The Ways and Means Social Security and Oversight Subcommittees have said that the Internal Revenue Service (IRS) needs to take action to reduce errors in collecting Social Security payroll taxes from state and local government employees.
The subcommittees heard evidence on Social Security compliance for state and local governments. The subcommittees were concerned regarding reports that errors in the administration of payroll taxes were going undetected for years, with US taxpayers ultimately not receiving the correct Social Security benefits as a result.
Social Security provides retirement, disability, and survivors' benefits, and is primarily funded through payroll taxes. The program is administered by the Social Security Administration (SSA) with taxes being collected by the IRS.
"Social Security still does not have the ability to verify that state and local governments are properly reporting wages for covered workers," said Chairman of the Social Security Subcommittee Sam Johnson (R - TX). "And the IRS still doesn't know whether the employer reported and paid the correct amount of payroll taxes without doing an audit."
Witnesses from the SSA, IRS, and state Social Security administrators indicated that complex coverage rules for state and local governments, and a lack of understanding of these rules, contributed to this problem. However, a representative from the IRS said that out of the 90,000 state and local government employers only a few hundred received audits each year.
Members of the subcommittee suggested that the IRS needed to take more action regarding payroll tax compliance. They highlighted that payroll taxes, such as those for Social Security, made up a large proportion of collections made by the IRS. "Even though payroll taxes are the biggest tax most people pay, efforts to improve compliance generally focus on other taxes," said Johnson.
"Social Security, the IRS, and states must accept responsibility for the roles they play in making this process work the way it should."