CNMI workers get ‘tax’ present

Employees in the CNMI are among the 160 million workers in the United States that will benefit from an extended 2 percent Social Security payroll tax cut that Congress voted with rare speed on Friday and is expected to be signed by President Barack Obama soon.

The extended payroll tax cut and jobless benefits are part of a $143 billion measure that Congress passed and boosts Obama’s jobs agenda.

Under the measure that Obama pushed for, workers would continue to get a 2-percentage point increase in their paychecks and people out of work for more than six months would keep jobless benefits averaging about $300 a week. It would also head off a steep cut in reimbursements for physicians who treat Medicare patients.

For a worker earning the CNMI minimum wage of $5.05 an hour, the 2 percent cut in Social Security tax is about $16 that won’t be deducted from one’s payroll each month.

“That $16 may not be enough for those who earn a lot, but for minimum wage workers, that $16 can already buy a 25-lb. sack of rice that could last a month and the change could be for butane gas for cooking,” said Rene Reyes, founding president of the Marianas Advocates for Humanitarian Affairs Ltd. or Mahal.

Reyes is among the thousands of Filipino and Korean workers under the transitional worker program in the CNMI that are now subject to Federal Insurance Contribution Act taxes.

This means Filipino and Korean workers now also have to pay Social Security and Medicare taxes, like all other workers in the CNMI do.

Reyes said that while Filipino and Korean workers would like continued exemption from FICA taxes, a 2 percent tax cut at this time would still be a big help.

Rep. Ray Yumul (R-Saipan) separately welcomed the tax cut. “The CNMI has a mirror tax system to that of the U.S. so the 2 percent Social Security tax cut will be applicable to us.”

“It will be a relief for all of us in light of the increased fuel prices at the pump and utilities,” he added.

Pump price of regular unleaded gasoline on Saipan is now $5.059 a gallon, matching the CNMI’s hourly minimum wage. On Rota, gas prices are $6 to $6.80 a gallon and are the highest among U.S. states and territories.

A minimum wage earner in the CNMI pays over $45 a month in Social Security and Medicare. Because of the 2 percent tax cut, employee’s FICA contribution will be 5.65 percent of their salary, instead of 7.65 percent.

The 2 percent tax cut was supposed to expire this month, but the U.S. Senate and House of Representatives passed a bill on Friday that would extend it.

The FICA 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 workers in the Commonwealth pay.

For employers, FICA tax is 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 workers earning minimum wages, for example, will incur an additional expense of over $24,000 a year.

“We are still hoping that the federal government would change their decision on applying FICA on Filipino and Korean workers,” Reyes added.

The CNMI government sued the U.S. Department of Treasury and U.S. Internal Revenue Service in January to stop the imposition of FICA on Filipino and Korean workers with Commonwealth-only worker status.

Many employers of Filipino and Korean workers in the CNMI have started deducting FICA taxes from their workers’ payroll, while others said they will start in March regardless of the release of the actual CW status from U.S. Citizenship and Immigration Services.

Taxpayers in the U.S. and the CNMI have grown accustomed to the 2 percentage point cut in the payroll tax over the past year, and that will be continued once Obama signs the tax cut bill.

The tax cuts, jobless coverage, and higher doctors’ payments will all continue through the end of the year.