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On December 20, 2022, the Treasury Inspector General for Tax Administration (TIGTA) issued a report explaining that despite IRS efforts, the backlog of tax returns and other account work will continue into the 2023 tax filing season. The quarterly federal employment tax Form 941 is included in the unprocessed returns.
Background on backlog. TIGTA reported previously that at the end of 2021, a significant backlog of inventories associated with the 2021 filing season remained. TIGTA also reported that ongoing substantial hiring shortfalls of employees needed to fill mission-critical IRS Tax Processing Center positions continued to hamper the Service's efforts to address these backlog inventories.
Plans to address backlog. On March 10, 2022, the IRS announced its plans to address the continuing backlog of tax returns and other tax account work during the 2022 filing season. During the 2022 filing season, the IRS took several steps to address staffing needs at the Tax Processing Centers and Accounts Management function, including approval for 5,000 new hires.
Inventory tracker includes Form 941. The IRS set a goal to reach healthy inventory levels by the end of 2022. In April 2022, the IRS developed an inventory tracker to evaluate inventory levels each week in six different areas to monitor progress toward its goal, including business paper returns for various types of tax returns such as Form 941 (Employer's Quarterly Federal Tax Return).
Despite efforts, the backlog will remain in 2023. TIGTA says that although these efforts have resulted in an increase in productivity levels, its assessment of the remaining inventory indicates that the IRS will not meet all of its goals by the end of calendar year 2022. As a result, the IRS will continue to have a backlog into the 2023 filing season.
IRS stats on Form 941 backlog. According to the IRS website, as of December 14, 2022, the Service had 770,000 unprocessed Forms 941. The IRS advises that e-filers who received an acknowledgement do not need to take any further action other than promptly responding to any requests for information. The Service notes that Forms 941 are processed in the order received and cautions not to file a second return.
Form 941-X also has a backlog. The IRS adds that its total inventory of unprocessed Forms 941-X (Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund) was approximately 347,000, as of December 14, 2022. It explains that some of these forms cannot be processed until the related Forms 941 are processed. The Service concludes that while not not all of these returns involve a COVID credit, the inventory is being worked at two sites (Cincinnati and Ogden) that have trained staff to work possible COVID-19 tax credits.
The IRS has issued additional guidance for brokers to comply with the provisions of the final regulations under Code Sec 1446(f) (and certain provisions of the final regulations that apply to Code Sec 1446(a)) (final regulations) that relate to withholding on the transfer of an interest in a publicly traded partnership (PTP interest) [Notice 2023-08].
Final regulations published. On November 30, 2020, the U.S. Treasury Department and the IRS published the final regulations (TD 9926) in the Federal Register (85 FR 76910, as corrected at 86 FR 13191), primarily relating to withholding and information reporting under Code Sec 1446(f). The final regulations include withholding requirements under Code Sec 1446(f)(1) that generally require a broker that affects a transfer of a PTP interest on behalf of a transferor to withhold on the payment of an amount realized made to the transferor.
Exception for broker withholding. However, a broker is not required to withhold, or may withhold at a reduced rate, if it can rely on: (1) a certification from the transferor that claims an exception or reduction to withholding (generally provided on a valid Form W-8 or W-9); or (2) a representation made by the publicly traded partnership (PTP) on a qualified notice indicating that the exception under §1.1446(f)-4(b)(3)(ii) applies (10% exception).
A broker is also not required to withhold when it makes the payment of an amount realized to a qualified intermediary (QI), or a U.S. branch treated as a U.S. person, that assumes primary withholding responsibility under Code Sec 1446(f)(1).
Application of regulations. The provisions of the final regulations that relate to a broker’s obligation to withhold on the transfer of a PTP interest apply to transfers that occur on or after January 1, 2022. However, on September 7, 2021, the Treasury Department and the IRS released Notice 2021-51, 2021-36, deferring the applicability date of these provisions to transfers that occur on or after January 1, 2023.
