Financial Questions and Answers
Q: I will receive severance payments from my soon-to-be former employer. Will I have to pay Social Security and Medicare (FICA) taxes on these payments?
A: Unfortunately, yes. The United States Supreme Court ruled in 2014 that severance payments fall under the broad definition of wages in FICA and are subject to FICA taxation. What that means is that 6.2% of your severance payment will be withheld for the Old Age, Survivors, and Disability Insurance (OASDI) tax and 1.45% will be withheld for the Medicare Hospital Insurance tax just as they are for your wages.
Q: Can I deduct the cost of achievement awards I plan to give my top-performing employees?
A: The tax law does allow a deduction for the cost of employee achievement awards, generally defined as items of tangible personal property awarded to employees because of length of service or safety achievement. Tangible personal property does not include cash or a gift certificate, unless it is a non-negotiable gift certificate that simply confers the right to receive tangible personal property. The maximum deduction for achievement awards made to one employee is $400 per year ($1,600 if the award is a qualified plan award). A qualified plan award is something awarded as part of a permanent, written, nondiscriminatory plan of the employer.
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