Payroll Tax Refunds on Severance

FAQ

We are excited about a new opportunity to serve our clients, both individuals and business by helping you get more of your own money back from the IRS. This page provides information on who qualifies for this opportunity and how to start the claim process and a recent press release on the topic. For most people who qualify, it is worth between $1,000 - $5,000.

Firm Files 40 Social Security Tax Refund Claims Totaling Almost $80,000

Eckelkamp & Associates, has filed claims with the IRS to recover almost $80,000 of Social Security (FICA) taxes unnecessarily withheld from 40 employees' severance pay received from a variety of employers nationwide. The jobs were lost from 2000 to the present in the corporate downsizing wave. We project the total claims filed by the end of the year for our clients will exceed half a million dollars. Joe, Diane, and Mary Ellen all work on the project. A 13-year old court case recently decided that severance payments often aren't wages, but rather supplemental unemployment benefits. An average employee's claim is about $2,000.

The activity to date represents just the tip of the iceberg. Think of all the people affected by the economic downturn over the past several years. Even though we haven't publicized this at all, we've already identified over 45 more clients with potential claims. Moreover, we've yet to lose on a claim and we were recently upheld in an Appeals Hearing. We have also involved the Taxpayer Advocate Service to address the issue systemically nationwide.

The good news gets better when you realize that those benefiting most are people hurt the worst: middle income wage-earners. People with high incomes usually only benefit by 1.45% of their severance pay while those making under $85,000 typically get a 7.65% benefit. As an example, a $60,000/year worker who receives 12 weeks of severance (or $15,000) could potentially receive a refund of $1,148 while a high paid executive with a severance package of $75,000 may only get $1,088. Either way, it's found money. And it's more likely to benefit people with longer work gaps.

Most big accounting firms are working on getting their large corporate clients refunds of their portion of FICA tax paid on severance while bypassing similar refunds for individual employees and smaller corporate clients

We, on the other hand, are focusing on individuals and employers with 25 to 1,000 employees. We've always focused on delivering big firm talent affordably to those people under the large CPA firms' radar. Even companies with only 10 severed employees may be able to recover $20-25,000. Any company that paid a total of $45,000 in severance and any employee who received over $10,000 in severance since December 31, 2000 owes it to themselves to investigate this opportunity!

Not everyone qualifies. For example, those going from full-time to part-time, under collective bargaining agreements, or taking "early retirement packages" often aren't eligible. But that's only a small percentage of severed workers.

IRS rules make it unattractive for companies to stop withholding FICA/Medicare on severance payments made to former employees. It is normally only possible to get the money back by actually filing a claim. The IRS places too much liability on companies to see them cease the withholdings.

The claim process is tedious and cumbersome and requires knowledge of specific IRS protocols; so trying to claim it on your own can be difficult. In addition, there is a three-year statue of limitations, which limits the time frame for someone to file their claim. This is why we stress serving those receiving or paying severance since December 31, 2000. It is important to note that E&A only gets paid for successful claims.

Don't expect the ability to apply for a refund to last forever. We encourage you to move quickly, or you might get left behind. If you think of the public policy implications this has on an already strained Social Security System, you will realize the IRS will probably want to limit this opportunity in the near future.

For more information, please call 314-849-7555 and ask for Mary Ellen or email her at maryellen@eckelkampandassociates.com.

Frequently Asked Questions and Answers

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• How much am I likely to get?
• How far back does this go?
• Does this increase my chances of an audit?
• Do I need anything from my former employer?
• I'm not an E&A client right now. What will you need from me?
• I'm not sure if I qualify. How do I find out?
• Why do you need my old tax returns if you aren't amending them?
• What if I haven't filed my income tax return? Can I still file for this?
• Does it matter if I received my severance in a lump sum or continued on as a "consultant"?
• What does this service cost me?
• I'm not in St. Louis. Can you still help me?

How much am I likely to get?

It depends on many factors, including the amount of severance, timing within the year, your other wage income, etc. Most of our clients are getting between $1,500 and $3,000 back - with $2,000 being the average.

How far back does this go?

A three-year statue of limitations applies from the date your return was due or was filed. So, individual taxpayers can file claims for severance paid as far back as 2001 through the present. The same statute applies to businesses, but it is tied to the filing of quarterly payroll tax returns (941s).

Does this increase my chances of an audit?

We don't believe so. It doesn't affect your income tax return, so the IRS should treat it separately. We do expect the IRS to look at each claim filed and that's a good thing. It means they are unlikely to reverse their decision at a later date.

Do I need anything from my employer?

Not normally. If you have your severance agreement and/or paystubs indicating the actual amount of severance paid, we should have all we need. We send letters to the employers to ensure they aren't filing on your behalf, but they aren't required to respond.

I'm not an E&A client right now. What will you need from me?

In most cases, all we need is something showing the payment of the severance; your personal tax return for the year(s) in question, the name and tax ID of the employer (from your W2), your last day of employment, your W-2s for the year(s) you received severance, and your signature on some forms which we will complete and send to you. It's really pretty painless. And even if you are missing this information, we generally can get it another way. We've already served more than 10 people who weren't E&A clients before now.

I'm not sure if I quality. How do I find out?

Just call us at 314-849-7555 and we'll let you know whether it's worth pursuing after asking just 4-5 questions.

Why do you need my old tax returns if you aren't amending them?

Because they contain information we need to determine your claim amount, such as wages earned for the full year, your W-2 information and if you received a refund of excess FICA withholdings.

What if I haven't filed my income tax return?

You can still file a claim under this program. We'll just need copies of all your W-2s for that year. And, of course, we'll be pleased to prepare those incomplete income tax returns for you.

Does it matter if I received my severance in a lump sum or continued on as a "consultant"?

Normally, yes. The IRS holds that the severance must be paid over time and that you cannot be "in the same capacity", regardless of how you are paid. However, these are not absolutes, so please call us to find out for sure.

What does this service cost me?

Nothing if we aren't successful. We only get our fee upon successful resolution and then it's a percentage of the amount recovered.

I'm not in St. Louis. Can you help me?

Yes. We've already pursued claims for clients from coast to coast and in many states in between.

If you are interested in exploring this further, without any obligation, please let us know how you would like to proceed by contacting Mary Ellen at 314-849-7555. Or, complete the following: