In most cases it is clear that an entity is governmental however, in some cases it may not be immediately clear. Retirement plans must file certain forms and reports with the IRS and the Department of Labor and send out notices to plan participants and certain others. State and local government entities may be covered by Section 218 agreements that affect their social security & Medicare withholding requirements. Government entities may be required to withhold social security and Medicare taxes from employees' wages and pay a matching amount. Federal tax obligationsĪlso known as payroll taxes, government entities must withhold federal income tax from employees' wages. IRC Section 115 excludes from gross income any income derived from the exercise of or administration of any public function. The primary tax difference from other taxpayers is the general exemption from income tax. Many tax laws apply differently to government entities than to other organizations and individuals. Other entities may be recognized as governments by state law, court decision, or an examination of facts and circumstances that indicate it has the characteristics of a government, such as powers of taxation, law enforcement and civil authority. Constitution, treaties, statutes and court decisions. Federally recognized Indian tribal governments are recognized by the U.S. Federal and state governments are established and recognized by the U.S.
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