BY THOMAS GRILLO
LYNN — City officials are assessing the financial impact of an Internal Revenue Service audit.
An IRS team reviewed the financial books for 2014 and 2015 and found that 69 school employees failed to pay the 1.45 percent Medicare tax, according to Stephen Spencer, the city’s comptroller.
Under the IRS code, school employees were exempt from paying Medicare prior to 1986. But many of those workers left and later returned to the school department, which has 1,842 full time workers. As a result, they were subject to the tax. In an effort to resolve the matter, the city plans to pay both sides of the Medicare tax, said Spencer.
“That’s a total of 2.9 percent, or 1.45 percent for each side,” he said.
It’s unclear how much money the city will pay in back taxes and the amount of an IRS fine that may follow, Spencer said.
“We have no idea how much we will be paying, we are peeling back the onion here,” he said.
The city has mailed updated W-2 forms to the employees who were impacted for those two years.
A second tax issue the city is dealing with is correcting employees’ W-2 forms because of what occurred in the city for years. Car allowances, stipends and other so-called collective bargaining perks were treated as independent contractor payments and employees received a 1099 for that income instead of it appearing on the W-2.
“We are amending our 2104 and 2015 W-2s to reflect all earnings appropriately because as city employees you should not receive a W-2 and a 1099,” Spencer said. “For example, as a department head I am entitled to $325 travel allowance a month so my obligation was $3,900 and I got a 1099 for that,” he said. “My corrected W-2 increased by $3,900.”
It’s unclear how long the auditor will be in Lynn.
“He is not leaving anytime soon,” Spencer said.
Thomas Grillo can be reached at [email protected].
