Archives: Employment Tax

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New Medicare Tax Makes FICA Errors Harder to Correct

Withholding and paying FICA tax on nonqualified deferred compensation can be a tricky business.  Because special timing rules apply to FICA tax, employers can’t simply withhold and pay FICA tax when they pay deferred compensation to the employee.  Instead, FICA tax is due when the deferred compensation vests (or, in some cases, when the amount … Continue Reading

Supplemental Unemployment Benefits Subject to FICA Tax, Supreme Court Holds

Earlier today, the Supreme Court issued its opinion in United States v. Quality Stores.  The opinion, authored by Justice Kennedy, reverses the Sixth Circuit and concludes that the supplemental unemployment benefit payments (or “SUB” payments) at issue in the case are subject to tax under the Federal Insurance Contribution Act (“FICA”).  The Government has previously … Continue Reading

IRS Issues Guidance on New Medicare Taxes for High-Income Employees

The Affordable Care Act created two new taxes for individuals whose income exceeds $200,000 ($250,000 for married couples filing joint returns).  Employees must pay an additional 0.9% Medicare tax on wages in excess of these dollar thresholds.  Individuals whose adjusted gross income exceeds the dollar thresholds also must pay a 3.8% tax on their net … Continue Reading

Supreme Court To Resolve Whether Severance Pay for Layoffs Is Subject to FICA Tax

Earlier today, the Supreme Court agreed to review the Sixth Circuit’s decision United States v. Quality Stores.  In that decision, the Sixth Circuit sided with taxpayers and concluded that certain severance payments that qualify as supplemental unemployment benefit payments (or “SUB” payments) for federal income tax purposes are not subject to tax under the Federal … Continue Reading

IRS Issues Special Administrative Procedures for DOMA Tax Refund Claims by Employers

The IRS issued a notice today setting forth special procedures by which employers may claim a refund of FICA taxes that were paid on employee benefits solely because of the application of the Defense of Marriage Act (“DOMA”).  Section 3 of DOMA prohibited the IRS from recognizing same-sex marriages for federal tax purposes and was … Continue Reading

Supreme Court’s DOMA Decision Has Significant Implications for Employers and Employee Benefit Plans

Earlier today in United States v. Windsor, the Supreme Court struck down section 3 of the federal Defense of Marriage Act (“DOMA”).  Section 3 of DOMA limits the definition of marriage for purposes of federal law to marriage between individuals of the opposite sex.   The Court held that DOMA deprives same sex couples of due … Continue Reading

Misclassified Workers Create Penalty Risks Under Health Reform

Earlier this year we described the IRS’s Voluntary Classification Settlement Program (VCSP), which substantially reduces an employer’s liability for back taxes when the employer voluntarily reclassifies employees who have been treated as independent contractors.  Through June 30, the relief program is available even if the employer did not file Forms 1099 reporting the compensation paid … Continue Reading

While the Supreme Court considers DOMA’s fate, what’s an in-house benefits lawyer or HR professional to do?

If the Supreme Court holds that the Defense of Marriage Act (“DOMA”) is unconstitutional, those involved with the administration of employee benefits plans will be very busy.  Under DOMA, a benefit plan is not required to recognize same-sex marriage and, in many cases, must treat same-sex spouses differently than opposite-sex spouses.  If DOMA is struck … Continue Reading

Worker (Mis)Classification: IRS Expands Voluntary Settlement Program

Misclassification of workers remains a hot button issue.  The IRS continues to scrutinize employers’ worker classification practices, and it is likely that health reform will cause the Department of Labor to review classification issues even more closely than it has in the past.   In an effort to encourage employers to reclassify independent contractors as employees, … Continue Reading

Accelerating Compensation into 2012 to Avoid 2013 Tax Increases

If widespread news reports are any indication, many people—employers and employees alike—are thinking about increased taxes in 2013 and what can be done to minimize their impact. Some tax increases in 2013 are a sure thing.  For example, the employee share of Medicare taxes will increase to 2.35% for wages in excess of $250,000 (for … Continue Reading

Severance Pay for Layoffs Not Subject to FICA Tax, Sixth Circuit Rules

Today the United States Court of Appeals for the Sixth Circuit sided with taxpayers in affirming the decision of a district court that certain severance payments that qualify as supplemental unemployment compensation benefit payments (or “SUB” payments) for federal income tax purposes are not subject to tax under the Federal Insurance Contribution Act (FICA).  United … Continue Reading
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