State employees will have to pay city taxes missed due to coding error

State paying city in advance, billing employees over 12 months

By Ryan Quinn Published:

Many state employees in Frankfort recently received a letter informing them that, due to a coding error, the state had failed to withhold occupational taxes owed to the city from their paychecks at some point this year or in 2011.

Will these employees get away with paying nothing? Nope.

The state says it is paying the city in advance the money the employees owe, and the workers must reimburse the state. They will pay the total amount in 12 separate payments withheld over 12 payrolls. These new deductions will start Oct. 15 and will end March 31.

One employee, who wished to remain anonymous, said that she and three others didn’t receive their letters until Sept. 21. She said she owed taxes of less than $50.

State employees may contact their human resources offices by Friday to discuss other payment options or say if the planned deductions present a hardship.

Mary Elizabeth Harrod, commissioner of the Department of Human Resources Administration in the state Personnel Cabinet, said the problem affected 420 employees throughout Franklin County. She noted that Frankfort alone has more than 10,000 state employees.

“Thank goodness it’s not even close to all the employees in Franklin County,” Harrod said.

She did not know the amount of money owed immediately this morning, and said another department was currently working to reimburse the city. Harrod added that such events are a normal part of the auditing process.

City Finance Director Steve Dawson said the missing occupational tax revenue came to his attention six to eight months ago when a few state employees came to the city attorney’s office and said taxes weren’t being deducted from their paychecks.

City Human Resources Director Randy Donahue said Frankfort asked the state to do an audit and the issues were discovered.

“They thought it wasn’t just a Frankfort, Franklin County problem,” Donahue said, explaining the audit started here but may have spread to other cities and counties.

Dawson said the city has been working with the state since then to fix the problem.

“We’re aware of that, and we’re working on it, and we’re not sure how widespread it is,” Dawson said.

Dawson said that he didn’t think the amount of money missing was large, and that since the state pays such a huge occupational tax each fiscal quarter – about $1.8 million, he said – it was hard to detect a small aberration. He didn’t even know if the state had paid the city what it owed yet.

Dawson noticed the occupational tax revenue from the state had dropped recently, but he suspected it could be due to continued furloughs and hiring freezes at the state. Over the past three or four years, he said, occupational tax revenue from the state had dropped $800,000.

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