B-211960, NOVEMBER 29, 1983, 63 COMP.GEN. 61

B-211960: Nov 29, 1983

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EVEN THOUGH THE EMPLOYEE IS NOT ELIGIBLE FOR MEDICARE BENEFITS BASED ON FEDERAL SERVICE. ALTHOUGH UNDER THESE PROVISIONS SOME EMPLOYEES SUBJECT TO THE TAX WILL NOT BE ELIGIBLE FOR MEDICARE BENEFITS. THERE IS NOTHING IN THE STATUTE OR ITS LEGISLATIVE HISTORY WHICH PERMITS A DIFFERENT RESULT. 1983: THIS DECISION IS IN RESPONSE TO A REQUEST FROM THE FEDERAL AVIATION ADMINISTRATION (FAA). POINTING OUT THAT HE WAS NOT AN EMPLOYEE AT THE TIME. HE IS NOT ENTITLED TO MEDICARE BENEFITS. THE ONLY FEDERAL EMPLOYMENT NOT SUBJECT TO MEDICARE COVERAGE AND THE MEDICARE TAX IS (1) SERVICE PERFORMED BY AN INMATE OF A FEDERAL PRISON. THERE IS A TRANSITIONAL PROVISION IN SECTION 278. THIS PROVISION APPLIES ONLY TO PERSONS WHO WERE EMPLOYED "AT ANY TIME DURING JANUARY 1983.".

B-211960, NOVEMBER 29, 1983, 63 COMP.GEN. 61

SOCIAL SECURITY - MEDICARE, MEDICAID, ETC. - WITHHOLDING - PROPRIETY - EMPLOYEE NOT ELIGIBLE FOR BENEFITS AGENCY PROPERLY DEDUCTED MEDICARE TAX FROM THE FINAL PAYCHECK OF AN EMPLOYEE WHO RETIRED IN DECEMBER 1982, BUT RECEIVED THE PAYCHECK IN JANUARY 1983, EVEN THOUGH THE EMPLOYEE IS NOT ELIGIBLE FOR MEDICARE BENEFITS BASED ON FEDERAL SERVICE. SECTION 278 OF THE TAX EQUITY AND FISCAL RESPONSIBILITY ACT OF 1982 PROVIDES THAT THE TAX APPLIES TO ALL REMUNERATION RECEIVED AFTER DEC. 31, 1982, BUT PROVIDES CREDIT FOR PRE 1983 FEDERAL EMPLOYMENT ONLY TO INDIVIDUALS WHO PERFORMED SERVICE BOTH DURING JANUARY 1983 AND BEFORE JAN. 1, 1983. ALTHOUGH UNDER THESE PROVISIONS SOME EMPLOYEES SUBJECT TO THE TAX WILL NOT BE ELIGIBLE FOR MEDICARE BENEFITS, THERE IS NOTHING IN THE STATUTE OR ITS LEGISLATIVE HISTORY WHICH PERMITS A DIFFERENT RESULT.

MATTER OF: EDWARD J. COMPOS - MEDICARE TAX, NOVEMBER 29, 1983:

THIS DECISION IS IN RESPONSE TO A REQUEST FROM THE FEDERAL AVIATION ADMINISTRATION (FAA), ON BEHALF OF MR. EDWARD J. COMPOS, A FORMER EMPLOYEE, FOR OUR DECISION CONCERNING THE PROPRIETY OF DEDUCTING FICA HOSPITAL INSURANCE TAX (MEDICARE TAX) FROM MR. COMPOS' FINAL SALARY PAYMENT. MR. COMPOS RETIRED FROM THE FAA IN DECEMBER 1982, BUT HE DID NOT RECEIVE HIS FINAL SALARY CHECK UNTIL JANUARY 1983. HE HAS QUESTIONED THE WITHHOLDING OF MEDICARE TAX FROM THIS PAYMENT, POINTING OUT THAT HE WAS NOT AN EMPLOYEE AT THE TIME, THAT THE PAYMENT REFLECTED SALARY EARNED PRIOR TO JANUARY, AND THAT, DESPITE THE DEDUCTION OF THE TAX, HE IS NOT ENTITLED TO MEDICARE BENEFITS.

