IRS has a program for auditing local governmental employers. These audits concentrate on income tax reporting of employees’ income, withholding, and payroll taxes, and deductions of withholding of income, Social Security (FICA), and unemployment (FUTA) taxes. They also review employment relationships and Social Security coverage agreement provisions to determine if all persons are properly classified as employees and if covered wages and Social Security taxes are deducted. The coverage aspect audit is coordinated with the Social Security Administration and the Illinois State Social Security Administrator.
If it is found that required Social Security taxes have not been withheld and remitted, the employer is charged with both the employer and employee shares, with interest. IRS may also levy a penalty of 25% to 100% of the delinquent taxes.