City of New Orleans employees are receiving letters from the Internal Revenue Service saying they may face penalties and interest for underreporting their 2013 incomes due to an error in how their pay was reported to the federal government by the city.
Further, unrelated errors by the city have caused problems for the 2014 tax year as well.
The problems with the 2013 taxes stemmed from an error made by the city when it uploaded tax information to the Social Security Administration last March. Initially, the city uploaded files with information on the first quarter of 2014 rather than for the 2013 tax year, a problem that was corrected a month later when new files were uploaded and the original information was supposed to be deleted, according to Mayor Mitch Landrieu’s administration.
But that apparently didn’t fix the problem. When the information was passed along to the IRS, the 2013 pay was added to the 2014 figure, instead of replacing it, City Finance Director Norman Foster said in an email Friday.
“We were surprised to learn the situation had not been fully resolved,” Foster said. “Therefore, we decided to notify all city employees that they may receive this letter from the IRS, along with instructions on how they should respond accordingly.”
About 200 of the city’s 4,500 employees have notified the city about the problem so far, according to the administration.
Many of the employees have received letters from the IRS informing them they could face tax penalties for underreporting their 2013 income.
The city has sent letters to affected employees with accurate information about their 2013 income to provide to the IRS, and officials said that should solve the problem.
“We are working on a case-by-case basis with city employees ... to rectify this problem as quickly as possible,” Foster said. “We will continue working with Social Security and the IRS to reduce the number of city employees affected.”
Regarding the 2014 tax year problems, city Inspector General Ed Quatrevaux forwarded an email from one of his staff members in which the city said an error involving employees with flexible spending accounts will be corrected and new W-2s will be mailed out. Any employee with this kind of account who already filed taxes likely will have to file an amended return.
In addition, Nick Felton, president of the New Orleans firefighters union, said he has received three W-2s for 2014. The first two, he said, incorrectly calculated his pension contributions. He received the third one this week.
“And I’m not sure that one’s right,” he added.
The city has had ongoing problems since replacing its four-decade-old paper payroll system with an electronic system last year. The move was in line with a recommendation in a 2011 report by the Office of Inspector General that the city should move to a payroll system with technical support. In a follow-up report last year, the OIG said the city moved in the right direction when it contracted with ADP Inc., an international human-resources outsourcing company.
“The implementation of any system involving large numbers of people will always experience problems in the beginning as people learn how to use it, especially in an environment of multiple employee classifications and payment rules,” Quatrevaux wrote in an email to The Lens.
“ADP is used by thousands of corporations and other enterprises, and my own experience is that it is a fine system,” he said.
The city worked with ADP for two years to implement the new system after signing a contract in 2012. City records show the company was paid more than $2.4 million between December 2013 and November 2014, the most recent month for which The Lens found records.
The system went live in early 2014. Shortly afterward, hundreds of employees reported paycheck discrepancies, nola.com reported. However, Chief Administrative Officer Andy Kopplin noted that in 2013, the city, using its old system, almost missed an entire payroll period.
Civil Service Department staff members have continued to report problems — including large overpayments, nonpayment and data entry errors — at monthly Civil Service Commission meetings.
Advocate staff writer Jeff Adelson contributed to this report.