United States v. Quality Stores, Inc. , 134 S. Ct. 1395 ( 2014 )

(Slip Opinion) OCTOBER TERM, 2013 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
UNITED STATES v. QUALITY STORES, INC., ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE SIXTH CIRCUIT
No. 12–1408. Argued January 14, 2014—Decided March 25, 2014
Respondent Quality Stores, Inc., and its affiliates (collectively Quality
Stores) made severance payments to employees who were involuntar-
ily terminated as part of Quality Stores’ Chapter 11 bankruptcy.
Payments—which were made pursuant to plans that did not tie pay-
ments to the receipt of state unemployment insurance—varied based
on job seniority and time served. Quality Stores paid and withheld,
inter alia, taxes required under the Federal Insurance Contributions
Act (FICA), 26 U.S. C. §3101 et seq. Later believing that the pay-
ments should not have been taxed as wages under FICA, Quality
Stores sought a refund on behalf of itself and about 1,850 former em-
ployees. When the Internal Revenue Service (IRS) did not allow or
deny the refund, Quality Stores initiated proceedings in the Bank-
ruptcy Court, which granted summary judgment in its favor. The
District Court and Sixth Circuit affirmed, concluding that severance
payments are not wages under FICA.
Held: The severance payments at issue are taxable wages for FICA
purposes. Pp. 4–15.
(a) FICA defines “wages” broadly as “all remuneration for employ-
ment.” §3121(a). As a matter of plain meaning, severance payments
fit this definition: They are a form of remuneration made only to em-
ployees in consideration for employment. “Employment” is “any ser-
vice . . . performed . . . by an employee” for an employer. §3121(b).
By varying according to a terminated employee’s function and senior-
ity, the severance payments at issue confirm the principle that “ser-
vice” “mea[ns] not only work actually done but the entire employer-
employee relationship for which compensation is paid.” Social Secu-
rity Bd. v. Nierotko, 327 U.S. 358, 365–366. This broad definition is
reinforced by the specificity of FICA’s lengthy list of exemptions. The
2 UNITED STATES v. QUALITY STORES, INC.
Syllabus
exemption for severance payments made “because of . . . retirement
for disability,” §3121(a)(13)(A), would be unnecessary were severance
payments generally not considered wages. FICA’s statutory history
sheds further light on the definition. FICA originally contained defi-
nitions of “wages” and “employment” identical in substance to the
current ones, but in 1939, Congress excepted from “wages”
“[d]ismissal payments” not legally required by the employer, 53 Stat.
1384. Since that exception was repealed in 1950, FICA has contained
no general exception for severance payments. Pp. 4–7.
(b) The Internal Revenue Code chapter governing income-tax with-
holding does not limit the meaning of “wages” for FICA purposes.
Like FICA’s definitional section, §3401(a) has a broad definition of
“wages” and contains a series of specific exemptions. Section 3402(o)
instructs that “supplemental unemployment compensation benefits”
or SUBs, which include severance payments, be treated “as if” they
were wages. Contrary to Quality Stores’ reading, this “as if” instruc-
tion does not mean that severance payments fall outside the defini-
tion of “wages” for income-tax withholding purposes and, in turn, are
not covered by FICA’s definition. Nor can Quality Stores rely on
§3402(o)’s heading, which refers to “certain payments other than
wages.” To the extent statutory headings are useful in resolving am-
biguity, see FTC v. Mandel Brothers, Inc., 359 U.S. 385, 388–389,
§3402(o)’s heading falls short of declaring that all the payments listed
in §3402(o) are “other than wages.” Instead, §3402(o) must be under-
stood in terms of the regulatory background against which it was en-
acted. In the 1950’s and 1960’s, because some States provided unem-
ployment benefits only to terminated employees not earning wages,
IRS Rulings took the position that severance payments tied to the re-
ceipt of state benefits were not wages. To address the problem that
severance payments were still considered taxable income, which
could lead to large year-end tax liability for terminated workers,
Congress enacted §3402(o), which treats both SUBs and severance
payments the IRS considered wages “as if” they were wages subject
to withholding. By extending this treatment to all SUBs, Congress
avoided the practical problems that might arise if the IRS later de-
termined that SUBs besides severance payments linked to state ben-
efits should be exempt from withholding. Considering this regulatory
background, the assumption that Congress meant to exclude all
SUBs from the definition of “wages” is unsustainable. That §3402(o)
does not narrow FICA’s “wages” definition is also consistent with the
major principle of Rowan Cos. v. United States, 452 U.S. 247: that
simplicity of administration and consistency of statutory interpreta-
tion instruct that the meaning of “wages” should be in general the
same for income-tax withholding and for FICA calculations. Pp. 7–
Cite as: 572 U. S. ____ (2014) 3
Syllabus
14.
