Government entities face multiple payroll-related tax issues, such as:

  • Is an individual an independent contractor or an employee?
  • Are severance payments, if permitted, taxed?
  • Do we need to issue W-2 forms for elected officials?
  • Is an employee’s clothing allowance taxable income?

The Office of Federal, State and Local Governments of the IRS (“FSLG”) provides information and guidance to government entities on federal tax issues. If a government entity is audited by the IRS and found to be in noncompliance, fines and penalties are possible, and the government entity or its employees could be subject to back taxes.

For more information about FSLG and to access informational materials, please go to the IRS website at:

Date this Avoiding Pitfall was most recently published: 02/17/2017