Avoidance of Employment Tax on Severance-Type Payments

摘要

Issues regarding employment tax tend not to get the juices flowing for tax attorneys because they provide limited opportunity for creative tax planning, and, to the extent that they do, those efforts are often unavailing, as in attempting to characterize payments made to officers of S corporations as dividends rather than wages. However, with respect to severance payments and other payments received by employees upon their termination of employment (hereinafter, severance-type payments) there is a potential tax savings to an employer of 7.65% of the severance amount, with a like savings to former employees, and, at least with respect to certain severance-type payments, there is some possibility of success. The article will discuss four approaches that have been taken in an effort to reduce the FICA tax obligation with respect to severance-type payments.