FSM processing PUA taxation reimbursement payments for beneficiaries

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Category: News

Published: Wednesday, 31 March 2021 04:29

Written by Bill Jaynes

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By Bill Jaynes

The Kaselehlie Press

January 29, 2021

Pohnpei—The FSM National Government is in the process of issuing reimbursements of withheld taxes to recipients of the Pandemic Unemployment Assistance (PUA).  The US Department of Labor (DOL) issued the grant to the FSM for the purpose of aiding FSM residents who, because of the COVID-19 crisis, found themselves either unemployed or significantly under employed.

In the middle of last year, the FSM Congress passed a bill requiring that a 10 percent income tax and 15 percent Social Security payment should be withheld from each payment to approved beneficiaries of the PUA. FSM President Panuelo vetoed the bill and returned it to Congress.  Congress overturned the veto.

“Your Committee has reviewed Congressional Act No. 21-120, and the accompanying veto message (P.C. No. 21-301),” the Ways and Means Standing Committee Report recommending the override of the veto said. “Your Committee notes that the unemployment assistance grant that is forthcoming is more than enough to compensate an unemployed citizen of the Federated States of Micronesia even after the taxation is taken into account.  Your Committee believes that the revenue generated by taxing this windfall will benefit many other programs in the nation that are now struggling due to the COVID-19 pandemic.

“Your Committee further notes that during hearings on this bill, the Department of Finance and Administration and the Social Security Administration both supported the tax.  Taxing for social security purposes would, in fact, protect the benefits and eligibility of the unemployed to the social security safety net.  Your Committee has reviewed the President’s comments in P.C. No. 21-301 and your Committee has determined that the veto is purely based on policy,” the report said.

At the beginning of the ongoing sixth regular session of Congress, FSM President David Panuelo sent a bill to Congress that if enacted would rescind the PUA taxation law. Accompanying the bill and the President’s message urging its passage was a legal opinion issued by the FSM Department of Justice saying that the grant terms did not allow for the taxation of the benefits. Also accompanying the bill was the letter from the DOL that listed its reasons for curtailing the grant if withheld taxes were not reimbursed to beneficiaries.

According to Joses Gallen, the FSM Secretary for the Department of Justice, though Congress did not act to rescind the law, the reimbursements are still going out to PUA beneficiaries and will not be withheld in future.  He said that Congress did not feel the need to rescind the law because their legal counsel advised the members that the law already had a “saving clause” built into it. That clause says that the legislated taxes would be paid unless the grant conditions prohibit.

“When the US Dept of Labor sent its decision that no tax was a grant condition, we all agreed that no tax can be deducted,” Secretary Gallen explained in a Facebook message. “This was the AG’s legal position, but it was not really clear before. It became clearer when we submitted that question to the Department of Labor legal counsel responding that yes the stimulus grant has the condition that no tax can be deducted.”

“Ultimately, with or without the repeal, the deducted taxes will be reimbursed,” Secretary Gallen wrote.