Both companies and their C-suite executives should be mindful of the interactions between COBRA and Medicare and their implications when negotiating a severance or retirement arrangement. This is because Medicare enrollment can terminate COBRA coverage, depending on the timing of when an executive elects COBRA and when they enroll in Medicare, and because an executive

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.

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