Proposed changes. On May 16, 2022, the Treasury Department and the IRS released Notice 2022-23, 2022-20 I.R.B. 1062, proposing changes to the qualified intermediary agreement (QI agreement), including rules that will apply to QIs required to withhold on the transfer of a PTP interest under section 1446(f) starting January 1, 2023. Subsequently, the Treasury Department and the IRS released Rev Proc 2022-43, 2022-52, which provides the final QI agreement effective as of January 1, 2023.
Draft Form 1042-S instructions mention changes. The draft instructions for the 2023 Form 1042-S (Foreign Person's U.S. Source Income Subject to Withholding) mentions it was updated to reflect requirements under Code Sec. 1446(a) and Code Sec. 1446 (f) that apply beginning January 1, 2023, which, as stated, apply to brokers affecting transfers of interests in publicly traded partnerships (PTPs). Two new income codes (57 and 58) and a new chapter 3 status code (39) were added for new requirements, beginning in 2023.
The $1.7 trillion, 4,100-page Consolidated Appropriations Act (CAA) of 2023 that was released on December 20, 2022 contains the SECURE 2.0 retirement bill. This is located in Division T of the CAA 2023 and listed as SECURE 2.0 Act of 2022. The U.S. Senate is expected to vote on the bill on December 22, 2022, which would give the U.S. House of Representatives enough time to approve the measure and send it to President Biden to sign into law before midnight on December 23, 2022. The following are some of the provisions that are important to employers.
Expanding automatic enrollment in retirement plans. Section 101 of Title I for Division T of CAA 2023 would require Code Sec 401(k) and Code Sec 403(b) plans to automatically enroll participants in the respective plans upon becoming eligible. Employees are permitted to opt out of the coverage. The initial automatic enrollment amount would be at least 3% but not more than 10%. The amount would then be increased by 1% each year thereafter until it reaches 10% at least 10%, but not more than 15%. All current 401(k) and 403(b) plans are grandfathered. Small businesses with 10 or fewer employees, new businesses (i.e., those that have been in business for less than three years), church plans, and governmental plans would be exempt from this requirement. This provision would take effect for plan years beginning after December 31, 2024.
Modification of credit for small employer pension plan startup costs. Section 102 would make changes to the three-year small business start up credit (currently 50% of administrative costs, up to an annual cap of $5,000) by increasing the startup credit from 50% to 100% for employers with up to 50 employees. This credit does not apply to defined benefit plans. The credit percentage is phased out as follows: 100% for the first year, 75% for the second year, 50% for the third year, 25% for the fourth year, and 0% for any taxable year thereafter. This provision would take effect for plan years after December 31, 2022.
Pooled employer plan modification. Section 105 would clarify that a pooled employer plan (“PEP”) may designate a named fiduciary (other than an employer in the plan) to collect contributions to the plan. Such a fiduciary would be required to implement written contribution collection procedures that are reasonable, diligent, and systematic. This provision would take effect for plan years beginning after December 31, 2022.
Multiple employer 403(b) plans. Section 106 would Code Sec 403(b) plans, which are generally sponsored by charities, educational institutions, and nonprofits, to participate in multiple employer plans (MEPs) and PEPs, including relief from the one bad apple rule so that the violations of one employer do not affect the tax treatment of employees of compliant employers. This provision would take effect for plan years beginning after December 31, 2022.
Higher catch-up limit to apply at age 60, 61, 62, and 63. Section 109 would increase the retirement plan catch-up contributions limits to the greater of $10,000 or 150% of the regular catch-up amount for individuals aged 60 through 63. The increased amounts would be indexed for inflation after 2025. This provision would take effect for taxable years beginning after December 31, 2024.
Treatment of student loan payments as elective deferrals for purposes of matching contributions. Section 110 would allow an employer to make matching contributions under a Code Sec 401(k) plan, Code Sec 403(b) plan, or SIMPLE IRA with respect to “qualified student loan payments” (any indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee). Governmental employers would also be permitted to make matching contributions in a Code Sec 457(b) plan or another plan with respect to such repayments. For purposes of the nondiscrimination test applicable to elective contributions, Section 110 would permit a plan to test separately the employees who receive matching contributions on student loan repayments. This provision would take effect for taxable years beginning after December 31, 2023.