693 F.3d 605, reversed and remanded.
KENNEDY, J., delivered the opinion of the Court, in which all other
Members joined, except KAGAN, J., who took no part in the considera-
tion or decision of the case.
Cite as: 572 U. S. ____ (2014) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash-
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 12–1408
_________________
UNITED STATES, PETITIONER v. QUALITY
STORES, INC., ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE SIXTH CIRCUIT
[March 25, 2014]
JUSTICE KENNEDY delivered the opinion of the Court.
This case presents the question whether severance pay-
ments made to employees terminated against their will
are taxable wages under the Federal Insurance Contri-
butions Act (FICA), 26 U.S. C. §3101 et seq.
The Court of Appeals for the Sixth Circuit held that the
payments are not wages taxed by FICA. To reach its
holding, the Court of Appeals relied not on FICA’s defini-
tion of wages but on §3402(o) of the Internal Revenue
Code, a provision governing income-tax withholding. That
conclusion, for the reasons to be discussed, was incorrect.
FICA’s broad definition of wages includes the severance
payments made here. And §3402(o) does not alter that
definition. Section 3402(o) instructs that any severance
payment “shall be treated as if it were a payment of wages.”
According to the Court of Appeals, §3402(o) suggests
that the definition of wages for income-tax withholding
does not extend to severance payments; and so, the argu-
ment continues, severance payments also must be beyond
the terms of FICA’s similar definition. But §3402(o) is
entirely compatible with the proposition that some or all
2 UNITED STATES v. QUALITY STORES, INC.
Opinion of the Court
payments do fall within the broad definition of the term
wages. Section 3402(o) was enacted in response to a nar-
row, specific problem regarding income-tax withholding.
In addition, were the Court to rule that the severance
payments made here are exempt from FICA taxation but
not from withholding under §3402 for income-tax pur-
poses, it would contravene the holding in Rowan Cos. v.
United States, 452 U.S. 247 (1981), which held there
should be congruence in the rules for FICA and income-tax
withholding.
I
Quality Stores, Inc., an agricultural-specialty retailer,
entered bankruptcy proceedings in 2001. Before and
following the filing of an involuntary Chapter 11 bank-
ruptcy petition, respondents Quality Stores and affiliated
companies, all referred to here as Quality Stores, termi-
nated thousands of employees. The employees received
severance payments, which all parties to this case stipu-
late were the result of a reduction in work force or discon-
tinuance of a plant or operation. The payments were
made pursuant to one of two different termination plans.
(For reasons later to be explained, it should be noted that
neither termination plan tied severance payments to the
receipt of state unemployment compensation.)
Under the first plan, terminated employees received
severance pay based on job grade and management level.
The president and chief executive officer received 18
months of severance pay, senior managers received 12
months of severance pay, and other employees received
one week of severance pay for each year of service.
The second plan was designed to facilitate Quality
Stores’ postbankruptcy operations and encourage employ-
ees to put off their job searches. To receive severance pay,
employees had to complete their last day of service as
determined by the employer. Officers received between 6
Cite as: 572 U. S. ____ (2014) 3
Opinion of the Court
and 12 months of severance pay, and full-time employees
and employees paid by the hour received one week of
severance pay for every year of service if the employees
had been employed for at least two years, up to a stated
maximum of severance pay. Workers who had been em-
ployed for less than two years received a week of sever-
ance pay.
Quality Stores reported the severance payments as
wages on W–2 tax forms, paid the employer’s required
share of FICA taxes, and withheld employees’ share of
FICA taxes. Then Quality Stores asked 3,100 former
employees to allow it to file FICA tax refund claims for
them. About 1,850 former employees agreed to allow Qual-
ity Stores to pursue FICA refunds. On its own behalf and
on behalf of the former employees, Quality Stores filed for
a refund of $1,000,125 in FICA taxes. The Internal Reve-
nue Service neither allowed nor denied the claim.
