The state has cut a deal with the Internal Revenue Service after discovering it failed to make Medicare payments for judges and members of boards and commissions for more than 25 years.
The item, which goes before the Board of Examiners on Nov. 12, asks for $1,695,276 from a variety of sources to close the deal.
The federal government began requiring state and local governments to pay into Medicare in 1986 and, Director of Administration Jeff Mohlenkamp said, did so for nearly all employees. But for a couple of groups — most notably judges — neither the employee nor the state share was paid to the IRS.
Payroll discovered the problem this year, and the state took the issue to the IRS rather than wait for auditors to find it, Mohlenkamp said. Under IRS regulations, it can’t request payments dating to 1986. But it can demand payment for the current year and three years back. The nearly $1.7 million covers 2010 through today.
In return for the state bringing the issue forward, Mohlenkamp said, the IRS has agreed not to charge the state or the employees penalties and interest. That saves both the state and the employees a lot of money, as penalties alone are 20 percent of what’s owed, Mohlenkamp said.
Medicare amounts to 2.9 percent of payroll — split equally between employee and employer. The state has been making the payments since July.
He said that under the plan before the examiners next week, the state will front the employee share of the settlement — $847,648 from the payroll trust fund. Employees, Mohlenkamp said, will be given up to three years to pay their share back through payroll deductions. For those who have left state service in the past three years, he said, the state will have to collect from them.
“If they’re no longer employed by the state, we are required to pursue collection of this,” Mohlenkamp said.
But he said the plan is intended to make the payback as painless for employees as possible.
Mohlenkamp said 527 state employees are affected, but for 389 of them — board and commission members who get very limited compensation — the total owed is less than $200.
The big debts are owed on behalf of and by the state’s judges — in some cases, up to $10,500.
All but $92,174 of the money is coming from sources controlled by the Board of Examiners, Mohlenkamp said. That last piece is coming from the contingency fund and will require Interim Finance Committee approval.
For the rest of the debt, $487,947 comes from Stale Claims, $242,800 from the current judiciary budget and $24,707 from current boards and commissions budgets.
A similar problem was discovered in 2007, when it was determined that Medicare payments weren’t being made for the state’s constitutional officers, Mohlenkamp said. That was fixed then, but at a much lower cost given that there are only six people in that category.