Although some would argue that the next U.S. Supreme Court term is not shaping up to be as monumental as the last term, employers should have their eye on the recent decision of the Court to hear United States v. Quality Stores, Inc. The Court’s decision in this case in the next term will finally put to rest the question of whether severance payments made to former employees pursuant to an involuntary reduction in force are wages for the purposes of Social Security and Medicare withholding under FICA.

By way of background, just over a year ago, the Sixth Circuit held in this case that severance payments were not wages for this purpose. This was significant because it created a Circuit Court split on this issue. In 2008, the Federal Circuit reached the precise opposite decision in CSX Corp. v. United States. This has become a particularly relevant issue, given the increase in workforce reductions over the past several years. A more detailed discussion of the impact of the Sixth Circuit’s decision can be found here: http://www.proskauer.com/news/detail.aspx?news=8916.

While we continue to believe it is prudent for employers to continue to withhold FICA taxes on severance pay in the context of involuntary terminations in most cases, the Supreme Court’s decision to hear this case is a reminder for employers to consider filing protective refund claims to preserve their rights and prevent the statute of limitations expiring on tax refund claims for still open years. The deadline for filing a protective claim is three years from April 15 of the calendar year following the year in which a payment was made. Thus, April 15, 2014 is the deadline for filing a protective claim for 2010.

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To ensure compliance with requirements imposed by U.S. Treasury Regulations, Proskauer Rose LLP informs you that any U.S. tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

 

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Photo of Robert Projansky Robert Projansky

Robert M. Projansky is a partner in the Employee Benefits & Executive Compensation Group and is currently a member of the Firm’s Executive Committee.

Rob has a broad practice advising both multiemployer and single employer clients on all issues related to the legal…

Robert M. Projansky is a partner in the Employee Benefits & Executive Compensation Group and is currently a member of the Firm’s Executive Committee.

Rob has a broad practice advising both multiemployer and single employer clients on all issues related to the legal compliance and tax-qualification of ERISA-covered pension and welfare plans. Rob’s clients include the largest and highest-profile U.S. media and entertainment industry clients, as well as a broad range of Fortune 500 companies.

In the multiemployer context, he serves as counsel to the boards of trustees of a number of large and small funds and frequently assists clients in addressing issues related to the funding of defined benefit pension plans, including zone status, benefit suspensions, special financial assistance and withdrawal liability. He also advises these clients on healthcare compliance, cybersecurity and government investigations. In addition, his practice includes advising corporate clients on their responsibilities related to multiemployer plans, with particular expertise on the impact of multiemployer and collectively bargained plans in corporate transactions.

Rob has extensive experience advising corporate clients regarding general compliance issues and fiduciary compliance matters, including plan asset and prohibited transaction issues. He also has addressed a myriad of issues related to complex plan investments, including negotiation of separately managed and collective investment vehicles for both traditional and alternative investments such as hedge funds, private equity funds and fund-of-funds vehicles.

Rob is described in Chambers USA as “incredibly smart and creative, and a really effective, zealous advocate” who “adroitly communicates complicated ERISA matters to clients in understandable language and well-timed levity.”  He is a widely sought after speaker on topics related to employee benefits, fiduciary, cybersecurity and government investigations and speaks each year at the annual conference and various other conferences sponsored by the International Foundation of Employee Benefit Plans, the largest educational organization in the employee benefits industry. Rob currently serves as one of the nine Advisory Directors on the Board of Directors of the International Foundation.