The United States Supreme Court recently held that severance payments to terminated employees were taxable as wages under FICA. The severance wages are a form of remuneration for employment and do not fall under any exemption to the definition of wages. The payment amounts should be taxed by employers as regular wages would be.
This is a very important case for any schools entering into severance agreements with employees, often in lieu of termination. There had been debate over the years about whether severance payment amounts should be taxed regularly or not, and now this case settles the matter.
U.S. v. Quality Stores, Inc., --S.Ct--, 2014 WL 1168968