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employment”).14 For example, in Kroposki v. Commissioner, T.C.
Memo. 1997-563, we held that certain payments constituted
severance pay because they were determined under a schedule
generally applicable to laid-off employees, based on years of
service and base salary. Likewise, in Webb v. Commissioner, T.C.
Memo. 1996-50, we held that an amount a terminated employee
received was severance pay because it was made on the basis of
tenure. See also Broedel v. Commissioner, T.C. Memo. 2001-135.
Third, for Federal income tax and withholding purposes,
severance pay is treated in the same manner as salary and wages.
Under section 61(a), which defines gross income, compensation for
services includes salaries, wages, as well as termination or
severance pay. Sec. 1.61-2(a)(1), Income Tax Regs. Under the
employment tax provisions, employers are required to withhold
Federal income tax from severance payments in the same manner as
salary or wages: “Any payments made by an employer to an
employee on account of dismissal, that is, involuntary separation
14 The Court of Appeals for the Second Circuit has defined
“severance pay” as:
“a form of compensation for the termination of the
employment relation, for reasons other than the
displaced employees’ misconduct, primarily to alleviate
the consequent need for economic readjustment but also
to recompense him for certain losses attributable to
the dismissal.” [Straus-Duparquet, Inc. v. Local Union
No. 3, IBEW, 386 F.2d 649, 651 (2d Cir. 1967) (quoting
Adams v. Jersey Cent. Power & Light Co., 120 A.2d 737,
740 (N.J. 1956)).]
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