IRS retraction of FICA tax decision sought

The Saipan Chamber of Commerce is seeking “retraction” of a U.S. Internal Revenue Service position that Filipino workers in the CNMI are no longer exempt from paying Federal Insurance Contribution Act taxes as a result of federalization of local immigration. The Fitial administration also wants continuous FICA tax exemption for Filipino, as well as Korean, foreign workers.

Paying such taxes is a big burden on both employees and employers at a time when the CNMI economy is at its worst state, they said.

FICA covers Social Security and Medicare taxes.

Chamber president Douglas Brennan requested Delegate Gregorio Kilili Sablan to speak with the U.S. Department of the Treasury’s IRS “to seek whether this ruling can be retracted.”

“Representative Sablan, we beg you to intercede on our behalf. We have yet to see a more formal announcement, or printing, of this change in practice as written in the lately circulated letter from IRS,” Brennan told Sablan in a Dec. 10 letter.

Brennan asked Sablan to advise the Chamber as soon as possible as to whether this retraction can be achieved.

“SCC believes you have a voice we cannot ever have,” Brennan added.

Lt. Gov. Eloy S. Inos said what the Chamber is trying to do “is consistent with what the administration is trying to do.”

“And that is to bring the matter up before U.S. Treasury and of course the IRS so that we can get relief,” he told Saipan Tribune in an interview at Bridge Capital LLC’s 2011 Christmas Party on Saturday night.

Inos said the administration would like FICA exemptions for Filipino and Korean workers to continue.

“It’s going to be an added cost to doing business. That additional expense on the employer is just going to make it even worse so we do support any effort to continue the exemption and/or stay any implementation of the Social Security tax (and Medicare tax),” he added.

Brennan, in his letter, said the Chamber is currently preparing a position paper to be addressed to the U.S. Treasury on this matter.

He said the Chamber “disagrees” with the IRS interpretation that all Filipino contract workers previously exempted from paying FICA taxes into the IRS will no longer be exempted from paying into the federal system.

“SCC believes these thousands of Filipino workers, and perhaps those thousands of Korean nationals, that have had their employers apply for CW-1 visa issuance are, in fact, temporary workers and should remain exempted from FICA contributions as they were in the past,” Brennan told Sablan.

Brennan cited a redacted Oct. 5 letter from the Office of the Chief Counsel for the U.S. Treasury Department’s IRS, received by the Chamber on Dec. 2.

The Chamber president said CNMI businesses have been placed at the mercy of U.S. Congressional decisions that have almost brought this part of the U.S. into economic failure.

“Now we face U.S. administrative interpretations dropped on us at the midnight hour that further fuels a fire we can hardly fight anymore,” Brennan said. These include the annual 50-cent minimum wage increase,

He said increases in the cost of doing businesses, added to the astronomical power and utility charges brought by a worldwide fuel cost increase, a downturn in tourist arrivals, escalating shipping costs, less consumers as a result of a 25 percent population decrease in three years and an increase in the cost of living, have already forces businesses to reduce business hours and lay off employees.

Brennan said the FICA taxes will add to these costs.

A worker earning a minimum wage of $5.05 an hour will have a monthly FICA tax deduction of over $45. Employee’s FICA contribution is 5.65 percent of their salary for 2011. This is 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.

Copies of the Chamber’s letter to Sablan were also sent to Gov. Benigno R. Fitial and Interior assistant secretary for insular affairs Tony Babauta.