Severance pay is FICA taxable — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Severance pay is FICA taxable

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in Firing,Human Resources

The U.S. Court of Appeals for the Federal Circuit has ruled that severance pay is considered taxable wages under the Federal Insurance Contributions Act (FICA). The decision in CSX Corporation v. United States means organizations must pay Social Security and Medicare taxes on severance payments made to involuntarily displaced workers.

CSX had argued that severance should be treated like Supplemental Unemployment Benefit (SUB) payments, which aren’t considered wages under FICA.

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