Prior to the enactment of the Tax Increase Prevention Act of 2014 (“TIPA”) in December 2014, effective for 2014, mass transit commuters were only able to contribute a maximum of $130 per month on a pre-tax basis toward their transit expenses (a reduction from $245 per month permitted in 2013). TIPA retroactively increased the maximum pre-tax contribution limit for employees’ mass transit commuting expenses to the level permitted for parking expenses, i.e., $250 per month, as provided under Code Section 132(f). However, this increased monthly cap expired again on December 31, 2014, so it is currently capped at $130 for 2015, unless Congress extends it further. If this sounds familiar, it is. Congress took similar action to retroactively increase benefits in 2012, and the IRS issued similar guidance on retroactive adjustments in early 2013.
Supreme Court Finds Severance Payments are Subject to FICA
On March 25, 2014, in a decision highly anticipated by employers, the U.S. Supreme Court held unanimously that certain severance payments paid to employees who were involuntarily terminated were taxable wages for purposes of the Federal Insurance Contributions Act (FICA). United States v. Quality Stores, Inc., et al., No. 12-1408 (U.S. Mar. 25, 2014). The holding reversed a Sixth Circuit Court of Appeals’ decision and was a blow to employers’ hopes that the Court would exempt severance payments from FICA and open the floodgates for refund claims, the backlog of which was estimated to be in excess of $1 billion. The decision leaves open whether the Internal Revenue Service (IRS) can and will adhere to its long-held position on supplemental unemployment plans that, unlike the plans at issue in the case, are not paid in a lump sum and are tied to eligibility for state unemployment benefits. The IRS position on these plans has been that payments thereunder are not FICA “wages.” The decision specifically did not address such plans.
High Court Employee Benefits Cases: A Review and Look Ahead
By Russell Hirschhorn on
Having settled into the new year, we reflect on decisions from the U.S. Supreme Court in 2013 that are likely to have a significant impact in the world of pension and welfare employee benefits and, in some cases, already have had such an impact. The issues addressed by the Supreme Court are wide ranging and are both substantive and procedural.
They include same sex marriage benefits, welfare plan reimbursement provisions, statute of limitations and class certification. Looking ahead into 2014, we see that the Supreme Court has already agreed to decide several significant benefits issues, including issues pertaining to Employee Retirement Income Security Act stock-drop litigation, the so-called “contraceptive mandate” under the Affordable Care Act and whether the Federal Insurance Contributions Act tax applies to reduction in force related severance pay.