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<br />.. <br /> <br />. <br /> <br />. <br /> <br />Arden Hills Council <br /> <br />February 22, 1993 <br /> <br />4 <br /> <br />Post reported that, after being in contact with the IRS <br />payroll tax compliance unit, the IRS would expect the <br />employer and the employee to correct this mistake in the <br />following manner: <br /> <br />1) The City would be responsible to pay the employer's <br />share of back FICA taxes. The employee's share of back <br />FICA taxes could either be paid by the affected <br />employees or by the employer (the City) on behalf of <br />the employees; and <br />2) For the affected employees to amend income tax returns <br />for the affected years and pay the appropriate federal <br />and state tax liability due. <br /> <br />Post stated that if the City chooses to pay both the <br />employee's share and the employer's share of FICA taxes, <br />there is a formula which would be used (called "circular <br />computation") in calculating the employee's share of back <br />FICA. <br /> <br />Post added that, since the error is considered by the IRS to <br />be an "honest error", no penalties or interest will be <br />imposed on back FICA. He added that the "honest error" <br />defense could be used by employees so penalties would not be <br />imposed on the corrected federal and state tax liability, <br />however, employees would be liable for interest. <br /> <br />Councilmember Malone said there is no question that the City <br />is responsible to pay the employer's share of FICA, and the <br />question is whether the City will accept responsibility to <br />pay the employee's share also. He asked if there will be an <br />impact on State taxes as well as Federal taxes as a result <br />of this misreporting. Post answered yes. <br /> <br />Councilmember Aplikowski stated that since this error was <br />not the fault of the affected employees, she would prefer <br />that the City accept both the employee's and the employer's <br />share of back FICA. <br /> <br />Post stated that the tax liability impact on each individual <br />employee will be determined by their income level and their <br />dependent health deductions in the years in which they are <br />affected. <br /> <br />Councilmember Probst asked if there is any way the City can <br />assist the affected employees in amending their tax returns <br />for the affected years. Person suggested that, for employee <br />income privacy purposes, perhaps the City could offer a <br />fixed allowance to each affected employee as reimbursement <br />for tax preparation costs. <br />