Today I received a letter from an accounting firm regarding the severance payment I received when I was laid off in 2001. The letter said the US Court of Federal Claims ruled in April 2002 in the case CSX vs. United States that severance payments are not subject to FICA wages. The firm is offering to file a refund claim for a 20% share of the refund. In my case, their share would be about $128. I’d rather keep the entire sum.
So does anyone know how I can file the claim for this on my own?
If you Google for “FICA severance payments” (without the quote marks - you’re not looking for that precise phrase), you’ll find a bunch of articles about it.
Apparently, that 2002 decision was an interim decision, and applies only to a narrow set of circumstances, in which the severance payments could be considered a form of supplemental unemployment compensation benefits. If you were simply let go, not as part of a general reduction in workforce, your severance pay wouldn’t meet that definition.
On top of that, from one of the articles, it appears that the Feds won’t be processing any claims for refunds for several years, since the government will probably be appealing the decision.
The more recent case of Kraft v. U.S., discussed here, among other places, indicates that most severance payments are still subject to FICA withholding.
I can’t find much decent info about how to apply for a refund. This source indicates that, if you were a CSX employee, CSX should take care of getting you a refund (if that ever actually occurs). If not, you should write to Social Security yourself. I think that’s confused advice - I believe that a refund, if you’re ever entitled to one, would be processed by the IRS, not Social Security.
From everything I’ve been able to dig up, it sounds like filing a claim is a complicated matter, since you’d have to lay out the circumstances that make your severance payments a form of supplemental unemployment compensation benefits, and not just plain vanilla severance pay. In short, you’d need to be able to trot out a fair amount of precise legalese and magic phrases. Even then, the IRS will probably put your claim into a big file, and get back to it a few years from now, when the appeals of the CSX case have been exhausted.
If I were you, I would tell these accountants to go ahead and file on your behalf, and then forget that you ever heard anything about it, since I’d guess that your chances of ever seeing a dime of the money, whether they file the claim or you do, are pretty slim.