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Guest Article

Deloitte logo

(From the March 10, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Federal Circuit Rules Supplemental Unemployment Benefits Are Wages for FICA Purposes


The Federal Circuit on March 6, 2008 judged that payments qualifying as supplemental unemployment benefits (SUB) are wages for FICA purposes. This reversed the Court of Federal Claims ruling that certain termination payments were not subject to FICA because such payments were supplemental unemployment compensation as defined in IRC § 3402(o).

Case Background

The original case was based on the argument that IRC § 3402(o), the statute, which treats supplemental unemployment compensation as if it were a payment of wages for income tax withholding purposes, was enacted specifically to require income tax withholding on amounts that had historically not been treated as wages. Because no similar statutory provisions had been enacted with respect to FICA withholding and, under Rowan Cos. v. United States, 452 U.S. 247 (1981), "wages" as defined for income tax withholding are the same as "wages" for FICA withholding, the Court of Federal Claims held that wages for purposes of FICA tax withholding did not include supplemental unemployment benefits.

The Federal Circuit rejected the taxpayer's and the lower court's reliance on the text of IRC §3402(o), and concluded that the several types of payments the company and its affiliates paid to employees as part of a reduction-in-force in the 1980's constituted wage payments that were subject to FICA tax.

In reversing, the court rejected the company's argument that because IRC § 3402(o) provides that all SUB payments must be "treated as if" they were payments of wages, the section necessarily implies that the payments are not in fact wages. The court ruled that the inference the company was making to the statutory language was too strained and the text of IRC §3402(o) does not require that FICA be interpreted to exclude from "wages" all payments that would satisfy the definition in IRC § 3402(o)(2)(A).


Deloitte logoThe information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.

If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955.

Copyright 2008, Deloitte.


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