UNDER THE PROVISIONS OF SECTION 278 OF THE TAX EQUITY AND FISCAL RESPONSIBILITY ACT OF 1982, PUBLIC LAW 97-248, 96 STAT. 324, 559-563, 26 U.S.C. 3121, FEDERAL EMPLOYEES BECAME ELIGIBLE FOR MEDICARE COVERAGE AND SUBJECT TO THE MEDICARE TAX. SECTION 278 PROVIDES AT SUBSECTION (C)(2)(A) THAT THE TAX APPLIES TO "REMUNERATION * * * PAID AFTER DECEMBER 31, 1982." SIMILAR STATEMENTS APPEAR IN TWO DOCUMENTS ISSUED PURSUANT TO THE STATUTORY CHANGE. SEE TREASURY FISCAL REQUIREMENTS MANUAL BULLETIN NO. 83 -04, PARA. 4, OCTOBER 22, 1982, AND THE HEALTH CARE FINANCING ADMINISTRATION'S (HCFA) FACT SHEET ON MEDICARE FOR FEDERAL EMPLOYEES, PARA. IA, INITIALLY DISTRIBUTED BY THE OFFICE OF PERSONNEL MANAGEMENT, DECEMBER 10, 1982.

THE ONLY FEDERAL EMPLOYMENT NOT SUBJECT TO MEDICARE COVERAGE AND THE MEDICARE TAX IS (1) SERVICE PERFORMED BY AN INMATE OF A FEDERAL PRISON; (2) SERVICE PERFORMED BY INTERNS OR STUDENTS UNDER 5 U.S.C. 5351(2); AND (3) SERVICE PERFORMED BY INDIVIDUALS EMPLOYED TEMPORARILY DURING EMERGENCIES OR NATURAL DISASTERS. SEE TREASURY BULLETIN 83-04, PARA. 2C, CITED ABOVE.

THERE IS A TRANSITIONAL PROVISION IN SECTION 278, PERMITTING CERTAIN PRE- 1983 FEDERAL EMPLOYMENT TO BE CREDITED TOWARDS MEDICARE ELIGIBILITY. HOWEVER, THIS PROVISION APPLIES ONLY TO PERSONS WHO WERE EMPLOYED "AT ANY TIME DURING JANUARY 1983." HCFA FACT SHEET, PARAS. I, B, 4, AND X, B. THIS LATTER SECTION PROVIDES, IN PART, AS FOLLOWS:

"EMPLOYEE" INCLUDES PERSONS IN PAY STATUS AT ANY TIME DURING 1/83, I.E., THOSE ON DUTY OR ON APPROVED ANNUAL OR SICK LEAVE, AND THOSE ON APPROVED LWOP. CERTAIN OTHER CATEGORIES OF INDIVIDUALS WHO ARE IN NONPAY STATUS DURING 1/83 MAY BE "EMPLOYEES." DETERMINATIONS OF WHETHER INDIVIDUALS IN THESE OTHER CATEGORIES WERE "EMPLOYEES" MUST BE MADE BY THE EMPLOYING AGENCY OR INSTRUMENTALITY IN ACCORDANCE WITH ITS PERSONNEL RULES. * * *

RETIREMENT (AND RESIGNATION) IS EFFECTIVE AT MIDNIGHT AT THE END OF THE EFFECTIVE DATE. IF A PERSON IS IN PAY STATUS OR LWOP AT THE END OF THE WORK WEEK (E.G., 12/30/82 (12/31 IS A FEDERAL HOLIDAY)), AND HE RETIRED OR RESIGNS EFFECTIVE SATURDAY, HE WILL BE IN THE SAME STATUS UNTIL MIDNIGHT SATURDAY (E.G., 1/1/83).

