employees terminated against their will are taxable wages under federal law. Law360 asked several attorneys to comment.
Employment and Benefits Partner Phillip Schreiber said: "The court's ruling means that neither employers nor involuntarily separated employees will be able to avoid the payment of FICA and other taxes on severance payments. This may result in employers paying less severance to involuntarily separated employees because of the tax burden. Conversely, former employees may demand more severance to make up for the tax burden. To reduce their tax burden but still offer enticing severance benefits to separated employees, employers may increase the noncash component of their severance benefits, such as offering outplacement services."
READ: Attorneys React: US vs. Quality Stores (subscription required)
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