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December 6,
2010
Tax Treatment
of 3% Retiree Health Care Contribution Under MPSERS
Clark Hill
PLC understands that the Office of Retirement Services
("ORS") is in the process of submitting a private letter
ruling request to the Internal Revenue Service ("IRS") for
an answer to the question: Is the mandatory 3% retiree health
contribution under MPSERS withheld from
employees' wages subject to Federal tax withholding requirements
(i.e., income tax, FICA and Medicare)? It is our understanding
that the ORS is basing its ruling request on the analysis set forth
in a recent IRS private letter ruling which dealt with another
state's retiree health plan that required an employee
contribution similar to the MPSERS
plan. In that ruling, the IRS held that the mandatory employee
contributions under the plan, to the extent they are used to pay for
the accident or health coverage of retired employees, their spouses
and dependents, are excluded from the employee's gross income and are
not subject to any tax withholding requirements.
Although a
private letter ruling issued by the IRS is only applicable to the
taxpayer who requested the ruling and may not be used or cited as
precedent, it does give us insight into how the IRS might rule on a
request which has similar facts presented. Based on our review
of the recent IRS private letter ruling, we believe that there is a
very good likelihood that the IRS will rule that the mandatory 3%
retiree health care contribution under MPSERS
is excluded from an employee's gross income and is not subject to any
income tax, FICA or Medicare withholding requirements.
If you have
questions or would like to further discuss this matter, please feel
free to contact Ed Hammond (ehammond@clarkhill.com;
248.988.1821), Jim Crowley (jcrowley@clarkhill.com;
248.988.5851), or Kristi Gauthier (kgauthier@clarkhill.com;
248.988.5854).
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