Payroll Tax Compliance - April 2006
Payroll Tax Compliance
Released April 2006
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We identified payroll tax withholding and reporting as a risk during our review of the city's payroll processes. We found the city lacks central processes to ensure that employee income is accurately reported and employment taxes are withheld on all income. Furthermore the city's policies on fringe benefits are inconsistent with, or do not address, federal employment tax requirements. Additionally, the city lacks a policy covering appropriate use of contract workers. The lack of these processes exposes the city to potential liability for improper reporting to the IRS.
We recommended that the city:
- Correct inaccurate reporting made to the IRS and refund amounts withheld in error.
- Determine Medicare tax withheld in error and refund this amount to employees.
- Revise policies on moving expense reimbursements and the administrative order on cell phones.
- Develop procedures to accurately track and report the personal use of city equipment.
- Establish guidance for departments on the proper classification of contract workers.