Quality Stores initiated a proceeding in the Bankruptcy
Court seeking a refund of the disputed amount. The
Bankruptcy Court granted summary judgment in its
favor. The District Court and Court of Appeals for the
Sixth Circuit affirmed, concluding that severance pay-
ments are not “wages” under FICA. See In re Quality
Stores, Inc., 693 F.3d 605 (2012). Other Courts of Ap-
peals, however, have concluded that at least some sever-
ance payments do constitute wages subject to FICA tax.
See, e.g., CSX Corp. v. United States, 518 F.3d 1328 (CA
Fed. 2008); University of Pittsburgh v. United States, 507
F.3d 165 (CA3 2007); North Dakota State Univ. v. United
States, 255 F.3d 599 (CA8 2001). The United States,
claiming that the FICA taxes must be withheld, sought
review here; and certiorari was granted, 570 U. S. ___
(2013).
4 UNITED STATES v. QUALITY STORES, INC.
Opinion of the Court
II
A
The first question is whether FICA’s definition of “wages”
encompasses severance payments. The beginning point
is the relevant statutory text. Mississippi ex rel. Hood
v. AU Optronics Corp., 571 U. S. ___, ___ (2014) (slip op.,
at 5).
To fund benefits provided by the Social Security Act and
Medicare, FICA taxes “wages” paid by an employer or re-
ceived by an employee “with respect to employment.” 26
U.S. C. §§3101(a), (b), 3111(a), (b). Congress chose to
define wages under FICA “broadly.” Mayo Foundation for
Medical Ed. and Research v. United States, 562 U. S. ___,
___ (2011) (slip op., at 2). FICA defines “wages” as “all
remuneration for employment, including the cash value of
all remuneration (including benefits) paid in any medium
other than cash.” §3121(a). The term “employment”
encompasses “any service, of whatever nature, performed
. . . by an employee for the person employing him.”
§3121(b).
Under this definition, and as a matter of plain meaning,
severance payments made to terminated employees are
“remuneration for employment.” Severance payments are,
of course, “remuneration,” and common sense dictates that
employees receive the payments “for employment.” Sever-
ance payments are made to employees only. It would
be contrary to common usage to describe as a severance
payment remuneration provided to someone who has not
worked for the employer. Severance payments are made
in consideration for employment—for a “service . . . per-
formed” by “an employee for the person employing him,”
per FICA’s definition of the term “employment.” Ibid.
In Social Security Bd. v. Nierotko, 327 U.S. 358 (1946),
the Court interpreted the term “wages” in the Social Secu-
rity statutory context to have substantial breadth. In that
case a worker, who had been wrongfully terminated,
Cite as: 572 U. S. ____ (2014) 5
Opinion of the Court
sought to have his backpay counted as taxable wages for
the purpose of obtaining credits under the Social Security
system. The Court stated that the term “service,” used
with respect to Social Security, “means not only work
actually done but the entire employer-employee relation-
ship for which compensation is paid to the employee by the
employer.” Id., at 365–366.
As confirmation of that principle, severance payments
often vary, as they did here, according to the function and
seniority of the particular employee who is terminated.
For example, under both termination plans, Quality
Stores employees were given severance payments based on
job grade and management level. And under the second
termination plan, nonofficer employees who had served at
least two years with their company received more in sev-
erance pay than nonofficer employees who had not—a
standard example of a company policy to reward employ-
ees for a greater length of good service and loyalty.
In this respect severance payments are like many other
benefits employers offer to employees above and beyond
salary payments. Like health and retirement benefits,
stock options, or merit-based bonuses, a competitive sev-
erance payment package can help attract talented em-
ployees. Here, the terminations leading to the severance
payments were triggered by the employer’s involuntary
bankruptcy proceeding, a prospect against which employ-
ees may wish to protect themselves in an economy that is
always subject to changing conditions.
