U.S. Sued to Return FICA and SS Taxes

August 4, 2010

Over the years many foreign workers have asked how they can receive benefits from Social Security and Medicare, or have the money they paid in FICA taxes returned. Some foreign works paid thousands in FICA taxes, but are not eligible to receive benefits.

Two years ago, I asked a Senate staffer if foreign guest workers were eligible to receive Social Security benefits or to be reimbursed for the money they paid into the fund. He was kind enough to get the answer. Here it is: "I've checked with our Soc Sec guy and the answer is that you need to be a U.S. citizen, or on track to become one, in order to be a Social Security beneficiary."

Attorney Alexis Fallon said according to 8 USC Section 1611 and 1641 that none of the workers that participated in the system after 1996 will ever receive SS benefits if they do not receive a green card and resided six months out of the year in the U.S.(includes the CNMI).

Millions of dollars have  been taken from foreign workers for FICA taxes as a December 14-18, 2004 Weekend Standard article states:

"South Korean and Filipino workers are exempt from this 7 per cent assessment by treaty, but the lack of an agreement between the US and China means Chinese labourers have paid an estimated US$270 million that they cannot recover."
Thankfully, within the last two weeks several attorneys have filled lawsuits in an attempt to have the deducted FICA taxes returned to the employers of the foreign workers and the foreign employees.

Attorneys Alexis Fallon and Anthony Long filed a lawsuit against the U.S. on behalf of Rifu Apparel Corp. and Hong Kong Entertainment (Overseas) Investment Ltd. and "certain of their employees."  The lawsuit filed in the U.S. District Court for the NMI on August 3, 2010 seeks reimbursement of the employers' and employees' share of SS and Medicare taxes (FICA taxes) that was paid to the U.S. government between the tax years of 2003 and 2007.

Another lawsuit representing 11 former Saipan garment factories filed by attorneys Alexis Fallon and Gregory J. Koebel also seeks reimbursement of FICA taxes paid to the U.S. government. The factories that are plaintiffs in the lawsuit are American Pacific Textile Inc., Grace International Inc., Handsome Textiles (Saipan) Corp., Hansae (Saipan) Inc., Marianas Garment Manufacturing Inc., Michigan Inc., Neo Fashion Inc., Sam Kwang Saipan Corp., Top Fashion Corp., Uno Moda Corp., and U.S CNMI Development Corp. The lawsuit also seeks a refund of both the employer and employee FICA taxes.

The complaint filed July 28, 2010 states:
Each Plaintiff employed Employees who performed work for one or more of Plaintiffs in the CNMI during at least all or part of calendar tax years 2004, 2005, 2006 and/or 2007 and erroneously paid, by mistake and under threat of coercion, the Employer's FICA tax on the wages paid to said Employees during one or more of those years to the Defendant.

The Defendant wrongfully assessed and compelled payment from Plaintiffs of FICA taxes as a percentage of the wages paid to Plaintiffs' Employees in each of the years 2004 through 2007. During these years, the assessment, deduction, and payment of these FICA taxes were not required by and were contrary to law.
All of the plaintiffs filed with the Service Claims in 2008 to recover the taxes that were unfairly withheld from their employees' wages in the years between 2004 and 2007.

From the August 3, 2010 complaint:
Upon information and belief and after a reasonable investigation, each Plaintiff avers that none of said Employees has individually requested from the Service a refund of said FICA taxes paid by such Employee and no Employee has made any assignment of said Employee's right to assert such refund claims. For purposes of the identification of each Employee on whose behalf a claim is brought pursuant to this claim for relief, Plaintiffs each incorporate by reference the employee listings appended to each Plaintiff s refund request as filed with the Service. 
...Each Plaintiff is entitled to recover (for the benefit of its individual Employees) all FICA taxes withheld from the wages paid to said Employees during the tax years 2004 through 2007 and paid to the Defendant, together with interest thereon at the applicable legal rates, and together with their attorney fees, litigation expenses and court costs, as provided by law. 
Both complaints request a jury trial.

See also these posts:

News From the CNMI
Social Security Taxes and Guest Workers


Anonymous said...

You don't get a jury trial against the federal government.

The federal government is going to win these cases hands down.

Alexis Fallon's clients won't prevail on her claim that it is "unfair" to pay taxes for benefits which the guest workers will never collect. While she may consider it unfair, this is a matter of international treaty negotiation, and the United States has not seen fit to grant the same waiver of social insurance taxation to the Communist People's Republic of China as it does to our close friends and allies Japan, South Korea, and the Republic of the Philippines.

This is a simple case of international law. Other than the Constitution, treaties rank with statutes as the highest law of the land pursuant to the Supremacy Clause.

Ms. Fallon already lost a case in District Court, the Ninth Circuit, and the U.S. Supreme Court (denial of certiorari) on her quixotic quest to have federal courts assume jurisdiction over the NMTIT despite Covenant language and CNMI legislation giving it to the CNMI Superior Court.

Her attempt to have the federal government disgorge the hundreds of millions of dollars that the feds benefitted from the CNMI garment industry will fare no better. While sovereign immunity will not be the basis her lawsuit is dismissed, the same principles apply.

Plus, who says those workers will never be on a pathway to citizenship and thus unable to collect benefits? In supporting this ill-conceived lawsuit out of sympathy and a desire to right some of the wrongs done against our hard-working guest workers, have you given up on status change?

This lawsuit is inconsistent with status change. It will be dismissed based on binding international treaties that show the current law is intentional.

Go feds!

Anonymous said...

Without knowing the outcome, I recall mention several years ago in the press about a proposal by a CNMI legislator to spend certain funds representing, I believe, taxes collected from non-resident (alien) workers, on the basis of their having left the CNMI, etc. One wonders what was the outcome of this proposal. I don't know that I would be easily able to locate the article, at least 7 or 8 years old.

Anonymous said...

Once the United States defeats this lawsuit, the CNMI should seek cover-over of the $270+ million under Covenant Section 703(b).

captain said...

In the case of Japanese workers in the NMI (US),I was told (by one Japanese national)that there is a reciprocal agreement between US and Japan that allows SS taxes collected during the employees time employed in US areas.
At the time of retirement, the individual will collect the "combined" amount that is calculated on what is due from the total contribution from both Govts.
If in Japan the US will issue the due amount of contribution to the Japanese Govt. and the same will happen in case the worker ends up in the US. (I do not know that if this is a fact, as I have not checked with the SS on this)

The rest of what you say about treaty I agree, from what I have learned over the years.
I had questioned this before years ago and was told that we had to deduct from the payroll and pay into SS what is due from the certain workers.
Another question was why did the Phil workers have to have a SS card to work in the NMI (or US) when we did not deduct the SS taxes.
In fact,years ago, at one particular time. all (Phil.)got back the deductions from our main office off island after I complained and pointed it out it was not authorized by the US. (the company had contracted out the payroll accounting)

Wendy said...

Anonymous 9:18

Such an angry and snarky comment.

Thinking that the US government should NOT take FICA from foreign workers who are not guaranteed a pathway to citizenship does not mean that I have "given up on status." It is NOT inconsistent with the question of status change. Both concern JUSTICE and DEMOCRATIC PRINCIPLES. Both the present practice of deducting FICA taxes from foreign workers who may never receive any of the benefits, and not allowing a direct pathway to citizenship for long-term foreign workers are un-American practices.