The Internal Revenue Service is expected to sign off this week on the Medicare tax deal that will save the state, as well as numerous Nevada judges, at least $290,000.
State payroll managers discovered last year that Nevada has failed to pay the Medicare taxes for judges and board and commission members for more than 25 years.
The federal government began requiring state and local governments to pay into Medicare in 1986, and Nevada did so for nearly all employees. But judges slipped through the cracks, and neither the state nor employee share of the 2.9 percent tax was paid.
Because the state reported the problem to the IRS rather than wait for auditors to discover it, the IRS gave the state a break. It forgave both interest and penalties provided that the state pay the $1.69 million owed for the past three years — the maximum amount of time IRS can collect money owed retroactively.
Director of Administration Jeff Mohlenkamp said the penalty could have been anything from 10 percent to 20 percent of the total owed, a minimum of $170,000. His best estimate of the interest owed is $120,000.
Mohlenkamp said avoiding penalties and interest is good news for the state and for the employees involved because, under the law, employer and employee split the tax payments.
There are 527 employees affected, but he said 389 of them — board and commission members — owe less than $200 each. For those who owe $10 or less, the state will pay the tab because it would cost more than that to collect those small amounts.
The larger amounts are owed by the state’s judges — up to $10,500 in some cases.
Once the IRS signs the deal, he said, the state will pay the entire $1.69 million, then collect the employee shares of the total from them.
Then notices will go out to current and former employees telling them how much they owe and what their options are.
Current judges and board members can pay their share to the state in a lump sum or have payments deducted from their biweekly checks. Former workers can pay it off or set up a plan taking up to three years to pay the debt.
Mohlenkamp credited payroll manager Keyna Jones for the hard work of tracking down the debts and setting up the payment plan. He said the state has been making the Medicare payments since the problem was discovered.
“This is good to get this behind us,” he said.
A similar problem was discovered in 2007, when it was determined that the Medicare payments for Nevada’s constitutional officers weren’t being paid. That was fixed at a much lower cost, given that there are only six constitutional officers, including the governor.
Apparently, Mohlenkamp said, no one looked around to see if anyone else was being missed at that time.