Is it a Good Time for Our Governmental Unit to Conduct a Federal Tax Self-Assessment?

February 23, 2011

The Internal Revenue Service office of Federal, State & Local Governments (FSLG) has developed a self-assessment tool as a resource to help governmental entities understand and comply with the complex nature of their federal tax responsibilities. FSLG helps coordinate activities with IRS offices to work with governmental employers to resolve tax problems.
FSLG developed the self-assessment tool as a result of its identification of a number of common errors for governmental employers. Some of these errors include:

Totals shown on Forms 941 or Form 944 do not reconcile with totals on Forms W-2 and W-3, or between these forms and the accounting records.

Forms W-9 and W-4 are not being used or are not being updated when necessary.

Failure to backup withhold on payments to vendors when required.

Failure to correctly complete or file Forms 1099.

Failure to apply accountable plan rules to expense reimbursements and allowances.

Incorrect or missing employment tax deposits.

Failure to follow electronic filing requirements.

Misclassification of certain groups of workers as independent contractors, instead of as employees.

Failure to pay and withhold Medicare-only tax on rehired annuitants.

Failure to include taxable noncash benefits in employee wages.

Failure to correctly apply withholding rules to election workers and public officials.

FSLG also works with the Social Security Administration to educate governmental entities on Social Security and Medicare issues and the terms of the Section 218 Agreement that the state in which the governmental entity is located has with the Social Security Administration. A Section 218 Agreement is a written voluntary agreement between a state and the Social Security Administration to provide Social Security and Medicare Hospital Insurance, or Medicare-only coverage, for employees of state and local governments. Wisconsin has a Section 218 Agreement. It is important for a public entity to know if its employees are subject to a Section 218 Agreement because a mistake in classification of a group of employees can result in significant penalties. The FSLG self-assessment tool is an excellent resource for governmental entities. Should you have additional questions regarding the tax responsibilities a governmental entity has, our attorneys are ready to assist you. If you have questions regarding the above, please contact Mary Ellen Schill, the author of this article, or any of the attorneys in the Employment, Benefits & Labor Relations Practice Group of Ruder Ware.

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This document provides information of a general nature regarding legislative or other legal developments, and is based on the state of the law at the time of the original publication of this article. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations, or issues, and additional facts and information or future developments may affect the subjects addressed. You should not act upon the information in this document without discussing your specific situation with legal counsel.

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