Reality of IRS Audits of 403(b) Plans

[Guest STLGiant]

it appears that States who have State retirement programs which are not FICA states may have less of a chance for audit. Has anyone seen anything to the contrary? It appears that for the effort, the Service isn't going to want to spend the man-hours and dollars to audit a public K-12 plan if all they can expect to recover is 1.45% Medicare withholding.

Comments welcomed.

[Ellie Lowder]

On the contrary - a lot of "non-FICA" public schools have been audited - good example is a # of audits in California. Remember that the audits focus on under with held income taxes (not just FICA issues), and violation of the universal eligibility rule, which is 2nd most common violation!

[mbozek]

I dont think that FICA is a major reason for the audits since salary reduction is subject to FICA. Only er contributions in excess of the 415 limits would be subject to FICA tax. There is more revenue from collecting income tax from violations of the univeral availability rule.

[GBurns]

If salary reductions affect FICA, then of course, the IRS would want to audit the plan to protect the Revenue stream.

On the average payroll FICA constitutes a larger figure than Income taxes and therefore the Trust Fund money carries more importance than income tax withholding on the payroll which is subject to final adjustments on the employee's tax return, even creating refunds for a large number of employees.