Laid Off Workers: Is Your Severerance FICA Taxable?

IRS lost another case recently.  This time the 6th Circuit Court of Appeals refused to reconsider a 2012 decision that payments made to laid off workers aren’t subject to FICA taxes (Social Security and Medicare payroll taxes).  For tax years 2011 and 2012, that’s a tax savings of $56.50 per $1000.00 of compensation per employee, plus the matching payroll savings for their employer.  As the IRS estimates refund claims could hit $1 billion, a Supreme Court appeal is likely.  Stayed tuned to this issue as you may want to apply for a refund should your employer have withheld FICA on your severance pay when you were laid off.