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I <br />I <br />I <br /> <br />league of <br /> <br />minnesota cities <br /> <br />December 20, 1982 <br /> <br />TO: <br /> <br />City Clerks and Managers. <br /> <br />FROM: <br /> <br />Research Staff <br /> <br />RE: <br /> <br />ImpJ. ementatton of PERA withholding changes <br /> <br />The recently passed state budget bill contains several provisions affecting <br />city payrolls. Some confusion has arisen over implementation of~these <br />provisions. This memo attempts to answer some of the common questions. <br /> <br />I <br />! <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />! <br /> <br />When does the chan~e in the employee contribution to PEP~ take effect? <br />The change affects the first full pay period beginning after Dec. 28. As <br />an example, if you pay employees on Dec. 31 for the pay period of Dec. 16 <br />through Dec. 31, the change would not affect that paycheck. On the other <br />hand, if you pay on Jan. 14' for the pay period of Jan. 3 through Jan. 14, <br />the PERA change will affect that paycheck. <br /> <br />What exactly is the Chanse? Each employee's PERA deduction should be <br />increased by 2% of salary. A "coordinated" fund member will then <br />contribute a total of 6%, (instead of the current 4%) while a "basic" <br />member or a police and fire fund member will contribute a total of 10%, <br />(instead of the current 8%). The city's contribution in each case <br />remains unchanged. (PERA will forward part of the city's contribution to <br />the state treasury.) <br /> <br />5 <br /> <br />Can the city simply pick up the additional 2% itself without increasing <br />the employee's contribution? No. The city could increase the-employee's <br />salary by 2%, or by any other amount for that matter. But, that increase <br />would be part of the employee's salary, and thus PERA deductions and tax <br />withholding would be due on the full salary, including the increase° <br /> <br />How should federal tax withholding be handled on these increased employee <br />PERA contributions? The intent of the bill is to restructure the PERA <br />system so that the employee's tull contribution would be deductible for <br />federal income tax purposes. However, that deductibility depends on <br />receiving a favorable IRS ruling, which has'not yet occurred. Until <br />further notice, you should treat the employee's PERA contribution as part <br />of gross salary for calculating federal income tax and FICA (social <br />security) withholding. (Mote: Even after receipt of a favorable IRS <br />ruling, the employee's PERA contribution will continue to be subject to <br />FICA withholding.) <br /> <br /> OVER <br /> <br />183univepsiCyavenueeast, st. paul, minnesoSa 55101 (B12) 227-5600 <br /> <br /> <br />