United States v. Quality Stores, Inc. (12-1408)

argument 12-1408

United States v. Quality Stores, Inc.

Supreme Court of the United States 39 min 4 speakers 8 chapters transcribed 6 days ago official recording ↗

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What is the Court’s definition of wages under FICA and why does it matter?

John G. Roberts 0:01

We'll hear an argument in Case 12-1408, United States v. Quality Stores. Mr. Fagan.

Unknown 0:07

Thank you, Mr. Chief Justice, and may it please the Court. The payments in this case fall squarely within FICA's basic definition of wages, which includes all remuneration for employment. Consistent with the purpose of FICA to fund the Social Security and Medicare programs, this Court has construed the term employment broadly to encompass the entire employer-employee relationship. The payments here, which were paid only to respondents' employees and were keyed to the employees' positions, salary levels, and length of service, clearly were part of the employer-employee relationship. Two particular features of the statute I think make especially clear that separation-related payments like this are covered.

Unknown 0:47

First, the basic definition of wages, both historically and currently, has been subject to specific exclusions for certain types of separation related pay, such as retirement pay. Those exclusions would be unnecessary if the basic definition of wages didn't cover separation related payments. Second, one of the historical exclusions, which was in the statute from 1939 to 1950, was for certain types of dismissal payments. When Congress eliminated the exception for certain types of dismissal payments in 1950, The accompanying House report made clear what would already have been in any event implicit in the repeal itself, which is that from that point forward, all dismissal payments which were Congress understood in the House report to include any payment on account of an employee's involuntary separation would be considered wages under FICA.

Unknown 1:42

Respondents' reliance in this case on Section 34020 is misplaced. Section 34020 is a substantive rule of income tax withholding that is expressly limited in its effect to Chapter 24, which is the income tax withholding chapter. and related procedural provisions. It has no bearing on the definition of wages for purposes of FICA. In any event — JUSTICE SOTOMAYOR. Well, don't we have a decision that says that the term wages should be interpreted the same way for FICA purposes and income tax? MR. Well, two points about that, Your Honor. First of all, nothing in this Court's decision in Rowan suggests that this Court or any Court needs to look to substantive rules of income tax withholding to determine the basic definition of wages for purposes of FICA.

Unknown 2:35

I think it's clear from the preamble to Section 34020 that Congress was focused on Chapter 24 and was trying to solve a specific problem within Chapter 24, the income tax withholding chapter, and it didn't intend to send essentially shock waves through the Internal Revenue Code that would affect the definition of wages in other chapters. Second, Respondent's view, I think, would undercut the basic principle animating Rowan, which is the idea that the definitions of wages should be congruent for purposes of administrability. Respondents reading, which would say that none of the payments specified in Section 3402.02a can possibly be considered wages for FICA purposes, but nevertheless must be treated as wages for withholding purposes, would require employers to keep separate track of wages for the two different purposes and report them separately when they do W-2 forms for the employees or their own 941 tax returns.

Unknown 3:32

Now, respondents have conceded that Section 34020 did not modify the preexisting definition of wages under either FICA or the income tax withholding chapter. Instead, their argument seems to be that the definition of wages in FICA, even before Section 34020 was enacted — contained a hole precisely the size and shape of the definition of supplemental unemployment compensation benefits that Congress later codified in Section 340202A. Now, they haven't pointed to a single statutory provision, regulation, or revenue ruling that would have given Congress that view. There's simply no reason to believe that that hole existed before. before the enactment of Section 34020 and it's common ground that doesn't exist after Section 34020.