Although the U.S. Supreme Court held that regular severance payments are subject to Federal Insurance Contributions Act (FICA), there is an older type of separation pay plan that the IRS agrees is exempt from FICA.
Establishing a supplemental unemployment compensation benefits (SUB) plan to pay separation benefits may be advantageous for employers and their former employees.
Paying separation benefits pursuant to a SUB plan may produce employment tax savings and other advantages.
Read a March 2015 report [PDF 175 KB] prepared by KPMG LLP: What’s News in Tax: Supplemental Unemployment Benefits
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