March 2010
New Checklist Aims to Create Self-Check Form for State &
Local Government Employers
Anne Adams
Public employers are subject to unique employment taxes and regulations different from those for private sector employers. The IRS Advisory Committee on Tax Exempt and Governmental Entities (ACT) has released Exposure Draft: Compliance Verification Checklist for State and Local Governmental Entities. The checklist can be found here.
According to the National Conference of State Social Security Administrators, the primary goal of the checklist is to adapt the existing IRS office of Federal, State and Local Governments (FSLG) “compliance check Form 4318 into a self-check form for public (state and local government) employers to access in order for them to verify their compliance with applicable federal laws and regulations.”
Past compliance checks of public employers conducted by the FSLG identified numerous errors. The errors identified on the exposure draft include:
- Amounts reported on Forms W-2, W-3 and 941 do not reconcile
- Forms W-9 and W-4 are not used or updated when required
- Public employers are unaware of the backup withholding requirements if no TIN (Taxpayer Identification Number) is provided by a vendor prior to payment
- Form 1099 problems included:
- Lack of preparation
- Incorrect preparation
- Preparation but not submitted to the IRS
- Employment taxes deposited but employment tax returns were not filed
- Employment taxes deposited for incorrect periods
- Public employers not aware of electronic filing requirements
- Elected officials treated as independent contractors instead of employees
- Rehired annuitants did not have Medicare-only tax withheld or paid
- Election officials and workers treated as independent contractors instead of employees
The checklist was designed to help public employers conduct a self-assessment of their compliance level and identify errors and concerns. Once the compliance verification checklist has been completed, the organization is encouraged to contact its FSLG specialist to help interpret the results and direct the organization to take the necessary steps to ensure compliance with all applicable federal tax laws and regulations.
The current checklist is 23 pages long and covers the following categories:
- Worker classification: employee versus independent contractor
- Social Security coverage (Section 218 Agreement and mandatory Social Security coverage)
- Medicare qualified government employees and Medicare exempt employees
- Retirement plan coverage as a substitute for Social Security coverage
- Fringe benefits
- Information reporting, vendor payments, backup withholding and timely filing of returns
- Social Security benefits offsets for public employees
The beginning of each category includes descriptions of the basic legal requirements with additional explanations in some of the compliance subcategories.
The checklist is currently in draft form, and the ACT/FSLG Subcommittee is requesting state and local government employers pretest the draft.
After an organization has completed the Exposure Draft of the Compliance Verification Checklist, that organization’s leaders can use an online evaluation form to post comments before March 15, 2010. Find the form here.
According to the FSLG Subcommittee, several conferences, e.g., the National Conference of State Social Security Administrators, will provide opportunities for public dialogue and input. Once comments and input have been received and the checklist has been revised, the FSLG Subcommittee of ACT will recommend that the checklist become a part of the FSLG online toolkit.
Contact your BKD advisor for more information or for assistance completing the checklist.
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