Payroll-Related Tax Issues

Government entities face multiple payroll-related tax issues, such as:

• Is an individual an independent contractor or an employee?
• Are severance payments, if permitted, taxed?
• Do we need to issue W-2 forms for elected officials?
• Is an employee’s clothing allowance taxable income?

The Office of Federal, State and Local Governments of the IRS (“FSLG”) provides information and guidance to government entities on federal tax issues. If a government entity is audited by the IRS and found to be in noncompliance, fines and penalties are possible, and the government entity or its employees could be subject to back taxes.

The FSLG has prepared a quick reference guide for local government employers that can be found here:

https://www.irs.gov/government-entities/federal-state-local-governments

Date this Avoiding Pitfall was most recently published: 01/27/2023