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The U.S. 6th Circuit Court of Appeals (covering Kentucky) has ruled that payments made under a Severance Agreement are not taxable because they are actually supplemental unemployment compensation which is itself, not taxable.

Employers who have withheld FICA contributions would be entitled to seek a refund from the IRS and presumably employees paying taxes on Severance Payments would also be able to seek refunds.

Given the importance of this issue to both employers and employees, it is no surprise that an appeal to the U.S Supreme Court has been filed in the form of a Motion for a Writ of Certiori, which invites the Supreme Court to accept the appeal.