Severance payments, moreover, can be desirable from
the perspective of the employer as an alternative or sup-
plemental form of remuneration. In situations in which
Chapter 11 bankruptcy reorganization is necessary, an
employer may seek to retain goodwill by paying its termi-
nated employees well, thus reinforcing its reputation as a
worthy employer. Employers who downsize in a period of
slow business may wish to retain the ability to rehire
6 UNITED STATES v. QUALITY STORES, INC.
Opinion of the Court
employees who have been terminated.
A specific exemption under FICA for certain termina-
tion-related payments reinforces the conclusion that the
payments in question are well within the definition of
wages. Section 3121(a)(13)(A) exempts from taxable
wages any severance payments made “because of . . . retire-
ment for disability.” That exemption would be unneces-
sary were severance payments in general not within
FICA’s definition of “wages.” Cf. American Bank & Trust
Co. v. Dallas County, 463 U.S. 855, 864 (1983) (declining
to read a statute in a manner that would cause “spe-
cific exemptions” to be “superfluous”). FICA’s definitional
section, moreover, provides a lengthy list of specific ex-
emptions from the definition of wages. For example, FICA
exempts from wages payments on account of disability
caused by sickness or accident, cash payments made for
domestic service in a private home under a certain
amount, and cash tips less than a certain amount. See
§§3121(a)(2)(A), (7)(B), (12)(B). The specificity of these
exemptions reinforces the broad nature of FICA’s defini-
tion of wages.
FICA’s statutory history sheds further light on the text
of §3121, which defines the term “wages.” FICA was
originally enacted in Title VIII of the Social Security Act,
49 Stat. 636. (In 1939, Title VIII was transferred to the
Internal Revenue Code and became FICA. 53 Stat. 1387.)
Title VIII contained, in substance, definitions of “wages”
and “employment” identical to those FICA now provides.
See §811(a), 49 Stat. 639; §811(b), ibid. With respect to
the Social Security Act, in 1936 the Treasury Department
promulgated a regulation stating that the statutory defini-
tion of “wages” included “dismissal pay.” Bureau of Inter-
nal Revenue, Employees’ Tax and the Employers’ Tax
Under Title VIII of the Social Security Act, 1 Fed. Reg.
1764, 1769 (1936). Congress responded a few years later,
in 1939, by creating an exception from “wages” for
Cite as: 572 U. S. ____ (2014) 7
Opinion of the Court
“[d]ismissal payments which the employer is not legally
required to make.” Social Security Act Amendments of
1939, §606, 53 Stat. 1384 (codified at 26 U.S. C.
§1426(a)(4) (1940 ed.)).
In 1950, however, Congress repealed that exception.
Social Security Act Amendments, §203(a), 64 Stat. 525–
527. “When Congress acts to amend a statute, we pre-
sume it intends its amendment to have real and sub-
stantial effect.” Stone v. INS, 514 U.S. 386, 397 (1995).
Congress has not revisited its 1950 amendment; and since
that time, FICA has contained no exception for severance
payments.
B
The next question is whether §3402(o) of the Internal
Revenue Code relating to income-tax withholding is a
limitation on the meaning of “wages” for FICA purposes.
Section 3402 provides:
“(o) Extension of withholding to certain pay-
ments other than wages.
“(1) General rule
“For purposes of this chapter (and so much of subti-
tle F as relates to this chapter)—
“(A) any supplemental unemployment compensation
benefit paid to an individual,
. . . . .
“shall be treated as if it were a payment of wages by an
employer to an employee for a payroll period.”
(Pursuant to stipulations by the parties, the Court of
Appeals determined that the severance payments consti-
tute “supplemental unemployment compensation bene-
fits,” or SUBs. See §3402(o)(2)(A). The Court assumes, for
purposes of this case, that this premise is correct.)
Quality Stores argues that §3402(o)’s instruction that
SUBs be treated “as if ” they were wages for purposes of
8 UNITED STATES v. QUALITY STORES, INC.
Opinion of the Court
income-tax withholding is an indirect means of stating
that the definition of wages for income-tax withholding
does not cover severance payments. It contends, further,
that if the definition of wages for purposes of income-tax
withholding does not encompass severance payments, then
severance payments are not covered by FICA’s similar
definition of wages.
