February 8, 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.
The district anticipates the refund to be paid on March 9th, 2018.
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. 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 (attached). Please make sure that you have signed on the “employee signature” line and send your form to Joannie Payne by February 23rd. 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. The remaining balance will be direct deposited to your account on March 9th. 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 Joannie Payne.
If you choose to opt out of the Tax Sheltered Annuity contribution election, and prefer the cash out option no further action is required and your refund will be direct deposited on March 9th.
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 Joannie Payne, Payroll Coordinator, or Tiffany Keith, Director of Finance.
3% Refund – Deferred Compensation Election Form (2)-12h17ne
DUE DATE: February 23, 2018
Send to: JOANNIE PAYNE
| Tiffany Keith Director of Finance, Allen Park Public Schools Central Office: 9601 Vine Allen Park MI, 48101 |