Ongoing negotiations between the CNMI government and the U.S. Department of Treasury could lead to exemptions in federal tax payments for Filipino and Korean workers with transitional Commonwealth-only worker status, along with their employers already burdened with federal immigration uncertainties and financial hardships.
Lt. Gov. Eloy S. Inos said yesterday that the CNMI's withdrawal of its lawsuit against U.S. Treasury and the Internal Revenue Services opened the door for both parties to engage in “active discussions” that he said could lead to the tax exemptions for these foreign workers and their employers.
“I believe it's going to work out okay,” Inos said in an interview yesterday at the recognition ceremony for Good Samaritan and Saipan resident Kanis Sinounou at the governor's office.
Inos pointed out, however, that there's no agreement reached yet.
Carlito Marquez, a worker' advocate, said yesterday that the exemption of Filipino and Korean workers from paying FICA taxes will be a “big relief.”
Marquez said there have been workers with FICA tax deductions since early this year that have already gone back home but were not able to refund. He said by stopping the deductions soon, these workers would have more money in their pockets, and their employers don't have to incur additional expenses.
“Hopefully it will happen soon. Many are concerned that because of uncertainties in immigration, they would be forced to leave the CNMI and do not benefit from the FICA tax that's being deducted from their paychecks,” he said.
The CNMI government's previous lawsuit said that the extension of FICA taxes on Filipino and Korean workers could result in the imposition of $24 million annually in “illegal taxes” on the CNMI economy.
FICA stands for Federal Insurance Contribution Act.
FICA taxes include U.S. Social Security and Medicare. Both employers and employees share the cost of paying these taxes.
Inos recently met in Washington, D.C. with U.S. Treasury Assistant Secretary for Tax Policy Mark Mazur on the FICA exemption for Filipino and Korean workers.
He said there will be follow-up discussions.
Inos said once an agreement is reached that exempts Filipino and Korean workers from paying FICA taxes, “they have to file for an application for refund, and that the funds will have to be refunded.”
This application for refund has to be filed with IRS.
“We're fast-tracking it because it's a drain in the resources especially for the employers. For the employees, it translates into benefits. at some future date. But for the employers, if it's not an appropriate assessment then that's money that they cannot reinvest in the economy and so it would have to be addressed expeditiously,” Inos added.
An employee earning the CNMI minimum wage of $5.05 an hour and works 40 hours per week for 52 weeks in a year would have 2,080 hours or $10,504 in gross income. If he is subject to a FICA tax rate of 7.65 percent, he would incur an annual liability of $803.
An employer paying an employee $10,504 per year who is subject to FICA liability of 7.65 percent would incur $803 in annual tax liability for the wages paid to that employee.