Jeannette will pay about $100,000 to the Internal Revenue Service after an audit determined the city and its police officers had not been paying Medicare taxes.
Chief fiscal officer Ethan Keedy said the funds will come out of the capital reserve account, which was created with money from the 2015 sale of the city’s sewage authority.
The audit looked at 2020, 2021 and 2022. Had the IRS gone back farther, the payment likely would’ve been astronomical, Keedy said. Council approved the first payment at its meeting this month.
“The IRS has been auditing us for some time,” Councilman Chuck Highlands said. “We owe a penalty of a little over $100,000.”
Medicare taxes are typically automatically deducted from paychecks, with the employee paying 1.45% of their income and the employer paying the same amount. The taxes fund the federal Medicare health insurance program. The payroll deductions were not happening for the city’s police officers in what Keedy described as an oversight prior to his hire.
“It’s been fixed now moving forward,” he said.
The $100,000 figure includes both the city’s share and that of the officers for those three years. Jeannette is lucky that the IRS waived associated interest and penalties, and that the audit only went back to 2020, Keedy said.
The audit also determined that people who contract with the city, such as the engineer and solicitor, weren’t receiving tax-related forms. Those document for the IRS how much is being paid to a contractor when the amount exceeds $600.
“Moving forward now, there should not be any more cleanup,” Keedy said.
