Is severance pay considered taxable wages under FICA?

Severance pay is indeed considered taxable wages under FICA (Federal Insurance Contributions Act). This taxation applies because severance pay is treated as compensation for services rendered to an employer. When an employee receives severance pay, it is essentially a payout resulting from the employer-employee relationship, which meets the criteria for taxable wages.

FICA consists of Social Security and Medicare taxes, both of which are applied to wages, salaries, and tips received by employees. Since severance pay is classified as wages, it is subject to these taxes just like regular paychecks. Employers are required to withhold FICA taxes from the severance payments and remit them to the IRS.

It's important to note that unlike some other forms of income which may have different tax implications (such as gifts or certain public assistance), severance pay lacks any special exemptions under FICA. Thus, all severance pay received is fully taxable under this framework. This understanding is crucial for employees to properly anticipate their tax obligations following termination of employment.