PA 75 and 3% Healthcare Contributions Frequently Asked Questions

Jump to: Tax Treatment, Return to Former Employees (or Estates), and Unclaimed Amounts

What employees are affected by the 3% healthcare contributions refund?

All employees who were reported between July 2010 and September 2012, had their healthcare contributions during that period returned to the reporting unit who originally reported the amounts for refunding.

What about healthcare contributions made between September 4, 2012 and February 1, 2013, when ORS began implementing the 2012 reform changes based on member elections? How do I know what happened to that money?

The period for which contribution refunds are due ends on September 3, 2012 because PA 300 of 2012—the law that provided members a healthcare benefit election—took effect on September 4, 2012. For the period between the law’s effective date and its implementation (9/4/2012 – 2/1/2013), healthcare contributions were deposited into the appropriate accounts, depending on the member’s election. For members who elected the Personal Healthcare Fund, contributions were deposited into their 401(k) accounts with Voya Financial® in February 2013. ORS sent a letter dated February 26, 2013 with the estimated amount of the transfer. For those who elected the Premium Subsidy option, contributions were deposited in the Retiree Healthcare Fund, to fund that benefit upon members’ retirement.

Why can’t ORS send this refund directly to the employees instead of sending it to the reporting units?

There are taxation rules for these payments that can only be implemented by the employers.

How and when did my reporting unit receive the contributions to refund to employees?

Contributions were returned to the reporting units on January 22. The payment came from the Michigan Department of Education (MDE). MDE will post a report to its website and refer districts to the report with a notice in their monthly State Aid Update. There are 53 reporting units that have closed, dissolved, or merged since 2010. The return of those contributions may be later than January 22 because a different methodology was used to transfer those contributions.

For charter schools or public school academies that previously reported to ORS but are no longer required to report (schools that no longer directly employ a MPSERS member or retiree), the State will send the contribution refunds to the charter school's authorizer on February 20, 2018. The authorizer will then forward the funds to the charter school or public school academy for disbursement to employees. This additional step in the return process will lead to additional time needed to distribute refunds to affected employees.

When did my reporting unit receive the data on the contribution amounts to refund to the employees?

ORS provided the data regarding the contributions and interest to employers via the File Transfer Service (FTS) on January 9, 2018.

What information did ORS provide?

The data file sent to each reporting unit provides the following information for each employee reported at the reporting unit during the refund period (July 2010 – September 2012):

  • Name and social security number
  • Status (active member, inactive member, retired, or deceased)
  • The most recent contact information that ORS has on file (postal address, email address and phone number)
  • Healthcare contributions withheld during that period and interest earned on the contributions

Is interest included on these contributions?

Yes, interest was included with the contributions when they are returned. The courts directed the administration to maintain the funds in a capital preservation escrow account, which accrues a very minimal amount of interest.

How did ORS calculate interest on the refund amounts? 

To calculate interest, ORS took each member’s healthcare contributions and divided that amount by the total healthcare contributions of all members to determine the proportionate share of the interest, then multiplied that percentage by each member’s contributions to determine each member’s interest earned. Interest was credited only if it resulted in a minimum of a whole penny.

Should my reporting unit withhold contributions from the refund amounts?

No. The wages from which the contributions were calculated have already been reported and contributions already calculated at the time the wages were reported. Do not include refund amounts on DTL2 or DTL4 records and do not withhold contributions on those amounts. 

What should my reporting unit do with contributions we receive for a retired employee?

All reporting units are responsible for refunding these contributions to employees who have retired. ORS provided the most recent street address, email address and phone number we have on file for all retired employees with contributions on record.

How did ORS calculate contributions on summer spread wages (wage codes 08 and 85) in FY 2011 and FY 2012?

In FY 2011 ORS calculated 0% for healthcare contributions on summer spread wages. In FY 2012 ORS calculated healthcare contributions on summer spread wages as follows:

  • If the member's total reported wages were less than $18,000 in FY 2010, ORS calculated healthcare contributions at 1.5%.
  • If the member's total reported wages were $18,000 or more in FY 2010, ORS calculated healthcare contributions at 3%.
Total reported wages in FY 2010 (may include multiple reporting units) Healthcare   contribution rate for Summer Spread wages in FY 2011 Healthcare  contribution rate for Summer Spread wages in FY 2012 Healthcare contribution rate for regular wages in FY 2011 Healthcare contribution rate for regular wages in FY 2012
Less than $18,000 0% 1.5% 1.5% 3%
$18,000 or more 0% 3% 3% 3%

What if there is a discrepancy between my payroll records and the data file ORS sent my reporting unit?

