By LOHR McKINSTRY
---- — ELIZABETHTOWN — The Internal Revenue Service has retroactively charged Essex County for not making federal deductions from money paid to contractors doing work for the county.
The County Board of Supervisors Ways and Means committee agreed this week to pay the IRS $82,000 to settle the case, though a final vote will be at 10 a.m. Monday in the Old County Courthouse.
The money would come from the county’s contingency account.
FIGURE WHITTLED DOWN
County Attorney Daniel Manning III told the Ways and Means Committee that Social Security and other taxes were not deducted from some contractors’ pay because the county did not consider them employees.
The IRS disagreed and ordered the county to pay the deductions for Social Security, Medicare and income-tax withholding.
Manning said the IRS determination covers the last three years and a variety of contractors who did work for the county.
He said the amount would have been much higher, except Essex County Treasurer Michael Diskin negotiated with the IRS to reduce the amount.
“Mike Diskin worked very hard in getting this figure down from $200,000,” Manning said. “This is something the IRS has done to a lot of other counties.”
‘DEGREE OF CONTROL’
Manning said it hinges on the difference between an independent contractor and an employee under IRS regulations.
The IRS says it looks at the relationship between the worker and the municipality or business to make a determination.
“All evidence of the degree of control and independence in this relationship should be considered,” IRS Section 3509 reads.
“The facts that provide this evidence fall into three categories: behavioral control, financial control and the relationship of the parties.”
If the municipality controls what the worker does, provides tools or supplies or has a long-term or key relationship with the person, the IRS likely would categorize the person as an employee, according to the IRS section.
When the contractor/employee status is not clear, the IRS says Form SS-8 should be filed, and the agency will make a decision.
Manning said the county will take steps in the future to try to avoid similar tax surcharges.
The full Board of Supervisors held a 45-minute executive session during Ways and Means to discuss the IRS settlement with Manning and Diskin and tentatively approved it afterward by unanimous vote.
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