Even in this belt-tightening economy, most of us have additional expenses during this season. Presents, holiday feasts and trips to grandma's don't buy themselves, after all. So the last thing any family wants to hear at this time of year is, "Oops. Due to an accounting error, you owe the federal government more than you've already paid."
But that's the situation the Eastern Carver County school district and many of its employees now face. While testing new budget software last month, finance staff discovered that the district owes $3 million in back taxes. For the past six years, the school payroll department did not withhold enough for FICA, the paycheck deduction that supports Social Security and Medicare.
Now the question is how best to pay the bill. The teachers who benefited from the error should pay back their share. However, district leaders should come up with a sensible repayment plan that spreads out the burden over time.
Part of the problem is solved. The Internal Revenue Service must be paid by the end of January, so the district formerly known as Chaska will send a $3 million check to the government. Of that total, about half is what the district itself failed to pay into FICA. Board members and the administration will make some quick decisions about tapping reserves and cutting the current budget to pay the unexpected bill. The remaining $1.5 million should have been withheld from was an overpayment to employees. Over six-plus years, teachers and some other staffers received about $19 more per pay period than they should have. Therefore, the average teacher owes about $2,500.
Because the monthly amounts were so small -- and because the average worker cannot cite chapter and verse on FICA requirements -- it's no wonder employees failed to catch the mistake themselves. Most of us trust our employers to deduct the proper tax amounts from our paychecks. So if the mistake wasn't the employee's fault, shouldn't the employer foot the entire bill? That's not the kind of lesson in ethics and personal responsibility that we hope to see taught in our schools.
In this case, the responsibility is already shared. Both the district and its staff contribute to FICA and both need to correct the error.
Superintendent David Jennings says working through the issue has raised more questions than answers thus far. Would there be any tax liability for the overpayments if employees don't pay back kept the money? Will penalties be waived because the district reported the error on its own? Logistically, collecting the money from some workers could be challenging. School officials estimate that at least 100 of the 750 affected employees have retired or left the district for other reasons. How can those payments be recovered?
And the accounting mistake occurred in small increments over more than six years. It certainly makes sense that the district would be paid back over the same amount of time?
