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The Colorado Office of the State Auditor conducted an investigation concerning how the state manages the use of employer provided vehicles. They discovered that the state’s policies and rules did not align with IRS regulations for determining how commuters should be taxed.
The IRS initiated an examination of the State of Colorado’s employment taxes for 2015, 2016, and 2017. The IRS determined that the State was not in compliance with IRS regulations regarding commuting, uniform/clothing allowances, Medicare qualified government employees, and settlements.
The Office of the State Controller has been working with the IRS on a plan to move forward, ensuring employees are being properly taxed. A letter has gone out to employees affected by this change. The State will pay Medicare and federal back taxes due for employees affected, so they will not have to refile previous years’ taxes. However, beginning December 1, 2018, employees may notice a slight decrease in their net pay, due to adjustments in their tax withholdings. The state is required to make these changes to comply with IRS regulations.
Commuter: This depends on your individual situation. Consult with your payroll department for more information.
Uniform/Clothing allowances: In December, these employees will have a deduction of up to 1.45% multiplied by the uniform/clothing allowance for your department for all of calendar year 2018. Going forward, an additional 1.45% for the employee’s share of Medicare tax will be withheld for employees in departments with clothing and uniform allowances. Federal taxes will also be withheld each month, and the amount will depend on the federal withholding percentage for each employee.