Payroll deduction for U.S. Social Security and Medicare taxes among most Filipino and Korean workers as a result of federalization of CNMI immigration is drawing opposing views from affected employees, employers, and government officials amid a weak economy, work hour cuts, and joblessness.
Many raised concern about insufficient information from the U.S. Internal Revenue Service, the U.S. Department of Homeland Security, or other federal agencies whether, among other things, affected foreign workers could benefit from paying these taxes, especially if they are forced to leave the CNMI after the end of the transition period in 2014 or earlier.
IRS said that Filipino workers in the CNMI are no longer exempt from the Federal Income Tax Act, even as the U.S. Government Accountability Office had been unsure in July about the FICA tax coverage of Filipino and Korean workers.
FICA covers U.S. Social Security and Medicare taxes.
Some employees and employers are unsure whether the payment of FICA taxes should have covered the date after Nov. 27, 2011, the expiration of CNMI-issued umbrella permits for foreign workers.
Former agreements between the Philippine government and the United States government exempted Filipino guest workers under the FICA Act but this exemption apparently no longer stand since the implementation of federalization.
For a Filipino worker earning a minimum wage of $5.05 an hour, the monthly FICA tax deduction will be over $45 a month. Employee’s FICA contribution is 5.65 percent of their salary.
This deduction consists of 4.20 percent for Social Security, and 1.45 percent for Medicare. This is also on top of the CNMI taxes that foreign workers pay.
For employers, this means an additional expense of almost $62 a month in employer’s share for every employee required to pay FICA taxes. Employer’s share is 7.65 of the employee’s salary—6.20 percent for Social Security, and 1.45 percent for Medicare.
The FICA tax payments mean that a business with 15 Filipino workers earning minimum wage, for example, will incur an additional expense of over $24,000.
Florante Dipus, 51, said a $45 payroll deduction is a big amount for him, money that could go to buying food and paying for utilities.
Dipus, a Filipino electrician on Saipan since 1990, said he’s worried that his FICA contribution will only go to waste and that he will not benefit from it if he loses his job a year or two after he starts paying for the FICA taxes.
“That is not clear to us. We are not earning a lot, and to pay for something that we’re not sure we could benefit from is a big concern for me,” he told Saipan Tribune.
Lee King Ho, president of the Korean Association in the CNMI, said yesterday that they have yet to gather information about the FICA taxes.
But there are also different views whether Korean workers in the CNMI were supposed to be exempted from the FICA taxes to begin with, even before the implementation of federalization. Different IRS documents and statements throughout the past years also contained different information.
In general, employees in the U.S. are required to pay Social Security and Medicare taxes.
Delegate Gregorio Kilili Sablan (Ind-MP) said yesterday “nobody wants to pay more taxes, especially when the economy is hurting and people are already struggling to keep their businesses open and their families fed.”
But Sablan said there is one positive aspect of this IRS ruling: “It levels the playing field for our local U.S. workers who need jobs.”
“Up to now, it costs more to hire local U.S. workers than to hire Filipino workers, because employers did not have to pay the FICA tax for Filipinos. Employers who hired a local U.S. worker had to pay 7.65 percent more than if they hired someone from the Philippines. That’s a substantial disincentive to hire locals. So, the IRS ruling should really help our local people who are looking for work,” he told Saipan Tribune.
The delegate said he really can’t speculate on whether workers will benefit from paying FICA taxes.
“It depends on the specific circumstances of any individual worker. I can say that most foreign workers in the United States are not exempted,” he added.
Juan I. Tenorio, personnel manager at Hafa Adai Hotel, said he was taken by surprise by this additional expense for the hotel, which has many Filipino workers
“Most definitely it’s an added expense to employers. We need to factor this in our projections. I wish there’s information about this way ahead of time, and not like this when it’s last-minute. I will have to get more information before I comment further,” he said.
Bonifacio Sagana, president of Dekaa Movement who has mostly Filipino workers as members, said that back in the late ‘80s when he arrived on Saipan as a foreign worker, they used to pay FICA taxes that were automatically deducted from their paychecks.
But he said in the early ‘90s, the FICA tax deductions stopped but they didn’t reap any benefit from the tax payments.
“Now, Filipino workers are supposed to be paying the FICA taxes again. Maybe for those covered by HR 1466, those who are immediate relatives of U.S. citizens, they could benefit from this upon their retirement. But those who are not covered by HR 1466 or those who will be sent home if they lose their status, they may not really benefit from it,” he said.
Florida-based human rights advocate and former Rota teacher Wendy Doromal, in her blog Unheard No More, said the majority of the CNMI’s foreign workers will pay these FICA taxes and “will never reap the benefits because they are ‘temporary’ workers.”
IRS said only H-2 visa holders will be exempt from the FICA taxes.
“Why should the U.S. government tax foreign workers for benefits that they will never receive? In the CNMI, there is presently no way for the typical temporary foreign worker with a CW visa to obtain status, and no track to U.S. citizenship,” Doromal said.
She said unless the U.S. government creates a guest worker program that stops the revolving door and establishes a program where workers are considered future citizen rather than as replaceable foreign products, then the government should not be taxing foreign workers who will most likely never receive any Social Security or Medicare benefits.
Doromal also cited a lawsuit filed in federal court seeking reimbursement of employers’ share of Social Security and Medicare taxes paid to the U.S. government between the tax years 2003 and 2007, as well as another similar lawsuit.
Some accountants on island are saying that, as far as they know, workers may only benefit from their FICA tax deductions if they contribute to the system for 40 quarters or for 10 years.