State of California

  M E M O R A N D U M

  REFERENCE CODE:
  2000-067

  DATE:
  November 27, 2000

  TO:
  Employee Relations Officers
  Accounting Officers
  Personnel Officers

  FROM:
  Department of Personnel Administration
  Labor Relations Division

  SUBJECT:
  Medicare Underpayments

  CONTACT:
  Julie Chapman, Labor Relations Officer
  (916) 324-9420
  FAX: (916) 322-0765
   
  Email: juliechapman@dpa.ca.gov


  On June 27, 2000, the Department of Personnel 
  Administration (DPA) issued PML Memo 2000-036 regarding the 
  underpayment of Medicare taxes.  This memorandum is to 
  inform departments of the status of this matter.
  
  As you are aware, at the time that the underpayments were 
  identified in 1998, the Controller's Office forwarded all 
  required employer and employee Medicare tax payments to the 
  federal government.  As a result of negotiations, the State 
  agreed not to collect the employee's underpayments from the 
  original 850 employees that were identified in 1998.  
  
  In PML Memo 2000-036, Departments were directed to inform 
  the affected employees that the payment of the medicare 
  taxes by the employer constitutes taxable income to these 
  employees.  In addition, departments were instructed to 
  report this income utilizing the STD 676P process.  This 
  would include the taxable income on the Form W-2 and would 
  generate Federal/State income and Social Security (if 
  applicable)/Medicare tax withholding from a subsequent 
  regular pay warrant.  The deadline for submitting the STD 
  676P to the Controller's Office was October 10, 2000.
  
  To date, only 170 Std 676s have been received of the 850 
  affected employees.  Consequently, DPA has instructed the 
  Controller's Office to identify the remaining 680 employees 
  and automatically include the taxable income (medicare 
  underpayment amount) on the 2000 
  Form W-2.
   
  The affected employees will be responsible for any Federal 
  and/or State income tax due as a result of the additional 
  income reported on the Form W-2 when they file their tax 
  return for 2000.  Accounts Receivables (A/R's) in the form 
  of "agency collection" will be automatically generated for 
  the Social Security (if applicable)/Medicare tax 
  withholding resultant from the additional taxable income.  
  Departments can work out a payment plan with employees for 
  the months of January, February and/or March 2001 for these 
  collections.  However, these account receivables must be 
  collected by April 1, 2001.
  
  The Controller's Office will be sending departments the 
  listing of affected employees by the end of November.  This 
  listing will include the name, social security number, 
  position number and the amount the Controller's Office will 
  use to increase taxable gross and calculate respective 
  A/R's.  A contact person will also be provided to report 
  any discrepancies in the employee listing.
  
  Should you have any questions regarding this matter, please 
  contact Julie Chapman at (916) 324-9420.
  
  Sincerely,
  
  
  
  Gloria Moore Andrews
  Chief of Labor Relations