When an employee is fired or laid off and receives severance pay, his or her employer may wonder whether or not FICA taxation applies. The United States Supreme Court set a precedent for this issue in 2014. 

The Supreme Court, in U.S. v. Quality Stores, Inc., et al, (Sup Ct 03/25/2014), and reversing the Sixth Circuit Court of Appeals, has held that severance payments that were made to involuntarily terminated employees and that weren't tied to the receipt of State unemployment insurance, are subject to FICA taxes.

In Announcement 2015-8, the IRS announced it will disallow all claims (more than 2,400) for refund of FICA or Railroad Retirement Tax Act (RRTA) taxes paid with respect to severance payments that do not satisfy the narrow exclusion contained in Rev Rul 90-72, and will take no further action on appeal requests that were suspended pending the resolution of Quality Stores.