Currently, there is a circuit split on the issue of whether early retirement payments (ERPs) made to tenured faculty constitute wages subject to Federal Insurance Contribution Act (FICA) taxation. In North Dakota State University v. United States, the Eighth Circuit held that ERPs made to tenured faculty do not constitute FICA wages because such payments are made to purchase the constitutionally protected property interest that tenured faculty hold in their tenure rights. However, the Sixth and Third Circuits, in Appoloni v. United States and University of Pittsburgh v. United States respectively, held that such payments do constitute FICA wages because the ERPs were made in consideration of past service within the employment relationship. This issue of whether ERPs made to tenured faculty constitute wages subject to FICA taxation is a recurring and costly issue that requires resolution. First, a primary concern of the federal tax system is the avoidance of disparate treatment between similarly situated taxpayers. Second, beyond achieving the ideal of uniform treatment under the federal tax system, taxpayers simply need to know what actions to take-the what, when, why, and how of both tax compliance and tax planning. Furthermore, this is a crucial issue for not only the individual taxpayer, but for the associated institutions as well.
Note, Question of Purpose: Early Retirement Payments to Tenured Professors Constitute Wages Subject to FICA Taxation, 58 Clev. St. L. Rev. 217 (2010)