Military spouse retirement plan eligibility credit for small employers. Section 112 would provide small employers a tax credit with respect to their defined contribution plans if they: (1) make military spouses immediately eligible for plan participation within two months of hire, (2) upon plan eligibility, make the military spouse eligible for any matching or nonelective contribution that they would have been eligible for otherwise at two years of service, and (3) make the military spouse 100% immediately vested in all employer contributions. The credit would apply for three years with respect to each military spouse and would not apply to highly compensated employees. This provision would take effect for taxable years beginning after December 31, 2022.
Starter 401(k) plans for employers with no retirement plan. Section 121 would allow an employer that does not sponsor a retirement plan to offer a starter Code Sec 401(k) plan (or safe harbor Code Sec 403(b) plan) that would require all employees to be default enrolled in the plan at a 3% to 15% of compensation deferral rate. The limit on annual deferrals would be the same as the IRA contribution limit with an additional $1,000 in catch-up contributions beginning at age 50. This provision would take effect for plan years beginning after December 31, 2023.
Improving coverage for part-time workers. The SECURE Act (P.L. 116-94) requires employers to allow long-term, part-time workers to participate in the employers' Code Sec 401(k) plans with a dual eligibility requirement (one-year of service and at least 1,000 hours worked or three consecutive years of service with 500 hours worked). Section 125 would reduce the three-year rule to two years, effective for plan years beginning after December 31, 2024. This provision would also extend the long-term part-time coverage rules to Code Sec 403(b) plans that are subject to ERISA (Employee Retirement Income Security Act, P.L. 94-406).
Emergency savings accounts linked to individual account plans. Section 127 would provide employers the option to offer to their non-highly compensated employees pension-linked emergency savings accounts. Employers would be able to automatically opt employees into these accounts at no more than 3% of their salary, and the portion of an account attributable to the employee’s contribution is capped at $2,500 (or lower as set by the employer). This provision would apply for plan years after December 31, 2023.
Employers may rely on employees certifying that deemed hardship distribution conditions are met. Section 312 would provide that, under certain circumstances, employees are permitted to self-certify that they have had an event that constitutes a hardship for purposes of taking a hardship withdrawal. This provision would take effect for plan years beginning after the date of enactment of the CAA 2023.
Amendments to increase benefit accruals under plan for previous plan year allowed until employer tax return due date. The SECURE Act permits an employer to adopt a new retirement plan by the due date of the employer’s tax return for the fiscal year in which the plan is effective. However, the current law provides that plan amendments to an existing plan must generally be adopted by the last day of the plan year in which the amendment is effective. This precludes an employer from adding plan provisions that may be beneficial to participants. Section 316 would amend these provisions to allow discretionary amendments that increase participants’ benefits to be adopted by the due date of the employer’s tax return. This provision would take effect for plan years beginning after December 31, 2023.
Retroactive first year elective deferrals for sole proprietors. Under the SECURE Act, an employer may establish a new Code Sec 401(k) plan after the end of the taxable year, but before the employer’s tax filing date and treat the plan as having been established on the last day of the taxable year. Such plans may be funded by employer contributions up to the employer’s tax filing date. Section 317 would allow these plans, when they are sponsored by sole proprietors or single member LLCs, to receive employee contributions up to the date of the employee’s tax return filing date for the initial year. This provision would take effect for plan years beginning after the date of enactment of the CAA 2023.
Eliminating unnecessary plan requirements related to unenrolled participants. Section 320 would no longer require employers to provide certain intermittent ERISA or Code notices to unenrolled participants who have not elected to participate in a workplace retirement plan. However, to further encourage participation of unenrolled participants, the plan is required to send (1) an annual reminder notice of the participant’s eligibility to participate in the plan and any applicable election deadlines, and (2) any otherwise required document requested at any time by the participant. This provision would take effect for plan years beginning after December 31, 2022.
