Program Option One

 

Eliminate FICA Taxes

By structuring severance payments as Supplemental Unemployment Benefits (SUBs), Option One eliminates Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes for both the employer and the employee. To qualify as SUB benefits, severance benefits must be paid on a periodic, installment basis with SUB plan eligibility tied to ongoing unemployment eligibility. Either the savings can be shared, or the employer can keep the entire gain with no impact to the employee's after-tax benefit amount.

For example, a 20-week severance benefit paid at $1,000 per week would total $20,000. During that 20-week period, the company could save up to 7.65 percent ($1,530) in employer FICA taxes–and up to 15.3 percent ($3,060) if the employee piece of FICA is included as well.

From an administrative standpoint, to maintain the tax savings, the individual's continued eligibility for state unemployment must be monitored. So, just as terminated workers need to report their employment status to their state each week, they also need to report in to the company or provider responsible for making the severance payments.