(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 involuntarily terminated as part of Quality Stores’ Chapter 11 bankruptcy.

Payments—which were made pursuant to plans that did not tie payments 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 payments should not have been taxed as wages under FICA, Quality

Stores sought a refund on behalf of itself and about 1,850 former employees. When the Internal Revenue Service (IRS) did not allow or

deny the refund, Quality Stores initiated proceedings in the Bankruptcy 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 employment.” §3121(a). As a matter of plain meaning, severance payments

fit this definition: They are a form of remuneration made only to employees in consideration for employment. “Employment” is “any service . . . performed . . . by an employee” for an employer. §3121(b).

By varying according to a terminated employee’s function and seniority, the severance payments at issue confirm the principle that “service” “mea[ns] not only work actually done but the entire employeremployee relationship for which compensation is paid.” Social Security 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 definitions 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 withholding 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” instruction does not mean that severance payments fall outside the definition 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 ambiguity, 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 understood in terms of the regulatory background against which it was enacted. In the 1950’s and 1960’s, because some States provided unemployment benefits only to terminated employees not earning wages,

IRS Rulings took the position that severance payments tied to the receipt 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 determined that SUBs besides severance payments linked to state benefits 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 interpretation 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 consideration 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, Washington, 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 payments made to employees terminated against their will 

are taxable wages under the Federal Insurance Contributions 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 definition 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 argument 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 narrow, 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 purposes, 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 bankruptcy petition, respondents Quality Stores and affiliated 

companies, all referred to here as Quality Stores, terminated thousands of employees. The employees received 

severance payments, which all parties to this case stipulate were the result of a reduction in work force or discontinuance 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 employees 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 employed for less than two years received a week of severance 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 Quality 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 Revenue 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 payments are not “wages” under FICA. See In re Quality 

Stores, Inc., 693 F. 3d 605 (2012). Other Courts of Appeals, however, have concluded that at least some severance 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 received 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.” Severance 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 . . . performed” 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 Security 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 relationship 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 severance pay than nonofficer employees who had not—a

standard example of a company policy to reward employees 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 severance payment package can help attract talented employees. Here, the terminations leading to the severance 

payments were triggered by the employer’s involuntary

bankruptcy proceeding, a prospect against which employees 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 supplemental form of remuneration. In situations in which 

Chapter 11 bankruptcy reorganization is necessary, an

employer may seek to retain goodwill by paying its terminated 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 termination-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 . . . retirement for disability.” That exemption would be unnecessary 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 “specific exemptions” to be “superfluous”). FICA’s definitional 

section, moreover, provides a lengthy list of specific exemptions 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 definition 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 definition of “wages” included “dismissal pay.” Bureau of Internal 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 presume it intends its amendment to have real and substantial 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 payments other than wages. 

“(1) General rule

“For purposes of this chapter (and so much of subtitle 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 constitute “supplemental unemployment compensation benefits,” 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 incometax withholding has a broad definition of the term “wages”:

“all remuneration . . . for services performed by an employee 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 reinforce the broad scope of its definition of wages. The provision 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 performed by a minister of a church in the course of his duties. §§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 payments 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 resolving” a statutory text’s “ambiguity.” FTC v. Mandel Brothers, 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 “supplemental 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 Steelworkers and the United Auto Workers transformed their 

guaranteed annual wage demands into proposals to supplement 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 unemployment 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 unemployment benefit because of the payment of the Weekly 

Supplemental Benefit.” Note, Effect of Receiving Supplemental 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 employees” 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 provided 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 unemployment compensation statute provides that ‘an individual 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 original)); 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 Government 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-
 

 

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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 Recommendations 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 withholding problem by enacting §3402(o). It provides that all

severance payments—that is, both SUBs as well as severance 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 withholding. Not all severance payment plans were tied to state 

unemployment benefits; and, before §3402(o)’s 1969 enactment, 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 Appeals’ interpretation of §3402(o) as standing for some 

broad definitional principle is shown to be incorrect.

Although Congress need not have agreed with the Revenue Rulings to enact §3402(o), its purpose to eliminate 

the withholding problem caused by the differential treatment 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’ exemption of certain SUBs from withholding. It remained possible 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 drawing a withholding requirement that was broader than

then-current IRS exemptions, Congress avoided these 

practical problems. A requirement that a form of remuneration 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 unsustainable, 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 narrow 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”under FICA to include the value of meals and lodging were

invalid. The Government conceded, for income-tax purposes, 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 governing 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 treatment in the name of uniformity. But that so-called uniformity 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 purposes. 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 provides that severance payments tied to the receipt of state 

unemployment benefits are exempt not only from incometax 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.