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Ask the Experts April 7, 2020
Partial FICA Tax for Governmental 457(b) Plan Contributions
Experts from Groom Law Group and Cammack Retirement Group answer questions concerning retirement plan administration and regulations.
Reported by PS
“I read in a past Ask the Experts column that employer contributions are subject to FICA, except if the employee is not subject to FICA taxes in general, as is the case for certain state and local government employees that are members of a retirement system. Our state and local governmental employees are not subject to Social Security; however, they are eligible for Medicare, and pay Medicare taxes. Would employer contributions to the 457(b) be subject to Medicare taxes?”
Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
Yes. FICA tax includes two types of taxes, Social Security and Medicare. Employer contributions to a 457(b) plan are subject to BOTH types of FICA taxes, in the same manner as such taxes are otherwise applicable to the employee. Thus, if a state/local government employee is not subject to ANY FICA taxes in general, he/she is not subject to any FICA withholding on employer contributions to the 457(b) plan either.
However, if the employee is subject to one type of FICA taxes, but not the other, that employee would be subject to the same FICA withholding on 457(b) employer contributions as well. Whatever type of FICA is withheld from pay would be the same type of FICA that is withheld from employer contributions to a 457(b) plan.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.