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Senate calls on Treasury to stop federal deductions from Fono allowance checks

[SN file photo]
It’s not income and it’s locally funded — IRS should not be involved

During a Senate Budget and Appropriations Committee hearing last Friday morning, Senate President Gaoteote Tofau Palaie called on ASG Treasurer Uelinitone Tonumaipea to immediately halt taking federal deductions from allowance checks for senators.

The committee hearing followed complaints and concerns voiced by some senators early last week regarding their allowance checks, which are released every two weeks for all lawmakers — both the Senate and House.

The allowance checks show federal deductions have been made: FICA, which is 6.2%,  and Medicare at 1.45%. The deduction has reduced the take home allowance check amount for lawmakers.

Under local law, a lawmakers’ office allowance — $30,000 annually for each lawmaker and $40,000 annually for the Senate President and the House Speaker — is to defray expenses relating to or resulting from the discharge of their official duties. The law also states that an accounting of the expenditures incurred by the member is not required.

While the allowance is not considered income and therefore is not taxed, the lawmaker can — if he/ she chooses to — designate the allowance as income, making it taxable.

During the hearing, Tonumaipea explained that the US Internal Revenue Service, years back, had questioned why FICA and Medicare were not being deducted from checks issued to lawmakers for their allowance, which is not subject to income tax by local law.

He explained that under federal law, if the person has “additional income” FICA and Medicare must be paid by deductions from the additional income. A lawmaker's office allowance is considered additional income by the IRS.

Therefore, according to Tonumaipea, a decision was made that it would be best to apply the federal law to lawmakers’ allowance, and this is to protect senators and House members from the IRS.

He said that if the IRS came down to conduct an investigation on the “additional income” source and found that the FICA and Medicaid deductions have not been made, it could mean a lawmaker can be fined for a “tax evasion” violation.

The Treasurer explained that the FICA and Medicare deductions from allowance checks are also to protect lawmakers so they don’t have to file an expense report at the end of every year as required by federal law for these types of additional income earned.

Gaoteote reminded the committee that local law states that a lawmaker’s allowance is “tax free” — that means no tax deduction. While he agrees with Tonumaipea regarding federal law, the Senate President pointed out that the federal government does not spend one penny on lawmakers' salaries or allowances — these are all funded by local revenues.

Gaoteote, who had served in the House for many years, explained the FICA and Medicare deductions policy was made several years ago, when the late former Sen. Velega Savali, was the ASG Treasury and the policy was made at that time without any input or explanation to the Fono.

He said these federal deductions require the employer to provide matching funds. “So whose money will be used to match these deductions?” he asked, and noted that it's “local government funds.”

Gaoteote emphasized that local revenues pay lawmakers allowances and reiterated that ASG is forced to identify money for the FICA matching from the employer.

At least three times, the Senate President requested the ASG Treasurer to stop the federal deductions on allowance checks for lawmakers — effective immediately. He said if the deductions provided financial support for ASG that would be great.

Sen. Tuaolo Manaia Fruean also pointed to the added expense for ASG — in terms of the matching funds, and stressed that the allowance is not income.

Tuaolo recalled that when he was a cabinet director, each director was given a $300 cell phone allowance to cover the cost for cell phone usage. Tuaolo then asked Tonumaipea if this $300 “allowance” is currently being taxed. Tthe ASG Treasurer revealed that directors no longer get this allowance, but didn’t say when it was discontinued.

“How about in the past, was this $300 allowance taxed?” Tauolo asked, to which Tonumaipea said “no”.

The senator also asked if the Treasurer was going to halt these federal deductions and Tonumaipe’a replied that he will have to consult with the Attorney General.

He said he sides with the views of senators on this matter and noted it should be up to senators to file their expense reports (at the end of the year) and deal with the IRS.

Tuaolo responded that the allowance is not “income” and the IRS shouldn’t get involved. He strongly supported Gaoteote’s call to halt the practice.

Samoa News understands that there are lawmakers who have agreed to claim their allowance as income. Allowance checks are released every two weeks, during non-pay week for ASG. For example, this week is not pay week for ASG so allowance checks are being released for lawmakers this week.

Under local law, the annual salary of the Senate President and House Speaker is $30,000 each and other lawmakers earn $25,000, with the Swains Island Delegate getting $20,000