The IRS has announced that it is disallowing all protective FICA refund claims related to the U.S. Supreme Court’s 2014 decision in U.S. v. Quality Stores (134 S. Ct. 1395).
Recap: The Court ruled that an employer’s severance pay plan didn’t qualify as FICA-free supplemental unemployment pay (SUB pay). Prior to the Court’s decision, the IRS suspended processing these refund claims. Since the definition of wages for FUTA purposes mirrors FICA, the IRS will also disallow FUTA refund claims. (Announcement 2015-8, IRB 2015-9)
Protective refund claims die. The IRS’ announcement affects all protective FICA refund claims, including claims brought by employers in the 6th Circuit (the circuit in which the case arose), claims brought by employers located outside the 6th Circuit and claims currently pending in the IRS’ appeals function.
SUB pay lives! The IRS didn’t walk away from FICA-free SUB pay plans entirely, however. SUB pay plans that continue to meet these narrow criteria are FICA-free:
- Benefits are paid only to employees who have been laid off and who have met prescribed eligibility conditions after termination
- Employees’ benefits are based on their unemployment benefits, other compensation allowable under state law and the amount of their regular weekly pay
- Employees’ right to benefits doesn’t accrue until a prescribed period after termination; they don’t have any right to benefits until qualified and eligible to receive benefits and benefits aren’t attributable to their performance of services
- Benefits aren't paid in a lump sum.
HELLO, IRS: If your Quality-Stores-related FICA refund claim for which an appeal was pending included an additional or a different basis for a refund—your claim relates to FICA taxes paid on, for example—Call Laird MacMillan at (651) 726-1473 for information regarding how to proceed with your appeal request for that portion of your disallowed claim.
The ball’s in your court: If you don’t contact the IRS, it will take no further action on your appeal request.