Update on the Michigan Public School Employees Retirement System 3% Healthcare Contribution

CPAs & Advisors

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The Office of Retirement Services (ORS) recently issued a 14-page document to update school districts (including academies and intermediate school districts) on the federal tax treatment of certain contributions made to the Michigan Public School Employees Retirement System (MPSERS) Healthcare Trust. This document was in response to the recent rulings made by the Internal Revenue Service (IRS) against certain protective claims for refunds filed by districts related to such contributions. However, be aware that the IRS has not issued an inclusive determination as to the federal tax treatment of the retiree healthcare contributions provided under the Michigan Public Act 300 of 2012.

The document also states that the ORS will submit a Private Letter Ruling (PLR) request. The request will petition for the IRS to set aside the rulings recently made as discussed above for two reasons:

1. The 3% mandatory contributions that were made under the MPSERS retiree healthcare plan and deposited into the MPSERS Healthcare Trust pursuant to Michigan state law are treated as employer contributions and are excludable from employees’ gross income.

2. Such contributions are not wages in the sense that they would be subject to FICA taxes, FUTA taxes or income tax withholdings.

Below is a link to the document in its entirety:

Overview and Analysis Supporting Favorable Tax Treatment

As we receive more information about the PLR or other updates on this situation, we will communicate it. If you are not subscribed to our Education Advisor, sign-up HERE to receive updates on important education updates. As always, if you have questions please reach out one of Yeo & Yeo’s Education CPAs.


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