A federal district court has concluded that, in certain situations, FICA taxes are not required to be paid on severance payments resulting from employee layoffs.

The court found in the case In re Quality Stores, Inc., DC-MI, Feb. 23, 2010, that employers followed IRS guidelines in withholding and remitting FICA taxes. Employees affected by involuntary terminations caused by a work force reduction or discontinuance of a plant or operation may be entitled to refunds.

Because different courts have agreed with the IRS in earlier cases, it seems likely that the IRS will appeal this decision. Since you have a limited time to file claims for refund of overpaid taxes, you should contact your tax adviser to discuss filing a protective claim if you believe you may be entitled to a FICA refund.