Employers are allowed to replace SIMPLE retirement accounts with safe harbor 401(k) plans during a year. Section 332 would allow an employer to replace a SIMPLE IRA plan with a SIMPLE 401(k) plan or other 401(k) plan that requires mandatory employer contributions during a plan year, and would be effective for plan years beginning after December 31, 2023.
Report on pooled employer plans. Section 344 would require the Secretary of Labor to conduct a study on the new and growing pooled employer plan industry. A report on the findings of the study must be completed within five years, with subsequent reports completed every five years thereafter.
Safe harbor for corrections of employee elective deferral failures. Under current law, employers that adopt a retirement plan with automatic enrollment and automatic escalation features could be subject to significant penalties if even honest mistakes are made. IRS guidance on the correction of failures relating to default enrollment of employees into retirement plans has been issued, which includes a safe harbor allowing correction if notice is given to the affected employee, correct deferrals commence within certain specified time periods, and the employer provides the employee with any matching contributions that would have been made if the failure had not occurred.
This safe harbor is set to expire on December 31, 2023. Section 350 would allow for a grace period to correct, without penalty, reasonable errors in administering these automatic enrollment and automatic escalation features. Errors would have to be corrected prior to nine and one-half months after the end of the plan year in which the mistakes were made. This provision would take effect for errors after December 31, 2023.
The IRS has issued the final versions for a number of forms and publications that relate to payroll, including: Publication 15-A (Employer's Supplemental Tax Guide), Publication 926 (Household Employer's Tax Guide), Publication 1220 (Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G), Publication 51 (Agricultural Employer's Tax Guide), Publication 80 (Federal Tax Guide for Employers in the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands), Form 1042-S (Foreign Person’s U.S. Source Income Subject to Withholding), and the instructions for Form 945-A (Annual Record of Federal Tax Liability).
Publication 15-A. Publication 15-A contains specialized and detailed employment tax information supplementing the basic information provided in IRS Publication 15. Specifically, the publication has sections on who are employees, worker classification, employees of exempt organizations, religious exemptions and special rules for ministers, wages and other compensation, sick pay reporting, special rules for paying taxes, and federal income tax withholding on retirement payments and annuities. The "What's New" section of the publication notes that Form W-4P was redesigned for 2022 and is now used only to make withholding elections for periodic pension or annuity payments. Withholding elections for nonperiodic payments and eligible rollover distributions are now made on Form W-4R. These separate forms must be used in 2023.
Publication 926. Publication 926 helps taxpayers determine whether they have household employees and are liable for federal employment taxes (i.e., Social Security, Medicare, FUTA, and federal income tax withholding). Specifically, the publication contains sections on determining if a taxpayer has a household employee, can that employee legally work in the United States, if the taxpayer need to pay employment taxes, if the taxpayer needs to withhold federal income tax, information on the earned income tax credit, how to make tax payments, what forms the taxpayer may need to file, recordkeeping, and other items related to household employment.
Publication 1220. Publication 1220 is used to provide the specifications for filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G electronically with the IRS, including the requirements and specifications for electronic filing under the Combined Federal/State Filing (CF/SF) Program. The publication also provides specifications to submit an automatic 30-day extension of time to file certain information returns. Publication 1220 is updated by the IRS periodically and this latest update is as of December 16, 2022. This version of Publication 1220 removed all references to paper Form 4419, which is obsolete as of August 1, 2022. There is also information on the Filing Information Returns Electronically (FIRE) system transition regarding Transmitter Control Codes (TCC).
Publication 51. Publication 51 is for employers of agricultural workers (farmworkers). It contains information that you may need to comply with the laws for agricultural labor (farmwork) relating to Social Security and Medicare taxes, FUTA tax, and withheld federal income tax (employment taxes). Agricultural employers report social security and Medicare taxes and withhold federal income tax on Form 943 and report FUTA tax on Form 940. The publication notes that it will be discontinued after 2023. Beginning in 2024, this information will be part of Publication 15.
