Memorandum

February 21, 2005 
To: Galveston College Personnel
From: Elva Concha LeBlanc, President
Subject: Social Security Taxes

It was recently brought to our attention that the College had not followed all appropriate Social Security tax regulations for the period of October 2003 until January 2005.  We have found a solution that will have minimum disruption to faculty and staff.  However, it is important to keep everyone informed of the issue and how it is being addressed.

The tax regulations require that the employee and employer pay Social Security taxes on the total contribution to retirement, annuities, and/or deferred compensation plans.  Up until October 2003, the College procedures were in compliance with these regulations.  However, the previous Director of Human Resources who was over the payroll office, misinterpreted the regulations and recommended changing the procedures.  Effective October 1, 2003, the College stopped withholding and paying Social Security taxes on the contributions to retirement, annuities, and/or deferred compensation plans.  Employees were informed of the institution’s intention prior to the change in an e-mail issued October 29, 2003.  The communication to the employees stated the following:

“You will notice a slight increase in your net pay on your October 2003 pay check.  Effective 10/01/2003, your retirement and annuity will not be subject to FICA and Medicare tax.  Therefore, you will get that amount in your net pay.  It basically comes down to 7.65% of your monthly deduction for TRS, ORP, TSA, and 457 should be the net increase you see.

Example: Monthly TRS deduction is $200.00 X 7.65% = $15.30 – this is the net increase you will see.”

However, review of the regulations, indicate that the contributions are taxable and the College is liable.  The College has contacted the Internal Revenue Service (IRS) who handles these accounts.  The IRS has provided explicit instructions to resolve the issue with minimum disruption to College personnel.  The IRS recommends that the college file and submit an amended 941, along with the payment of the outstanding deposits to the IRS.  Simultaneously, a second W2 must be submitted to the Social Security Office correcting the employees’ Social Security earnings for the years 2003 and 2004.  The faculty and staff will receive a copy of the second W2 for information purposes only.  It will not be necessary for the employees to take any action.  This affects Social Security wages and not federal wages; therefore, it does not affect your federal income taxes. 

I will hold meetings on Wednesday, February 23, 2005, at 2:00 p.m. and Friday,
February 25, 2005, at 10:00 a.m. to answer any questions that College personnel will have on this issue.