ERIC Urges Appeals Court to Uphold Ruling that Supplemental Unemployment Benefits Not Subject to FICA

For Immediate Release

Washington, DC – ERIC on September 15 filed with the U.S. Court of Appeals for the Sixth Circuit an amicus brief urging the court to affirm an earlier district court ruling that payments constituting supplemental unemployment compensation benefits under Internal Revenue Code are exempt from FICA taxes. The case is United States v. Quality Stores, Inc., et al.

Covington & Burling’s Robert Long, Reeves Westbrook, Richard Shea, Emin Toro, Robert Newman, and Eli Hoory drafted the brief for ERIC.

The case stems from a February 2010 ruling by the U.S. District Court for the Western District of Michigan upholding a bankruptcy court ruling that determined that payments the company made to employees as part of a severance program were not subject to tax under the Federal Insurance Contributions Act.

ERIC’s brief argues that payments that meet the definition of “supplemental unemployment compensation benefits” (SUB payments) under Internal Revenue Code section 3402(o)(2)(A) are not wages for purposes of imposing FICA taxes.

The government contends that the severance payments at issue were wages for FICA purposes and that no statutory exception applied to exclude them from taxation. The government also maintains that the payments did not qualify for the supplemental unemployment benefit exception set forth in IRS guidance because the payments were not conditioned on eligibility for or receipt of state unemployment benefits.

ERIC’s brief disputes the government position by arguing that the plain language of section 3402(o), the principles of statutory construction, the legislative history, and the doctrine of legislative reenactment support the position of Quality Stores.

The brief contends that adopting a rule that makes the classification of employer-provided unemployment benefits for FICA purposes turn on eligibility for state unemployment benefits, as the government contends, would create hardships for employers by requiring them to consider the unemployment benefit requirements of up to fifty states to determine the FICA tax treatment for employees located in each state.

Moreover, ERIC argues that reliance on the statutory definition under section 3402(o)(2)(A) would foster uniform administration of supplemental unemployment compensation benefit plans and reduce the cost of providing such benefits to employees.


All media inquiries to The ERISA Industry Committee should be directed to:

Kelly Broadway, 202.627.1918,

About the ERISA Industry Committee
ERIC helps America’s largest employers stay ahead of employee benefit policy. ERIC member companies are leaders in every sector of the economy, and we represent them in their capacity as sponsors of employee benefit plans for their own workforce. Only ERIC provides the combination of intel, expertise, collaboration, and lobbying that exclusively serves the interests of large employers who provide health, retirement, and compensation benefits to their nationwide workforce.