The refund amounts on ORS’s data file match what was reported and contributed at the time. Here are a few possible reasons for discrepancies between ORS data and your payroll records:

  • Tax withholding. If your reporting unit withheld taxes on the contributions at the time they were reported, but your payroll records show pre-tax amounts, you will see a discrepancy.
  • Your payroll records used a different method to calculate summer spread wages in FY 2011 or FY2012.

When are reporting units expected to distribute these refunds?

No timeline has been set by the court or by ORS for the refunds to be issued. Reporting units have important responsibilities for recording and reporting taxes on these refunds. Generally, most schools will be able to issue refunds 60-90 days after they received the funds on January 22.

For charter schools or public school academies that previously reported to ORS but are no longer required to report (schools that no longer directly employ a MPSERS member or retiree), the State will send the contribution refunds to the charter school's authorizer on February 20, 2018. The authorizer will then forward the funds to the charter school or public school academy for disbursement to employees. This additional step in the return process will lead to additional time needed to distribute refunds to affected employees.

Where should my reporting unit direct employees to find additional answers to question they may have?

A list of frequently asked questions for employees is available on the MPSERS member website.

 

Tax Treatment, Return to Former Employees (or Estates), and Unclaimed Amounts

1.What is the taxability of the 3% refunds related to the contributions that were deducted?

At the time these monies were reported, they were considered healthcare contributions. Now that they are being returned, they revert to being wages and generally, wages (including back wages) are taxable. The tax treatment of the wages will be determined by each reporting unit, based in part on whether such amounts were subject to applicable taxes when they were originally paid. ORS understands that the reporting units are expected to pay such amounts and report them on an IRS Form W-2 issued related to the 2018 tax year, which is the year in which the funds are being paid. ORS understands that the Form W-2 can accommodate wages that need to be taxed and wages that have already been taxed, even for employees who no longer work for the district.  

2.What is the taxability of the interest amount that is being distributed by the reporting units?

Generally, interest is taxable. The reporting units are expected to distribute the interest on the contributions that are required to be refunded. ORS understands that a review of such interest amounts on an individual basis will take place, and any required IRS Forms 1099-INT will be issued to individuals who receive more than $600, the applicable threshold required under U.S. Treasury regulations and as provided by the Internal Revenue Service. Any IRS Form 1099-INTs will also be issued related to the 2018 tax year, which is the tax year in which the interest amounts are paid. A recipient of such interest must generally report all taxable and tax-exempt interest on a federal income tax return, even if an applicable information return, such as a Form 1099-INT, is not issued. However, to assist with any applicable return reporting, ORS has provided each reporting unit with a detailed breakdown of the refunds, including the applicable interest amount, for each individual that is receiving a refund.

3.What if the employee no longer works at the reporting unit or has died?

ORS understands that the reporting units will be issuing refunds and reporting W-2 wages in these cases as well. The employee, or the estate of the employee, will then be responsible for the receipt and proper treatment of the funds.

4.What are ORS and the reporting units doing to contact former employees?

ORS is providing the reporting units with the contact information it has on record for each member as of January 2018.  Based on that information and any additional contact information the reporting unit has, it is believed that most or all of the former employees can be located. ORS and the reporting units are urging all former employees who made any contributions to make sure that the applicable reporting units have their latest contact information.

5.What if the employee (or estate) cannot be found?

Like any other funds that are unclaimed, Michigan law provides that such amounts are turned over to the State after the prescribed period of due diligence. Michigan's Uniform Unclaimed Property Act, Public Act 29 of 1995, as amended, requires government entities to report and remit to the Michigan Department of Treasury abandoned and unclaimed property belonging to owners whose last known address is in Michigan. In addition, every government entity that is incorporated in Michigan must report and remit abandoned property belonging to owners where there is no known address.

In such cases, those funds can be claimed by those originally entitled to those funds, including in this case an employee, former employee, or eligible estate. Individuals can review any unclaimed amounts held by the State by clicking here: http://www.michigan.gov/treasury/0,4679,7-121-44435_57506_76897---,00.html.


Any accounting, business or tax discussion contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Reporting units and any affected individuals are encouraged to engage tax professionals to perform the requisite research and provide written advice on factual and legal assumptions, exercise reasonable reliance, and consider all relevant facts known or reasonably known, including using reasonable efforts to identify and ascertain facts pertaining to federal tax issues.


Updated January 31, 2018