As a result of financial difficulties, Acme Company, located in Raleigh, North Carolina, closed all its retail stores and terminated all its employees. The company adopted a plan to compensate terminated employees based on job grade and management level, and each terminated employee received a severance payment as a lump-sum payment. The payments were treated as taxable income to the employees for federal income tax purposes, and Acme reported the payments as wages on W-2 forms. Do the company and the laid-off workers owe Social Security and Medicare taxes on the payments?
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