Can severance pay be taxed?

The United States Supreme Court has agreed to hear a case involving FICA taxes on severance pay.  The case is between Quality Foods, who filed bankruptcy in 2001, and the Internal Revenue Service.  Quality Foods paid its workers a severance package and withheld FICA taxes.  Later, it filed for a tax refund claiming that severance pay was not subject to FICA taxes – the IRS disagreed.  Now the case will go before the US Supreme Court for a final determination.  The decision could ultimately affect programs such as Social Security and Medicare because both depend on FICA taxes for revenue.

For the full story read, “U.S. Supreme Court to weigh taxability of severance pay.”