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emc011075
emc011075, Tax adviser
Category: Tax
Satisfied Customers: 2834
Experience:  IRS licensed Enrolled Agent and tax instructor
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I received severance payments in 2013 that were paid out as

Customer Question

I received severance payments in 2013 that were paid out as a result of a written agreement in the event of my involuntary termination from the organization.
About a week ago I received a CP2000 notice indicating that I should have paid self employment taxes on these severance payments. I am trying to confirm if severance payments under the conditions I described are subject to self employment taxes?
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.
Hi. My name is ***** ***** I will be happy to help you.
If in the written agreement the payment is defined as severance pay, than it is subject to social security and Medicare tax (Self employment tax if the income is reported on 1099Misc)
Normally, severance pay is reported on W2 and the employment taxes are taken out just like from your regular paycheck. However, if for some reason the company chose to report it on 1099Misc you are stuck with the self-employment tax. You will be able to deduct 1/2 of the self-employment tax as adjustment to income, which will reduce your AGI (adjusted gross income).
Link to IRS website for more details: http://www.irs.gov/publications/p15a/ar02.html#en_US_2015_publink1000169543
IRS always treated severance pay as taxable wages and after several lawsuits last year supreme court ruled that severance pay has to be treated as taxable wages subject to FICA (social security and Medicare) taxes. http://www.forbes.com/sites/robertwood/2014/03/25/supreme-court-rules-severance-pay-is-taxable-wages/
Let me know if you have any questions.
Expert:  emc011075 replied 1 year ago.
I see you read my respond. Do you have any questions? Is there anything else I can help you with today?
And if this answered your question, please take a moment to rate my response so that I may receive credit for assisting you today. However, if you need clarification, or want to discuss this issue further, let me know. Thank you.

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