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Extra 2% wage tax set for mid March

All wage earners in American Samoa will soon pay a new 2% wage tax, to help fund the government’s no-interest $3 million loan — which is to be given to the LBJ Medical Center, as a cash infusion to the financially strapped authority. After the ASG loan is paid off, the new 2% wage tax is earmarked to continue to provide funding to the only hospital in the territory.

This new wage tax — which is on top of the current 4% minimum income tax — has no sunset provision, meaning it will continue unless repealed by law.

The new wage tax is part of the $3 million loan bill signed Thursday by Gov. Togiola Tulafono and it becomes effective 30-days after the bill was signed. The loan is being taken from the Workmen’s Compensation Account.

According to the bill, all wages earned in the territory shall be taxed at 2% and this is in addition to existing income tax. Additionally, the new wage tax shall be paid by the wage earners and reported on the person’s tax return.

And 30-days after the bill is signed into law, “employers shall immediately increase the minimum withholding for all employees from 4% to 6%” and this wage tax shall “commence in tax year 2012,” the bill’s language states, noting that revenues generated from this wage tax shall be deposited in the Treasury Department.

Government witnesses testified in the Fono that this new wage tax is estimated to collect about $4 million annually.

The Treasury Department is expected to make an official announcement soon for employers regarding this new wage tax. One of the questions raised by several local businesses is whether this new tax is retroactive to the start of 2012. There is nothing in the bill’s language that says the tax is retroactive.

Samoa News also points out that Congress last Friday approved federal legislation to extend the 2% payroll tax cuts (on FICA), with the goal that employees take home more money — but that will not be the case for local workers, due to the new ASG wage tax.

The local bill (or new law) also outlines how revenues collected from the wage tax are to be expended. First, the tax will be used to repay the loan, and the bill states that the ASG Treasurer will transfer accumulated proceeds on a monthly basis to the Workmen’s Compensation fund until the interest-free loan is paid in full.

Thereafter all revenue collected will go to the hospita l— with 50% for LBJ operations and the other 50% for the off island medical referral program. The money is to be deposited in a special hospital account specifically for the referral program.

The loan itself became effective once the bill was signed into law, and this money has prevented the planned furloughs from being implemented, and prompted the roll-back of fee hikes that begun Feb. 6.

The fee roll-back went into effect at 8 a.m. last Friday and reports from the hospital say the pharmacy was noticeably crowded with more people waiting to get medication — compared to when the higher fees were effective.

“A lot of people showed up after 8 a.m. (Friday) after the fees returned to $10,” said a hospital employee. “And this is a very sad situation, when people wait because they can’t afford to pay the rates. I’m glad things have changed so our people can get their medication and other services.”