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 stated that more than $1 billion is at issue in similar cases throughout the country.  In light of today’s decision, we expect the pending FICA tax refund claims in those cases to be denied.

The Court noted, however, that under existing Revenue Rulings certain severance payments tied to the receipt of state unemployment benefits are exempt from FICA taxes and observed that it did not need to reach the question of whether that exemption is consistent with the broad definition of wages under FICA.