Publication 80. Publication 80 is for employers whose principal place of business is in the U.S. Virgin Islands, Guam, American Samoa, or the CNMI, or who have employees who are subject to income tax withholding for any of these jurisdictions. Employers and employees in these areas are generally subject to social security and Medicare taxes under the Federal Insurance Contributions Act (FICA). Publication 80 summarizes employer responsibilities to collect, pay, and report these taxes. The publication notes that it will be discontinued after 2023. Beginning in 2024, this information will be part of Publication 15.
Form 1042-S. Withholding agents file Form 1042 -S to report amounts paid to foreign persons (e.g., salaries, interest, dividends, premiums, pensions, scholarships, and grants) from sources within the U.S. during the preceding calendar year that are subject to withholding. Copy A of Form 1042 -S must be filed with the IRS even if: (1) no tax was withheld because the income was exempt from tax under a treaty or under the Internal Revenue Code, including the exemption for income effectively connected with conducting a trade or business in the United States; or (2) the amount withheld was repaid to the recipient. Form 1042 -S should not be filed if the amount is required to be reported on Form W-2 or 1099. Regardless if Form 1042 -S is filed on paper or electronically, the form is due by March 15 of the following year. Additionally, Form 1042 -S must be furnished to recipients of the income by March 15.
Instructions for Form 945-A. Form 945-A is used to report federal tax liability (based on the dates payments were made or wages were paid) for Form 945, Form 945-X, Form CT-1, Form CT-1 X, Form 944, and Form 944-X. Form 945-A should not be used to show federal tax deposits. Form 945-A is filed by semiweekly schedule depositors. Monthly schedule depositors who accumulate $100,000 or more of tax liability on any day of a calendar month become semiweekly schedule depositors on the next day and remain so for at least the remainder of the year and for the next year, and must also complete and file Form 945-A for the entire year. The instructions note that the section for adjusting tax liability for the non refundable portion of the employee retention credit (ERC) reported on Form CT-1, line 17a, and Form 944, line 8c, have been deleted because the COVID-19 related ERC has expired.
An investigation by the U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) has found that 11 franchisees in six different states of the Utah-based Crumble Cookies bakery company violated federal child labor laws.
Child labor laws.According to the Fair Labor Standards Act (FLSA), whether school is in session or not, 14- and 15-year-old workers cannot work more than eight hours per day or exceed 40 hours per workweek. Also, employers must not allow these individuals to work before 7:00 a.m. or after 7:00 p.m. on any day, except from June 1 through Labor Day, when night time work hours are extended to 9:00 p.m. In addition, all workers under the age of 18 are banned from occupations considered hazardous by federal law.
Multiple violations discovered. The WHD found violations affecting 46 workers at locations in California, Minnesota, New Hampshire, Tennessee, Utah and Washington. Violations ranged from employing some minor-aged employees to work longer and later than the time the law allows to assigning others to operate potentially dangerous ovens and machinery.
What the WHD said. “Employers must ensure that part-time employment does not jeopardize the safety or education of young workers,” explained Wage and Hour Division Regional Administrator Betty Campbell in Dallas. “It is the responsibility of every employer who hires minor workers to understand child labor laws, and comply with them or potentially face costly consequences.”
Total penalties assessed. The WHD assessed $57,854 in penalties to resolve the child labor violations.
Increase in child labor law violations. In 2022, the WHD found more than 3,800 minors employed in violation of child labor laws, an increase of 37% over the previous year. Minors employed in violation of hazardous orders were up 26% in the same period, with a total of 688 minors found to be working in hazardous occupations.
On December 20, 2022, House Appropriations Committee Chair Rosa DeLauro (D-CT-03) and Senate Appropriations Committee Chairman Patrick Leahy (D-VT) released the $1.7 trillion Consolidated Appropriations Act 2023, which includes $12.3 billion in funding for the IRS and $13.8 billion in funding for the U.S. Department of Labor (DOL).