The Court disagrees that §3402(o) should be read as
Quality Stores suggests. The chapter governing income-
tax withholding has a broad definition of the term “wages”:
“all remuneration . . . for services performed by an em-
ployee for his employer, including the cash value of all
remuneration (including benefits) paid in any medium
other than cash.” §3401(a). The definitional section for
income-tax withholding, like the definitional section for
FICA, contains a series of specific exemptions that rein-
force the broad scope of its definition of wages. The provi-
sion exempts from wages, for example, any remuneration
paid for domestic service in a private home, for services
rendered to a foreign government, and for services per-
formed by a minister of a church in the course of his du-
ties. §§3401(a)(3), (5), (9). Severance payments are not
exempted, and they squarely fall within the broad textual
definition of wages for purposes of income-tax withholding
under §3401(a), for the same reasons outlined above with
respect to FICA’s similar definition of wages.
Quality Stores contends that, the broad wording of the
definition in §3401(a) aside, severance payments must fall
outside the definition of wages for income-tax withholding.
Otherwise, it argues, §3402(o) would be superfluous. But,
as the Government points out, §3402(o)’s command that
all severance payments be treated “as if ” they were wages
for income-tax withholding is in all respects consistent
with the proposition that at least some severance pay-
ments are wages. As the Federal Circuit explained when
construing §3402(o), the statement that “all men shall be
Cite as: 572 U. S. ____ (2014) 9
Opinion of the Court
treated as if they were six feet tall does not imply that no
men are six feet tall.” CSX Corp., 518 F.3d, at 1342.
In the last of its textual arguments, Quality Stores
draws attention to the boldface heading of §3402(o), which
states, “Extension of withholding to certain payments
other than wages.” It contends the heading declares that
the payments enumerated within §3402(o) are “other than
wages.” Captions, of course, can be “a useful aid in resolv-
ing” a statutory text’s “ambiguity.” FTC v. Mandel Broth-
ers, Inc., 359 U.S. 385, 388–389 (1959). But Quality
Stores cannot rely on the statutory heading to support its
argument that §3402(o), without ambiguity, excludes all
severance payments from the definition of wages. The
heading states that withholding is extended to “certain
payments.” This falls short of a declaration that all the
payments listed in §3402(o) are not wages.
Next, the regulatory background against which §3402(o)
was enacted illustrates the limited nature of the problem
the provision was enacted to address. For this purpose, it
is instructive to concentrate on the statutory term “sup-
plemental unemployment benefits,” which defines the
scope of §3402(o)’s income-tax withholding mandate.
The concept of SUBs originated in labor demands for a
guaranteed annual wage. When it became clear this was
“impractical in their industries, unions such as the Steel-
workers and the United Auto Workers transformed their
guaranteed annual wage demands into proposals to sup-
plement existing unemployment compensation programs.”
Coffy v. Republic Steel Corp., 447 U.S. 191, 200 (1980). A
SUB plan, as originally conceived, offered “second-level
protection against layoff ” by supplementing unemploy-
ment benefits offered by the States. Ibid.
In the 1950’s, major American employers such as Ford
Motor Company adopted SUB plans of this type, agreeing
to fund trusts that would provide SUBs to terminated
employees. For example, Ford’s contract with employees
10 UNITED STATES v. QUALITY STORES, INC.
Opinion of the Court
defined the concept of SUBs as the receipt of “both a state
system unemployment benefit and a Weekly Supplemental
Benefit . . . without reduction of the state system unem-
ployment benefit because of the payment of the Weekly
Supplemental Benefit.” Note, Effect of Receiving Supple-
mental Unemployment Benefits on Eligibility for State
Benefits, 69 Harv. L. Rev. 362, 364, n. 11 (1955); see
J. Becker, Guaranteed Income for the Unemployed: The
Story of SUB (1968). Employer plans that provided SUBs
sought “to provide economic security for regular employ-
ees” and “to assure a stable work force through periods of
short-term layoffs.” Coffy, supra, at 200.
But an obstacle arose. For these plans to work, it was
necessary to avoid having the SUBs defined under federal
law as “wages.” That was because some States only pro-
vided unemployment benefits if terminated employees
were not earning “wages” from their employers. See Brief
for United States 29; CSX Corp., supra, at 1334–1335;
Note, 69 Harv. L. Rev., at 366 (“The typical state unem-
ployment compensation statute provides that ‘an individ-
ual shall be deemed unemployed in any week with respect
to which no wages are payable to him and during which he
performs no services . . .’ ” (ellipsis and emphasis in origi-
nal)); id., at 367 (“[S]tates tend to treat as ‘wages’ those
items which the federal government treats as ‘wages’ ”).
