The Impact of CSX Corp v. U.S.: Saving FICA on Severance Payments

Last year, the Court of Federal Claims in CSX Corporation v. United States (Fed. Cl., No. 95-858T) ("CSX") held that severance payments made pursuant to a reduction in force were "supplemental unemployment compensation" and, thus, were not "wages" for purposes of Federal Insurance Contributions Act ("FICA") taxes. This decision may have a significant impact on employers that paid out significant severance in the last couple of years or are planning to do so. While CSX is not a final decision, an overview of the relevant authority and consideration of possible approaches for severance pay is warranted.