IRS funding. In addition to the more than $12 billion in funding for the IRS, the 4,100 page bill also provides special funding transfer authority and direct hire authority to address the backlog of returns and correspondence. As of December 14, 2022, the IRS had 770,000 unprocessed Forms 941 (Employer's Quarterly Federal Tax Return). There is also a total of 347,000 unprocessed Forms 941-X (Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund), some of which cannot be processed until the related Forms 941 are processed. Of the funding, $5.4 billion will go to enforcement efforts and essential personnel (same as fiscal year 2022) and $4.1 billion for operations support (same as fiscal year 2022).
DOL funding. The more than $13 billion in funding for the DOL is an increase of $652 million above the fiscal year 2022 enacted level and includes $10.5 billion for the Employment and Training Administration ($545 million more than fiscal year 2022). Of that amount, some $3.1 billion is for the operation of the DOL's unemployment insurance program ($284 million more from fiscal year 2022), with a contingency fund to help states if there is a spike in unemployment claims.
For tax year 2022, four states (California, Connecticut, Illinois, and New York) and the U.S. Virgin Islands are FUTA tax credit reduction states. This means that employers pay more in federal unemployment taxes in these jurisdictions due to outstanding federal unemployment loans these states took due to high unemployment and were unable to repay before the deadline to avoid the credit reduction.
The DOL's Wage and Hour Division (WHD) is set to receive $260 million in funding ($9 million above the fiscal year 2022 amount). One of the WHD's functions is to conduct investigations into Fair Labor Standards Act (FLSA) violations by employers.
SECURE 2.0 Act. The massive spending bill includes the SECURE 2.0 retirement bill, intended to improve the retirement system implemented under the SECURE (Setting Every Community Up for Retirement Enhancement Act) Act of 2019 (P.L. 116-94).
Auto enrollment requirement. A provision of the SECURE 2.0 Act would require employers to automatically enroll employees in their Code Sec 401(k) plans at a rate of at least 3% but not more than 10%. Excluded from this requirement would be employers with 10 or fewer workers and new employers that are in business for less than three years.
Easier employer match contributions. Another proposal in the bill would make it easier for employers to make contributions to Code Sec 401(k) plans on behalf of employees paying student loans instead of saving for retirement.
Part-time worker contributions. The SECURE Act allowed part time employees who work between 500 and 999 hours per year, for three years to be eligible for Code Sec. 401(k). The SECURE 2.0 Act reduces that to two years.
Increasing catch-up contributions. In addition, the bill would also create a higher catch-up limit for annual retirement contributions to apply for individuals aged 60, 61, 62, and 63, beginning after December 31, 2024.
Consideration for payroll tax preparer fraud. One provision in the bill would require the IRS to issue notices to employers of any address change request and to give special consideration to offers in compromise for taxpayers who have been victims of payroll tax preparer fraud.
Importance of worker classification. The bill also appears to place a degree of importance on the IRS's SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) worker classification program, saying that the IRS must directly Congressional Committees before making any staffing reduction or reallocations within the SS-8 processing program.
Reduce processing backlog for WOTC. The bill includes $2.5 million in funding to continue efforts to reduce the processing backlog for the work opportunity tax credit program (WOTC) and to help states modernize information technology for processing certification requests. The bill adds processing requests for remote workers may best be accomplished in the state where the workers reside and not where the employer is located.
Prompt H-2B visa applications. Another section of the bill calls for the DOL to take all necessary steps to ensure prompt processing of H-2B applications and provide a report within 180 days of enactment of the legislation detailing the percentage of applications requesting temporary labor certifications under the H-2B visa classification that are not issued a final decision by the DOL by the employer's original anticipated start date of work. The typical annual H-2B cap is 66,000, however, there were nearly 65,000 additional H-2B visas made available as of October 1, 2022.
H-1B visa fees. The bill also modifies a provision related to H-1B visa fees, used by U.S. employers to hire foreign workers in areas of specialized knowledge or technical expertise. There is also a 65,000 cap on these visas.
