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Contract workers recently required to pay into social security

By Raquel C. Bagnol SAIPAN, CNMI (Marianas Variety, Dec. 12, 2011) – The Saipan Chamber of Commerce is preparing a position paper to ask the U.S. Treasury Department to exempt the Filipinos and Koreans from paying social security (FICA) taxes, and they are asking for assistance from Congressman Gregorio Sablan to intercede on their behalf.

In a letter dated December 10 the Chamber asked Congressman Sablan, to intercede on behalf of those affected by the recent reports that the CW-1 visa holders from the Philippines and Korea are now subject to FICA social security tax deductions payable to IRS, to please speak with the U.S. Department of the Treasury’s Internal Revenue Service (IRS) offices and to seek whether this recent ruling can be retracted.

"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," Chamber president Douglas Brennan said.

On December 2, Brennan said the Chamber was provided a copy of a letter dated October 5, 2011 from the Office of the Chief Counsel for the U.S. Treasury Department, IRS which defines an apparent interpretation by IRS that all Filipino contract workers previously exempted from paying social security (FICA) taxes into IRS, who will fall under CW-1 visa application issuance, will no longer be exempted from paying into the federal system.

"The Chamber disagrees with the IRS interpretation. The Chamber 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 said.

He said that U.S. H-2 visa status workers are exempted from FICA contributions, as are their employers. "The Chamber believes as these transitional U.S. CW-1 visa status workers were previously exempted from FICA deductions by way of an H-2 counterpart status within CNMI immigration law, and continue to be temporary transitional workers in the CNMI, because they do not fit exactly into a U.S. H-2 visa status classification allowed exemption by IRS does not mean they have changed their very essence as temporary employees in the CNMI, and therefore are no longer exempted," Brennan said.

He added that businesses in the CNMI have been placed at the mercy of U.S. Congressional decisions that have almost brought this part of the United States into economic failure.

[PIR editor’s note: The Fitial administration in the CNMI is seeking clarification from the federal government and the IRS as to whether or not Filipino and Korean workers will need to pay FICA taxes because of the recent federalization of immigration to the territory. A redacted IRS letter containing a response to a particular case has been acknowledged, but there is no statement for a general rule for workers. Minimum wage workers in the CNMI pays more than US$45 in FICA taxes monthly, and employers pay about US$62. Continuous tax exemption of Filipino and Korean foreign workers is actively being sought by the Chamber of Commerce and the CNMI government during a time where the local economy has been considerably hampered.]

"Now we face U.S. administrative interpretations dropped on us at the midnight hour that further fuels a fire we can hardly fight anymore," he said.

He said that minimum wage rates have risen 67 percent in less than three years, and an entire industry was lost as a result of those increases.

"Access, and the associated costs, to foreign national labor have changed with federal authority over immigration. These costs are now appearing as we move into the new system of authority over qualified labor not available locally in the CNMI," Brennan said.

He added that these increases in the cost of doing business, added to 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 are factors that have already forced businesses to reduce business hours and lay off employees.

The FICA, he said, is a further cost to businesses and the buying power of thousands of temporary foreign nationals working here which threatens the CNMI again.

The Chamber is asking Sablan to advise them as soon as possible as to whether this retraction can be achieved.

"The Chamber believes you have a voice we cannot ever have," Brennan said.

The Chamber furnished Governor Benigno R. Fitial and Assistant Secretary for Insular Affairs, U.S. Interior Department Anthony M. Babauta copies of the letter to Sablan.

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