Workers, businesses brace for FICA taxes

For small to large employers and their employees living on reduced wages and high cost of living amid a weak economy, paying Social Security and Medicare taxes might as well be the final nail on the coffin.

At the same time, barely a few hours after Gov. Benigno R. Fitial told reporters that his administration will try to reach an amicable agreement with the U.S. Internal Revenue Service, the CNMI government filed a lawsuit against IRS over Federal Insurance Contribution Act taxes as a result of federalization of local immigration.

Internal Revenue Service, the U.S. government agency responsible for tax collection and tax law enforcement, confirmed on its website that workers with Commonwealth-only visa or status, including those from the Philippines, are not exempt from Social Security and Medicare taxes.

“Having an additional $40 to $45 deduction from my paycheck because of Medicare and Social Security is just too much,” said a 31-year-old restaurant waitress whose work hours have been reduced to anywhere between 51 and 64 hours since last year.

Worse, the employee’s payroll has been delayed for three months.

“I won’t have anything else left once all these deductions start. I don’t even have my paycheck for almost six payrolls now,” said the mother of a 15-month-old child.

Complaining about delayed salaries, she said, might lead to her employer terminating her and her colleagues’ employment contracts.

A male colleague, meanwhile, has yet to get his four months’ worth of paychecks.

“I haven’t been paid for four months. By the time I get my paychecks, they would have lots of deductions. These federal taxes will really hurt us a lot. Can the CNMI government do something about this?” said the 55-year-old father of three.

Both employees asked that their names be withheld, fearing retaliation from their employer.

While big businesses such as hotels have already factored in the FICA taxes on their operational expenses, many small companies more likely than not are unprepared.

A private company with 16 employees, for example, will have to shell out some $20,000 to pay the employer’s share of Medicare and Social Security taxes of their CW employees.

The Saipan Chamber of Commerce, the largest business organization in the CNMI with some 150 members, is opposed to the application of FICA taxes on CW workers, including those from the Philippines.

Many private employers have workers from the Philippines.

Chamber president Douglas Brennan earlier said that just because U.S. Citizenship and Immigration Services changed the name of the immigration vehicle from an umbrella permit to a CW-1 visa does not mean they are no longer temporary work classifications.

“We’re talking about the same people, let alone the fact that USCIS has established them as temporary and to be transitioned out of the CNMI in 2014,” he said.

The governor, in an interview yesterday at the Legislature, said that when the federalization bill that later became U.S. Public Law 110-229 was being discussed, there was no mention of federal taxes.

Fitial said the FICA taxes on CW workers are in violation of Section 606(b) of the Covenant between the NMI and the United States.

“These people [who will pay FICA] will not get any benefit from this so I hope the United States is not imposing something that is just for punishing the people,” Fitial told reporters.

Fitial has asked for a meeting between the CNMI government and IRS.

“We are going to discuss this amicably with IRS. We don’t need to litigate this if they can come up with a favorable, amicable and mutually acceptable settlement,” he said.

Hours later, the CNMI government filed a lawsuit against IRS over FICA taxes.