FAQs for Employees
Regarding the 3% Healthcare Contributions Refund
Updated January 25, 2018
Updates will appear at the top of the document after the first question
To view the Michigan Office of Retirement Services (ORS) 3% Healthcare Contributions FAQs, click here
What employees are affected by the 3% Healthcare Contributions?
Pursuant to a decision by the State Supreme Court, all 3% healthcare contributions deducted from employee’s pay between July 1, 2010 and September 3, 2012 will be returned to the District to distribute to current and past employees.
Once the District receives the money, will they earn interest on it? What will happen to that interest?
The District will be moving the money to a non-interest bearing account. The District wants to ensure the funds are protected and not commingled with other funds.
What if I already decided how much to contribute to my 403b? Can I change this?
You can change your 403b deduction amount at any time by submitting a new form to the Business Office. The only limitation is that you may not exceed the IRS mandated annual maximum contribution ($18,500 for 2018, unless you are age 50 or older you may contribute an additional $6,000 per year as a "catch-up provision).
Is the District planning to use a form to determine how employees would like their funds distributed? If so, is the form available?
In general, current and former employees will not need to sign a form for the distribution of the refund. It will be refunded through a paycheck due to state and federal tax issues.
When the 3% contributions were originally deducted from paychecks, Howell Public Schools (HPS) treated them as tax exempt from state and federal taxes. However, the contributions were taxed for FICA. When the 3% contributions are returned to you by HPS, state and federal amounts will be withheld as the contributions are no longer considered tax exempt. There will be no change in the FICA status..
For current employees only, there will be an option to direct your refund to your tax-sheltered annuity account (pre-tax: state and federal) or HSA account (pre-tax: state, federal and FICA). For the election form, click here. If we do not received an election form, the refund, net of state and federal taxes, will be deposited to your direct deposit account of record.
Is the District putting the refund on a regular check or a separate check?
The district is considering both options and are we are waiting for guidelines from the State. Supplemental funds, such as the 3% refund, that are processed on a separate check are generally subject to a mandatory 25% federal withholding. If the funds are processed as a line item on a regular payroll check, you will only be taxed at your regular tax withholding rate subject to your tax bracket.
Will I be able to fill out an adjusted W4 to change my withholdings for the regular check or separate check?
Yes. We will provide updated information once the payment date is determine.
Why is the State giving the money to the school District and not directly to individuals?
The money was taken via a paycheck and must be refunded to individuals through a paycheck. There are tax implications because when this money was deducted, federal and state taxes were not taken. Howell Schools’ employees have had FICA taxes taken on the 3% that was deducted.
What if I did not work for Howell Public Schools in 2010? Will the money I am owed come from Howell Public Schools?
No, the money you are due will come to you from the school district(s) where you worked during the time period of July 1, 2010 - September 3, 2012.
How does the District know who and how much individuals are owed?
The District received a file from ORS with the individual employee information. We will be required to refund the amount listed.
What about people who have retired, moved out of state, or have passed away but are owed a refund?
The District will be contacting former employees via their last mailing address and email address on file with the ORS and the last mailing address on file with the District.
When will the District receive the funds from ORS?
The district received the funds from the state on January 22, 2018.
When will the District refund our money?
No timeline has been formally set by the court or ORS for the refunds to be issued. ORS has noted in their FAQs that they are expecting most school districts to issue the refunds 60-90 days after receiving the funds on January 22. As a school district, we have important responsibilities for recording and reporting taxes on these refunds and to ensure we have the correct contact information for former employees. We are awaiting guidance from the Michigan Department of Education on these issues. HPS is committed to returning your refund as quickly as possible. We will provide updated information as it becomes available.
How will the District distribute the funds to me?
The funds will be distributed to you on a paycheck. Additionally, we are currently considering other options such as a one-time 403b, 457 or HSA deductions for current employees only. This would allow employees to avoid federal and state withholdings. For the HSA deductions, the employee would also avoid FICA which has already been paid on these funds.
Your refund is $1000. You have decided to deposit this as a one-time HSA amount. You will receive additional funds that include the FICA amount (7.65%) that was already paid. You will receive $1076.50. You will avoid federal and state taxes.
403b, 457 Plan Example
Your refund is $1000. You have decided to deposit this as a one-time 403b, 457 plan amount. You will receive $1000. You will not receive the FICA amount paid. However, you will avoid federal and state taxes.
Can I have this money directly deposited to a 401K plan I have from another employer?
No. This would require a direct rollover from the ORS. As the money is being processed via the payroll systems of individual school districts, this is not an option.
Instead of one lump sum, may I have the funds distributed over the rest of my paychecks for the remainder of the school year?
This is an option we are willing to consider. However, we have not made a final decision or determination about how this process would work.
FICA Refund on 3% since 2012 (Public Act 300 of 2012)
This refund is different from the 3% ORS refund for funds that were taken from July 2010 - September 2012. Employees who agreed to pay 3% of their earnings toward future healthcare costs after September 3, 2012 should be entitled to a refund of the FICA amount paid on these funds. The district charged FICA on these deductions and filed for a FICA refund from the IRS for the FICA paid on those deductions from February 1, 2013 - December 31, 2015. In 2016, we changed the tax treatment and the deductions are considered FICA exempt. The period between September 4, 2012 and February 1, 2013 was the health care election period and were not included in the districts initial IRS refund request. We are waiting for state guidance for this period.
If accepted by the IRS, the refunds will be process by calendar quarter. Once we have received all the requested IRS refund amounts, we will distribute to employees who elected to have the district request their refund. (Note: all current employees signed the election form to have the district request refund.
Will this count as income?
No, it will reduce your FICA earnings and you will get a refund of the FICA that was paid.
What about my W-2 forms?
The District will your 2013, 2014, and 2015 W-2 forms because of the corrected needed to FICA wages and FICA amounts withheld.
Will individuals have to refile their taxes because of this?
If you elected to have the district request your FICA refund, you will not need to refile your taxes.
If you did not elect to have the district request your FICA refund or did not respond to our request, you will need to refile your taxes to received the FICA refunds for 2013, 2014 and 2015, whichever years apply to you.
All of the District’s current employees have signed the form permitting us to apply for the refund. However, some past employees did not respond to our request for this form will have to request the funds directly from the IRS.