CNMI braces for FICA taxes for all CW workers, minimum wage hike

With the recent five-year extension of the CW program, employers of Philippine nationals working in the CNMI must start withholding and paying Social Security and Medicare taxes under the Federal Insurance Contribution Act or FICA starting Jan. 1, 2015. Employers are also bracing for a 50-cent minimum wage increase on Sept. 30, after getting a reprieve last year.

The transitional CW program, which allows the CNMI to retain some 10,000 foreign workers, has been extended up to Dec. 31, 2019.

Delegate Gregorio Kilili C. Sablan (Ind-MP), in an interview yesterday, said there won’t be any more exemption for FICA taxes for Philippine nationals or citizens after Dec. 31, 2014, and that a 50-cent increase in minimum wage will be in effect on Sept. 30 this year as set by the law that also gave the CNMI control over its 3-mile submerged lands.

“There would be no more extension [of FICA exemption]…And I’m not going to spend political capital on getting this because when we got this, there was an understanding that it would be a one-time exemption. So starting January 1st, expect to start paying FICA,” Sablan told Saipan Tribune.

In December 2012, the Internal Revenue Service announced that it will not assert that any taxpayer has understated liability for taxes under the FICA “by reason of a failure to treat services performed before Jan. 1, 2015, in the CNMI by a resident of the Republic of the Philippines as employment under section 3121(b) of the Internal Revenue Code.”

Sablan said this means CNMI employers would have to withhold and pay FICA taxes for most or all employees regardless of citizenship.

IRS, the U.S. government agency responsible for tax collection and enforcement, said “employers must withhold and pay FICA taxes on remuneration paid to residents of the Philippines who do not hold an H-2 status for services performed as employees in the CNMI after Dec. 31, 2014, unless these workers are eligible for FICA exemption based on some circumstances other than the exemption in section 3121(b)(18).”

Filipino workers under the CW program started paying FICA taxes from late 2011 to 2012 until IRS issued a decision not to assert these taxes. Filipino workers received refunds on the FICA taxes they paid.

Prior to Nov. 28, 2011, Filipino workers were considered exempt from paying these taxes. The CNMI remained on a wait-and-see mode, trying to get clarification from IRS regarding the application of FICA taxes as a result of federalization of local immigration.

Workers from China and Korea, among other foreign workers in the CNMI, have been paying FICA taxes.

“Next year, workers from the Philippines, just like everyone else, have to pay these taxes,” the delegate said.

Alex Sablan, president of the Saipan Chamber of Commerce, said yesterday it is “unfair” and “improper” for the U.S. government to “collect taxes from foreign workers that will not benefit from these taxes and are not provided permanent immigration status.”

“This was something we asked for reprieve. But we understand it is now politically unpopular [to ask for another one]. We wouldn’t get another reprieve. Employers have to bear the FICA taxes and also the minimum wage increase,” the president of the largest business organization in the CNMI said.

The Chamber president added that the economy is “improving” so businesses can sustain a minimum wage increase this year. Last year, the Chamber asked for—and received—a reprieve from the 2013 50-cent minimum wage increase through the delegate and Gov. Eloy S. Inos’ help.

The CNMI’s current minimum wage is $5.55 an hour. This will increase to $6.05 an hour on Sept. 30 this year and on Sept. 30, 2016, and every year thereafter until it reaches the federal wage floor of $7.25 an hour.