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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 defi-
nitions  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  Since that exception was repealed in 1950, FICA has contained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 with-
holding  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” instruc-
tion  does  not  mean  that  severance  payments  fall  outside  the  defini-
tion 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 am-
biguity,  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 under-
stood in terms of the regulatory background against which it was en-
acted.  In the 1950’s and 1960’s, because some States provided unem-
ployment  benefits  only  to  terminated  employees  not  earning  wages,
IRS Rulings took the position that severance payments tied to the re-
ceipt 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  de-
termined that SUBs besides severance payments linked to state ben-
efits 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  interpreta-
tion  instruct  that  the  meaning  of  “wages”  should  be  in  general  the
same  for  income-tax  withholding  and  for  FICA  calculations.    Pp. 7–