Kilili: CW workers would no longer be exempt from FICA

Delegate Gregorio Kilili Sablan (Ind-MP), who has been in communication with the U.S. Internal Revenue Service, said yesterday that once Filipino and Korean workers have already been granted Commonwealth-only worker status, they are no longer exempt from paying federal taxes. He said this is based on his understanding of law and policies.

Almost all other workers in the CNMI have been paying Federal Insurance Contribution Act taxes, which cover Social Security and Medicare.

Businesses with Filipino and Korean workers have been waiting for policy guidelines from IRS before deducting FICA taxes from their employees’ salaries, like they do with other employees.

Press secretary Angel Demapan said yesterday that the Fitial administration would like to receive clarification from IRS, which he said is the “appropriate agency to communicate any change in such policy.”

Demapan, however, said that assistant attorney general Jim Stump received an email from Dee Robinson of IRS, “stating that they are working with the IRS Special Counsel on setting proposed dates for a meeting with the Fitial administration.”

“We have yet to receive further communication at this time,” he said.

Gov. Benigno R. Fitial wrote to IRS chief counsel William J. Wilkins to seek clarification on an unofficial, redacted copy of an Oct. 5 communication from the IRS stating that Filipino workers are no longer exempt from paying FICA taxes because of the implementation of federal immigration in the CNMI. The governor is opposed to additional taxation.

The redacted IRS letter that circulated in the CNMI stated that Filipino workers in the CNMI are no longer exempt from FICA, unless they hold a valid H-2 U.S. visa.

Sablan, who flew in from Washington, D.C. on Tuesday, said from his understanding, the law says that CW workers, once they get their CW permit or status, “are not exempted from FICA taxes.”

“My understanding is that no FICA taxes should be applicable until the employee gets the CW permit,” he said in an interview at his office in Susupe.

U.S. Citizenship and Immigration Service gave itself up to Jan. 31, 2012, to adjudicate CW petitions filed by CNMI employers for over 11,000 foreign workers in the CNMI.

This means many of the Filipino and Korean workers who were petitioned by their employers for a CW status will have to start paying FICA taxes early next year.

Sablan said he understands the CNMI economy is on a decline and the impact additional taxes would have on affected employees and employers.

“But let me put it this way. Are you a member of the CNMI Retirement Fund? Do you have children in public schools? Your answers may be ‘no’ but the taxes you pay also go to those programs. Anywhere you go, there are taxes, so that doesn’t mean that because you don’t have children in the Public School System or not a member of the Retirement Fund, that your taxes should be less than those who do. This is a system of government taxing people to pay for programs and services. Some people benefit from those programs and some people don’t. FICA taxes benefit some people, but they don’t benefit some,” he said.

Sablan said the exemption for Filipino workers in the CNMI is under U.S. law, specifically 26 USC Section 3121(b)18, while the exemptions for Korean workers is covered by a treaty between the United States and Korea.

The delegate reiterated that, with the application of FICA taxes among most Filipinos and Koreans in the CNMI, it will no longer be cheaper for employers to hire from the Philippines or Korea than to hire from the resident population.

“It levels the playing field,” he added.

Eric Plinske, a current board member and former president of the Society for Human Resource Management, said that without direct answers or policy guidance from IRS, each employer has to make calculated risks.

Plinske, manager for Staywell Health Insurance on Saipan, said employers would want to know when, if at all, this taxation applies to previously exempt workers.

Ruel Villacrusis, owner of RNV Construction, which employs Filipino workers, said given the current state of the local economy, paying for additional taxes will be a big burden on their business and employees.

He said if Filipino workers are indeed no longer exempted from FICA taxes, employers may just have to let go of their employees, if not this year then next year because of an added cost that employers didn’t anticipate.

“But if IRS really says Filipino workers have to pay these taxes, then we have no choice but to follow,” he said.

Saipan Chamber of Commerce president Douglas Brennan has also sought clarification on the FICA taxation among previously exempt workers.

A minimum wage earner in the CNMI pays over $45 in FICA taxes a month in 2011. Their employers’ share is almost $62 a month.