The inability of terminated employees to receive state
unemployment benefits, of course, would render SUBs far
less useful to them and their employers. Employers, as a
consequence, undertook to ensure that the Federal Gov-
ernment did not construe benefits paid out by SUB plans
as “wages.” CSX Corp., supra, at 1334–1335.
In at least partial response to the prospect of differential
treatment of SUBs based on the vagaries of state law, the
IRS promulgated a series of Revenue Rulings in the 1950’s
and 1960’s that took the position that SUB payments were
not “wages” under FICA as well as for purposes of income-
Cite as: 572 U. S. ____ (2014) 11
Opinion of the Court
tax withholding. Rev. Rul. 56–249, 1956–1 Cum. Bull.
488; see Rev. Rul. 58–128, 1958–1 Cum. Bull. 89; Rev. Rul.
60–330, 1960–2 Cum. Bull. 46; see also IRS Technical
Advice Memorandum 9416003, 1993 WL 642695 (Apr. 22,
1994) (hereinafter TAM 9416003).
Although the IRS exempted SUBs paid to terminated
employees from withholding for income-tax purposes, the
payments still were considered taxable income. Rev. Rul.
56–249, 1956–1 Cum. Bull. 488. As a result, terminated
employees faced significant tax liability at the end of
the year. The Treasury Department suggested Congress
authorize the agency to promulgate regulations allowing
voluntary withholding. Statements and Recommenda-
tions of the Department of the Treasury: Hearings on
H. R. 13270 before the Senate Committee on Finance, 91st
Cong., 1st Sess., 905–906 (1969).
In 1969, Congress chose instead to address the with-
holding problem by enacting §3402(o). It provides that all
severance payments—that is, both SUBs as well as sever-
ance payments that the IRS considered wages—shall be
“treated as if ” they were wages for purposes of income-tax
withholding. It is apparent that the definition Congress
adopted in §3402(o) is not limited to the SUBs that the
IRS had deemed exempt from wages under FICA. See
§3402(o)(2)(A). It must be presumed that Congress was
aware that §3402(o) covered more than the severance
payments that were excluded from income-tax withhold-
ing. Not all severance payment plans were tied to state
unemployment benefits; and, before §3402(o)’s 1969 en-
actment, the IRS ruled that severance payments not
linked to state unemployment benefits were wages for
purposes of income-tax withholding. See Rev. Rul. 65–
251, 1965–2 Cum. Bull. 395; see also TAM 9416003 (the
IRS’ original 1956 exception for SUBs provided “a limited
exception from the definition of wages for . . . federal
income tax withholding . . . only if the payments are de-
12 UNITED STATES v. QUALITY STORES, INC.
Opinion of the Court
signed to supplement the receipt of state unemployment
compensation and are actually tied to state unemployment
benefits”); ibid. (“SUB-pay plans must be designed to
supplement unemployment benefits . . .”).
Once this background is understood, the Court of Ap-
peals’ interpretation of §3402(o) as standing for some
broad definitional principle is shown to be incorrect.
Although Congress need not have agreed with the Reve-
nue Rulings to enact §3402(o), its purpose to eliminate
the withholding problem caused by the differential treat-
ment of severance payments is the necessary background
to understand the meaning and purpose of the provision.
The problem Congress sought to resolve was the prospect
that terminated employees would owe large payments in
taxes at the end of the year as a result of the IRS’ exemp-
tion of certain SUBs from withholding. It remained possi-
ble that the IRS would determine that other forms of SUB
plans, perhaps linked differently to state unemployment
benefits, should be exempt from withholding. If Congress
had only incorporated the Revenue Rulings already in
effect, that response may have risked the withholding
problem arising once again. On the other hand, by draw-
ing a withholding requirement that was broader than
then-current IRS exemptions, Congress avoided these
practical problems. A requirement that a form of remu-
neration already included as wages be treated “as if ” it
were wages created no administrative difficulties.
