Supreme Court

Supreme Court rules companies must be taxed on severance payments

A view of the Supreme Court in Washington, Wednesday, June 27, 2012. Saving its biggest case for last, the Supreme Court is expected to announce its verdict Thursday on President Barack Obama's health care law. The outcome is likely to be a factor in the presidential campaign and help define John Roberts' legacy as chief justice. But the court's ruling almost certainly will not be the last word on America's tangled efforts to address health care woes.   (AP Photo/Evan Vucci)

A view of the Supreme Court in Washington, Wednesday, June 27, 2012. Saving its biggest case for last, the Supreme Court is expected to announce its verdict Thursday on President Barack Obama's health care law. The outcome is likely to be a factor in the presidential campaign and help define John Roberts' legacy as chief justice. But the court's ruling almost certainly will not be the last word on America's tangled efforts to address health care woes. (AP Photo/Evan Vucci)  (AP )

The Supreme Court says employers must pay Social Security and Medicare taxes on severance packages given to workers who were laid off involuntarily.

The justices ruled 8-0 that retailer Quality Stores Inc. was not allowed to receive a tax refund for the payments made to 1,850 former employees let go after the company filed for bankruptcy. Justice Elena Kagan did not take part in the decision.

The decision reverses rulings by the 6th U.S. Circuit Court of Appeals and a federal district court, which found the payments were not considered taxable wages.

The high court's decision is a victory for the Obama administration. Justice Department lawyers argued that the government could face more than $1 billion in tax refund claims from other employers if the lower court decision was upheld.