Potential refund of payroll taxes on severance pay.Employers who paid payroll taxes Payroll Tax
Tax an employer withholds and/or pays on behalf of their employees based on the wage or salary of the employee. In most countries, including the U.S., both state and federal authorities collect some form of payroll tax. on terminated employees' severance pay Severance Pay
Compensation that an employer gives to someone who is about to lose their job.
Severance pay is not always paid to employees. It depends on the situation in which the employee is losing their job and whether legislation requires severance to be paid. may be entitled en·ti·tle
tr.v. en·ti·tled, en·ti·tling, en·ti·tles
1. To give a name or title to.
2. To furnish with a right or claim to something: to a refund. In CSX CSX Chessie Seaboard Multiplier (railroad transportation company)
CSX Cayman Islands Stock Exchange
CSX Changsha, China (Airport Code)
CSX Cardiac-Specific Homeobox
CSX Seaboard Coastline Railroad Corp., Inc., 52 Fed. Cl.208 (2002), the Court of Federal Claims approved the refund of Railroad Retirement Tax Act (RRTA RRTA Railroad Retirement Tax Act (IRS; similar to Social Security) ) taxes and FICA FICA
Federal Insurance Contributions Act
Noun 1. FICA - a tax on employees and employers that is used to fund the Social Security system
income tax - a personal tax levied on annual income
collected on amounts paid to employees under reduction-in-force programs.
The court addressed whether CSX'S payments fell outside the definition of "wages" for FICA purposes and the definition of "compensation" for RRTA purposes. It considered three types of severance payments, made to:
1. Laid-off employees;
2. Employees on stand-by (i.e., reduced hours); and
3. Employees who voluntarily participated in an early-retirement or early-out program.
The court determined whether these payments fit within the definition of "supplemental unemployment compensation benefits" (SUCBs) as used in Sec. 3402(o). If the payments fit, they were not subject to FICA taxation, nor to income tax withholding. Sec. 3402(o)(2 (A) defines SUCBs as:
[A]mounts which are paid to an employee, pursuant to a plan to which the employer is a party, because of an employee's involuntary separation from employment [referring to a discontinuance Cessation; ending; giving up. The discontinuance of a lawsuit, also known as a dismissal or a non-suit, is the voluntary or involuntary termination of an action.
DISCONTINUANCE, pleading. A chasm or interruption in the pleading.
2. in the performance of service by the employee for the employer] (whether or not such separation is temporary), resulting directly from a reduction in force, the discontinuance of a plant or operation, or other similar conditions, but only to the extent such benefits are includible in the employee's gross income.
For payments made to workers involuntarily terminated, the court concluded that the laid-off employees were not performing any service for the employer. Thus, these payments qualified as SUCBs, not subject to payroll taxes.
The court determined that payments made to employees on stand-by, who remained subject to recall on an as-needed basis and who received a guaranteed minimum compensation per pay period, were subject to tax, because there was no separation from employment within the meaning of Sec. 3402(o)(2); thus, these employees were not unemployed.
Finally, for payments made to employees who volunteered for "early retirement," it found that the voluntary surrender of employment rights for a cash payment represented the surrender of rights to future earnings for a present sum. Thus, these amounts were wages subject to payroll tax.
The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. will probably suspend applications for refunds, pending a decision on whether to appeal CSX.
FROM RODNEY M.JONES, WASHINGTON, DC