SINCE MR. COMPOS RETIRED ON DECEMBER 25, 1982, IT APPEARS THAT HE WAS NOT AN "EMPLOYEE" DURING THE CRUCIAL TIME PERIOD. THE RESULT IS THAT, FOR MR. COMPOS AND FOR OTHER EMPLOYEES IN SIMILAR SITUATIONS, THEY ARE TAXED FOR ANY PAYMENTS RECEIVED AFTER DECEMBER 31, 1982, BUT THEY ARE NOT ELIGIBLE FOR ANY OF THE BENEFITS OF THE MEDICARE PROGRAM.

OUR REVIEW OF THE LEGISLATIVE HISTORY OF SECTION 278 REVEALED A REPORT PREPARED BY THE STAFF OF THE JOINT COMMITTEE ON TAXATION ENTITLED A "GENERAL EXPLANATION OF THE REVENUE PROVISIONS OF THE TAX EQUITY AND FISCAL RESPONSIBILITY ACT OF 1982" WHICH WAS PUBLISHED ON DECEMBER 31, 1982. IN THAT REPORT, THE COMMITTEE STATED AS FOLLOWS:

* * * THE ACT SUBJECTS FEDERAL EMPLOYMENT TO THE HOSPITAL INSURANCE PORTION OF THE FICA TAX, EFFECTIVE JANUARY 1, 1983, AND PROVIDES FOR USE OF THE NEWLY COVERED EMPLOYMENT IN DETERMINING ELIGIBILITY FOR MEDICARE HOSPITAL INSURANCE. TO MINIMIZE THE POSSIBILITY THAT FEDERAL EMPLOYEES WHO WERE SUBJECT TO THE TAX MIGHT FAIL TO MEET THE INSURED STATUS REQUIREMENTS, THE ACT INCLUDES A TRANSITIONAL PROVISION ALLOWING PRIOR FEDERAL SERVICE TO BE CREDITED TOWARD MEDICARE ELIGIBILITY.

WITH REGARD TO THE EFFECTIVE DATES OF THESE PROVISIONS THE COMMITTEE STATES THAT:

HOSPITAL INSURANCE TAXES ARE IMPOSED ON REMUNERATION PAID AFTER DECEMBER 31, 1982.

THE TRANSITIONAL PROVISION PERMITTING CERTAIN PRE-1983 FEDERAL EMPLOYMENT TO BE CREDITED IN DETERMINING MEDICARE ELIGIBILITY IS APPLICABLE TO INDIVIDUALS WHO PERFORMED SERVICE IN FEDERAL EMPLOYMENT BOTH DURING JANUARY 1983, AND BEFORE JANUARY 1, 1983.

IT APPEARS THAT THE DRAFTERS OF SECTION 278 INTENDED THAT THE TAX WOULD BE APPLIED ON A CASH BASIS, THAT IS, IT WOULD BE APPLIED TO ANY REMUNERATION RECEIVED AFTER JANUARY 1, 1983, REGARDLESS OF WHETHER IT WAS COMPENSATION FOR SERVICES PERFORMED PRIOR TO THAT TIME OR NOT. WE HAVE FOUND NO INDICATION IN THE LEGISLATIVE HISTORY THAT THE TAX WAS MEANT TO BE LEVIED ONLY ON COMPENSATION FOR SERVICES PERFORMED AFTER JANUARY 1, 1983, NOR HAVE WE FOUND ANY INDICATION THAT IT WAS TO BE LEVIED ONLY ON THE SALARIES OF CURRENT EMPLOYEES.

ACCORDINGLY, WE HOLD THAT THE DEDUCTION OF THE MEDICARE TAX FROM MR. COMPOS' FINAL PAYCHECK WAS PROPER EVEN THOUGH HE IS NOT ELIGIBLE FOR MEDICARE BENEFITS BASED ON HIS FEDERAL SERVICE.