ORS 3% Healthcare Contribution Refund
February 7, 2018 UPDATE
We have received additional guidance from auditors and CPAs regarding payroll deductions from the 3% healthcare withholding refunds. Since the District did not tax the wages at the time the funds were withheld, the refunds are taxable for federal and state income taxes, as well as social security & medicare ("FICA"). Please read the information below for more information regarding tax and other withholdings.
Federal Withholding: According to IRS Notice 1036, revised January 2018, refunds for employees will be treated as "supplemental wages" for federal income tax, requiring a flat 22% withholding. This withholding cannot be altered; therefore, we cannot accept revised W-4 forms for this special pay. Any previously submitted W-4 revisions for this special pay will be disregarded. Contributions to your 403(b) or 457 plan will be done on a pre-income tax basis. See below for more information regarding these contributions.
State Withholding: Your current State withholding rates will apply. Contributions to your 403(b) or 457 plan will be done on a pre-income tax basis. See below for more information regarding these contributions.
FICA: The current rates of 6.2% for social security and 1.45% for Medicare will apply to the entire refund, regardless of whether you contribute to a TSA.
403(b)/457 Tax Sheltered Annuity ("TSA") Contributions: If you have an established 403(b)/457 tax-sheltered annuity ("TSA"), you can contribute up to 70% of the refund to your TSA, on a pre-income tax basis. If you would like to contribute from this special pay, you must complete the one-time election form (Click Here). Please make sure that you have signed on the "employee signature" line and send your form to Barb Kilgore by February 28th. If you do not complete this form, no TSA contribution will be withheld from your refund.
We are often asked why the TSA contribution is limited to 70% of the refund. The reason for this limitation is that we need to have sufficient net pay to withhold FICA tax. Additionally, the portion of the refund that is not tax-deferred will also be subject to federal and state income taxes, requiring sufficient net pay for those withholdings, as well.
TSA contributions are subject to IRS 2018 contribution limits (Irs.gov-403b-contribution-limits , irs.gov-457b-contribution-limits). It is your responsibility to monitor your annual limits. If you need to modify your payroll deductions for future regular pays to stay within your annual limits, please contact Barb Kilgore (734-416-2766 or firstname.lastname@example.org).
Garnishments: Refunds are not automatically exempt from garnishments; the applicability of withholding will depend on how the legal agreement is structured. If the payment is a set annual amount, spread over regular pay periods (such as child support or alimony), then there will be no withholding from the 3% refunds. However, certain other garnishment withholdings may apply. Please contact the payroll department if you would like to discuss your individual situation in more detail.
Tax Implications for Interest Refunds: The portion of your refund that is attributable to interest earned on the funds while in escrow will not be subject to income or FICA taxes. Please consult with your tax advisor as to how to report this income on your 2018 individual income tax return.
If you have any questions or need clarification, please contact Pat Haywood, Payroll Coordinator, at 734-416-2726 or email@example.com, or Vicki Amore, Executive Director of Finance & Accounting, at 734-416-2751, or firstname.lastname@example.org
January 23, 2018 UPDATE
This communication will serve as an update on the status of the pending refunds of the 3% healthcare contributions previously withheld under Public Act 75 of 2010.
Many of you received an e-mail from the Office of Retirement Services (“ORS”) late last week with the amount due to you. If you did not receive this e-mail, please visit the ORS FAQ page for instructions on how to find out your amount.
We have received the file from ORS that provides the detail of the amount withheld and interest credited for each employee (current and former). We have begun the process of reconciling this file with the District’s records. Furthermore, we have received the funds from ORS, which are set aside pending the refunds.
We anticipate that the refunds will be paid on March 15, 2018, barring no unanticipated complications. The refunds will be processed in a separate pay run. Current employees will be paid via direct deposit and former employees will be paid via check. All refunds will be processed at the same time, as it requires Wayne RESA’s assistance and coordination with all other Wayne County districts.
Any current employees of P-CCS who have an established 403(b) or 457 plan as of today’s date may elect to contribute up to 70% of the refund to their plan. If you are interested in this option, please use this form and return your election to Barb Kilgore in Central Office by February 28, 2018.
We appreciate your patience while we balance timeliness with completeness and accuracy.
January 2, 2018 UPDATE
The Michigan Supreme Court recently issued a unanimous opinion upholding the Appeals Court ruling that the 3% employee withholding for healthcare contributions under Public Act 75 of 2010 was unconstitutional. Payroll withholdings between 2010 and 2012 that were made under this legislation will be refunded. It is expected that the State will transfer the contributions back to local school districts, with interest, on January 22, 2018 as part of the State Aid payment.
The District has already begun to gather internal records regarding withholdings during the applicable period. It is estimated that over 2,600 P-CCS current and former employees will be receiving a refund. The total refunds will be in excess of $5.7 million. The detailed records will be used to audit the information forthcoming from the State to validate that the correct amount has been received for each individual. Furthermore, the District is performing due diligence to ensure that the tax treatment of the refunds will follow all required tax laws.
We understand this refund is long overdue, and though we can not determine an exact date of processing, we can assure you that the District will work to complete the refunds as timely as possible. We want to be sure that every dollar withheld from our employees, and the corresponding interest, is accounted for and returned to the District by the State so it can be refunded to our employees. Once we have received and completed our reconciliation of the data and are confident that we have received the proper amount from the State, we will process the refunds in a transaction that, for current employees, is separate from the regular semi-monthly pay. We will communicate this date once it is determined.
We will provide future updates as information becomes available. In the meantime, please feel free to monitor developments and review FAQ’s from the Office of Retirement Services’ website.
If you are a former P-CCS employee and would like to ensure that we have your proper contact information to remit your refund, please complete this online form. If you are a current employee who needs to update personal information, please contact the P-CCS Payroll Department at 734.416.2726.