Sixth Circuit Court Ruling Holding that Supplemental Unemployment Compensation Benefits Are Not Wages Subject to FICA Tax Has Major Implications for Employers and Employees, Says Pepper Hamilton

Government Likely to Ask Supreme Court to Review Decision

In Meantime, Employers and Employees Who Paid FICA Taxes May Want to File Refund Claims; What About Companies About to Lay Off Employees?

--(BUSINESS WIRE)--Pepper Hamilton:

WHAT:	Important Sixth Circuit Court ruling on Friday that severance payments made by an agricultural employer to laid-off employees are supplemental unemployment compensation benefits that are not taxable as wages.
	The employer – Quality Foods – and its former employees are entitled to refunds of approximately $1 million that had been paid to the IRS in the form of FICA taxes.
WHY:	According to Robert S. Hertzberg of Pepper Hamilton LLP, who represented Quality Foods, the ruling is significant for four important reasons:
	-- The government may owe employers and employees refunds in excess of $4 billion plus interest, based on claims filed already by other companies
	-- This decision is ripe for Supreme Court review, as it stands in conflict with an earlier Federal Circuit Court ruling
	-- Any company that paid FICA taxes on so-called supplemental employment compensation (SUB) benefits should file a claim for a refund
	-- Any company about to lay off employees should study these rulings closely
WHO:	The three-judge panel upheld a lower court’s decision. It found that because Congress has held that SUB payments are not wages and are treated as wages only for federal income tax withholding purposes, that the SUB payments paid by Quality Stores Inc. are not considered wages for FICA taxation purposes.
	The suit was filed by Quality Stores, Inc., which was the largest agricultural specialty retailer in the country.
EXPERT:	Pepper Hamilton LLP attorney Robert S. Hertzberg is National Co-Chair of the firm’s Corporate Restructuring and Bankruptcy Practice.
	He said: “This is a very significant ruling for employers and employees. Because the Sixth Court declined to follow a contrary ruling by the Federal Circuit, it is highly likely that the government will seek to have the Sixth Circuit’s decision reviewed by the Supreme Court.
	“In the meantime, though, Quality Stores will provide strong support to taxpayers seeking refunds of FICA taxes paid in connection with the many workforce reductions that have occurred during the Great Recession. Employers and employees who have already paid FICA taxes on SUB benefits – or who may be doing so in the near future – should consult with their tax and legal advisors concerning the implications of this important decision.”

About Pepper Hamilton

Pepper Hamilton LLP (www.pepperlaw.com) is a multi-practice law firm with more than 500 lawyers nationally. The firm provides corporate, litigation and regulatory legal services to leading businesses, governmental entities, nonprofit organizations and individuals throughout the nation and the world. The firm was founded in 1890.