The Court of Appeals understood Congress’ decision to
include within §3402(o) a larger set of SUBs than was
already exempt from withholding under IRS Revenue
Rulings to mean that all SUBs were excluded from the
definition of wages. But that assumption, although in the
abstract not necessarily an illogical inference, is unsus-
tainable, considering the regulatory background against
which §3402(o) was enacted. Congress interpreted the
Revenue Rulings not at all as a definitive gloss on the
Cite as: 572 U. S. ____ (2014) 13
Opinion of the Court
meaning of the term “wages” in §3401. The better reading
is that Congress determined that, whatever position the
IRS took with respect to certain categories of severance
payments, the problem with withholding should be solved
by treating all severance payments as wages requiring
withholding.
The necessary conclusion is that §3402(o) does not nar-
row the term “wages” under FICA to exempt all severance
payments. This reasoning is consistent with Rowan, a
previous decision interpreting FICA. In Rowan, the Court
held that Treasury Regulations interpreting “wages”un-
der FICA to include the value of meals and lodging were
invalid. The Government conceded, for income-tax pur-
poses, that the taxpayer in Rowan was correct to exempt
the value of the meals and lodging in computing the wages
properly withheld under §3402. 452 U.S., at 250–251.
But it argued, nevertheless, that the value of the meals
and lodging was taxable as wages under FICA, pursuant
to Treasury Regulations. The Rowan Court observed that
the definition of wages under FICA was in substance the
same as for purposes of withholding. Id., at 255. The
Court read that similarity to be “strong evidence that
Congress intended ‘wages’ to mean the same thing under
FICA . . . and income-tax withholding.” Ibid. To support
that conclusion, the Court noted a “congressional concern
for ‘the interest of simplicity and ease of administration.’ ”
Ibid. (quoting S. Rep. No. 1631, 77th Cong., 2d Sess., 165
(1942)). Because “Congress intended . . . to coordinate the
income-tax withholding system with FICA” in order “to
promote simplicity and ease of administration,” the Court
held that it would be “extraordinary” for Congress to
intend the definitions of “wages” to vary between FICA
and income-tax withholding. 452 U.S., at 257.
The specific holding of Rowan—that regulations govern-
ing meals and lodging were invalid—has little or no
bearing on the issue confronting us here. What is of im-
14 UNITED STATES v. QUALITY STORES, INC.
Opinion of the Court
portance is the major principle recognized in Rowan: that
simplicity of administration and consistency of statutory
interpretation instruct that the meaning of “wages” should
be in general the same for income-tax withholding and for
FICA calculations.
Quality Stores contends that, under the mandate of
§3402(o), severance payments are not subject to FICA
taxation but are to be deemed wages for purposes of
income-tax withholding. It justifies this differential treat-
ment in the name of uniformity. But that so-called uni-
formity as to the definitions of wages (i.e., that severance
payments are not wages) is not consistent with the broad
textual definitions of wages under FICA and income-tax
withholding. Nor is it consistent with this Court’s holding
that administrative reasons justify treating severance
payments as taxable for both FICA and income-tax pur-
poses. To read Congress’ command to withhold severance
payments as an implicit overruling of the broad definition
of wages in FICA would disserve the statutory text and
the congressional interest in administrative simplicity
deemed controlling in Rowan.
In concluding, the Court notes that the IRS still pro-
vides that severance payments tied to the receipt of state
unemployment benefits are exempt not only from income-
tax withholding but also from FICA taxation. See, e.g.,
Rev. Rul. 90–72, 1990–2 Cum. Bull. 211. Those Revenue
Rulings are not at issue here. Because the severance
payments here were not linked to state unemployment
benefits, the Court does not reach the question whether
the IRS’ current exemption is consistent with the broad
definition of wages under FICA.
* * *
The severance payments here were made to employees
terminated against their will, were varied based on job
seniority and time served, and were not linked to the
Cite as: 572 U. S. ____ (2014) 15
Opinion of the Court
receipt of state unemployment benefits. Under FICA’s broad
definition, these severance payments constitute taxable
wages. The judgment of the Court of Appeals for the Sixth
Circuit is reversed, and the case is remanded for further
proceedings consistent with this opinion.
It is so ordered.
JUSTICE KAGAN took no part in the consideration or
decision of this case.