State of California

  M E M O R A N D U M

  REFERENCE CODE:
  2000-036

  DATE:
  June 27, 2000

  TO:
  Accounting Officers
  Employee Relations Officers
  Personnel Officers

  FROM:
  Department of Personnel Administration
  Labor Relations Division

  SUBJECT:
  Medicare Underpayments

  CONTACT:
  Michael T. Navarro, Labor Relations Officer
  (916) 324-0476, CALNET 8-454-0476
   
  Email: MichaelNavarro@dpa.ca.gov


  On September 14, 1998, the Department of Personnel 
  Administration (DPA) issued PML Memo 98-043 regarding the 
  underpayment of Medicare taxes.  As you may recall, DPA was 
  advised by the State Controller's Office that as a result 
  of erroneous entries on employee records, federally 
  mandated Medicare taxes were not withheld properly from 
  approximately 850 supervisory, managerial, and rank-and-
  file employees. 
  
  In accordance with normal procedures, account receivables 
  (A/R's) were established to collect the employee 
  contribution amount from the affected employees.  At the 
  time the underpayments were identified the Controller's 
  Office forwarded all required employer and employee 
  Medicare tax payments to the federal government with the 
  taxes being charged to agency accounts.  The employee 
  contribution was to be collected from the employee through 
  the AR process.  However, State agencies were advised to 
  cease all collections until DPA noticed employee 
  representatives and negotiated a uniform collection 
  methodology to ensure that all similarly situated employees 
  were treated in like manner.
  
  As part of the recently completed negotiations, the State 
  has agreed that these underpayments will not be collected 
  from any of the original 850 employees (including 
  supervisors and managers) that were identified in 1998.  
  For those A/Rs where monies were collected, agencies should 
  refund the amount collected by Office Revolving Fund check.  
  If the employee has separated, the agency should make a 
  good faith effort to contact the former employee and return 
  the funds.  Do not reverse the A/Rs that currently exist, 
  as this will result in funds being withdrawn from Medicare.
  
  Additional information regarding clearing the revolving 
  fund advances and A/Rs will be provided at a subsequent 
  date.  If you have questions regarding the accounting 
  process, please contact Glenda Clark, Department of 
  Finance, Fiscal Systems and Consulting Unit, at (916) 445-
  3434 ext. 2140, CALNET 485-3434 ext. 2140, e-mail 
  FIGCLARK@DOF.CA.gov
  
  Employees should be informed that the payment of the 
  Medicare taxes by the employer constitutes taxable income 
  to the employee.  Please report this income to the 
  Controller's Office via form STD. 676P.  (Refer to Payroll 
  Procedures Manual, Section I 172.2 for form completion 
  instructions.  Use "AE" as the Item Code, "Per DPA PML # 
  2000-036" as the Item Description, "2000" as the Tax Year, 
  "07/00" as the Pay Period, and "07/31/00" as the Issue 
  Date.  All dates should be current year.)  This income is 
  subject to Federal/State income and Social Security (if 
  applicable)/Medicare tax withholding.  Taxes will be 
  withheld from a subsequent regular pay warrant.  Taxes 
  withheld will be indicated on the Earnings Statement or 
  Direct Deposit Advice under Deductions as FED TAX ADJ, ST 
  TAX ADJ, SS ADJ, MED ADJ (and included with any other 
  additional withholding for that regular pay warrant).  The 
  income will be included on Form W-2 at the end of the year 
  in Boxes 1 - Wages, tips, other compensation;
   3 - Social Security wages (if applicable); 5 - Medicare 
  wages and tips; 17 - State wages, tips, etc. and 12 - 
  Benefits included in box 1.  
  
  The form STD. 676P should be submitted to the Controller's 
  Office by the 10th of the month for withholding taxes for 
  that month.  The latest date for submitting the form STD. 
  676P is October 10, 2000.  This will ensure that the 
  taxable gross will be reflected on the current year form W-
  2.  For separated employees, the Controller's Office will 
  update their taxable gross and establish A/R's for the 
  Medicare/social security taxes.  A form W-2 will be issued 
  even if they separated prior to this year.
  
  Should you have questions concerning the above, please do 
  not hesitate to contact me at 324-0505 or E-mail me at the 
  address listed above.
  
  Sincerely,
  
  
  Michael T. Navarro
  Labor Relations Officer