stay tuned...
we're still pursuing a Michigan tax answer to a
related issue.
IRS Addresses Automotive Buyout Misinformation on
Withheld Taxes
The Internal Revenue
Service moved today to address misinformation regarding
automotive employee buyouts. Reports have recently
appeared in the media that erroneously state that
automotive employee buyout payments, some dating as far
back as 2006, should not have been subject to FICA and
Medicare withholding.
These reports have
further indicated that individuals should file claims
with the IRS for the refund of the money that was
withheld. While the IRS cannot speak to any particular
company's or particular employee's tax situation, the
law regarding such payouts is clear .
As noted by IRS Publication 15, payments given to
employees as an incentive to cancel an employment
contract and relinquish employment rights are taxable
and subject to employment taxes and withholding.
Individuals should not be misled into filing refund
claims for FICA and Medicare withholdings because under
these circumstances former employees would not be
entitled to such refunds.
Excerpt
form IRS Publication 15, Section 5 , page 10
(emphasis added):
"Wages subject to federal employment taxes generally
include all pay that you give to an employee for
services performed. The pay may be in cash or in
other forms. It includes salaries, vacation
allowances, bonuses, commissions, and fringe
benefits. It does not matter how you measure or make
the payments. Amounts an employer pays as a bonus
for signing or ratifying a contract in connection
with the establishment of an employer-employee
relationship and an
amount paid to an employee for cancellation of an
employment contract and relinquishment of contract
rights are wages subject to social security,
Medicare, and federal unemployment taxes and income
tax withholding. Also,
compensation paid to a former employee for services
performed while still employed is wages subject to
employment taxes."
Luis D. Garcia
IRS Media Relations
The misunderstanding seems
to find its source in an in-house GM memo addressed to
those employees receiving the 2006 buyout who were
drawing Social Security before reaching normal
retirement age.
The memo was intended to address the issue that these
buy-out funds, reported on Form W2 were not "earned
income" that would affect these specific employees and
their exposure to repayment of excess Social Security
benefit payments. The payments were/are
subject to Social Security and Medicare
withholding but
would not cause the loss of Social Security benefits to
anyone age 62 or older (60 as a widow/widower).
Thanks to our own Michigan Chapter officers Byron
Kuxhaus and Glen Mitchel for research and dogged pursuit
of a correct answer to this issue.