What Are Supplemental Unemployment Benefits?
In CSX Corporation, Inc. v. United States, the court rejected the Internal Revenue Service’s interpretation of what constitutes supplemental unemployment compensation benefits that are exempt from FICA. The court adopted a broader standard, which could exempt many payments previously thought to be subject to FICA taxes. Under Section 3402(o)(2) of the Internal Revenue Code, supplemental unemployment compensation benefits are payments that an employer makes to an employee on account of the employee’s involuntary separation of employment resulting directly from a reduction in force, the discontinuance of a plant or operation or other similar conditions. The court held that supplemental unemployment compensation benefits as defined by that section are not wages for purposes of FICA. The CSX Case As part of a reduction in force, CSX Corporation paid employees placed on layoff status a fixed percentage of average monthly compensation, with the duration of the payment governed by an employee