Down to the wire for enactment. Senate Majority Leader Charles Schumer (D-NY) pledged that the Senate would complete its debate and vote on the bill by December 22, 2022 leaving just enough time for approval by the House of Representatives before it is sent to President Biden for his signature before federal funding runs out at midnight on December 23, 2022.
More to come. Checkpoint Payroll Update will have more payroll-related information and analysis on the Consolidated Appropriations Act of 2023 soon.
The IRS has issued the final version of the 2023 Form W-4P (Withholding Certificate for Periodic Pension or Annuity Payments), the 2023 Publication 509 (Tax Calendars), and the second draft for the 2023 Publication 15 A.
Final Form W-4P. Form W-4P is used to have payers withhold the correct amount of federal income tax from the individual's periodic pension, annuity (including commercial annuities), profit-sharing and stock bonus plan, or IRA payments. Federal income tax withholding applies to the taxable part of these payments.
Periodic payments are made in installments at regular intervals (for example, annually, quarterly, or monthly) over a period of more than one-year. Form W-4P is not to be used for a nonperiodic payment (note that distributions from an IRA that are payable on demand are treated as nonperiodic payments) or an eligible rollover distribution (including a lump-sum pension payment). Instead, use Form W-4R (Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions) for these payments/distributions.
Publication 509 for 2023. The IRS Publication 509 contains three tax calendars with specific due dates for filing tax forms, paying taxes, and taking other actions required by federal tax law. The calendar of most importance for payroll is the employer's tax calendar. Also of importance to payroll professionals is the table showing the semiweekly deposit due dates for payroll taxes in 2023. These calendars, however, do not cover the employment deposit rules, which are discussed in IRS Publication 15.
The IRS notes that an advantage of using their tax calendars publication is specifically knowing what the due dates are to file or pay timely and avoid penalties. Also, the dates do not need to be adjusted for Saturday, Sundays, and legal holidays. In addition, there's no need to adjust the due dates for special banking rules if using the Employer's Tax Calendar.
Some upcoming notable employment tax calendar items for employers includes: (1) providing Forms W-2 for 2022 to employees, filing Form W-3 and Copy A of all Forms W-2 with the IRS by January 31, 2023; begin withholding income tax from the pay of any employee who claimed exemption from withholding in 2022 but did not provide another Form W-4 to continue the exemption in 2023 on February 16, 2023; and (3) large food and beverage establishments should file Form 8027 regarding tip income and allocated tips by February 28, 2023 (March 31, 2023 if filing electronically).
Publication 15-A. Publication 15 contains specialized and detailed employment tax information supplementing the basic information provided in IRS Publication 15. Specifically, the publication has sections on who are employees, worker classification, employees of exempt organizations, religious exemptions and special rules for ministers, wages and other compensation, sick pay reporting, special rules for paying taxes, and federal income tax withholding on retirement payments and annuities.
The "What's New" section of the publication notes that Form W-4P was redesigned for 2022 and is now used only to make withholding elections for periodic pension or annuity payments. Withholding elections for nonperiodic payments and eligible rollover distributions are now made on Form W-4R. These separate forms must be used in 2023.
Swiss State Secretary Daniela Stoffel met with Wally Adeyemo, the Deputy Secretary of the United States Treasury in Washington D.C. on December 13th to discuss several bilateral and multilateral financial and tax matters.
Topics discussed included the ongoing negotiations pertaining to the revision of the countries' current totalization agreements, which helps to prevent double taxation. The countries noted possible areas for amendment and agreed to further clarify mutual concerns during the first half of 2023.
Adeyemo and Stoffel also discussed the implementation of the Foreign Account Tax Compliance Act (FATCA). In 2013, Switzerland signed an agreement with the United States to simplify FATCA implementation. This is to be replaced by a new agreement that would provide for the automatic and reciprocal exchange of information.
Finally, the officials discussed other non-payroll related concerns, such as the new Crypto-Asset Reporting Framework of the Organisation for Economic Co-operation and Development (OECD), sanctions in connection with the conflict in Ukraine, and the implementation of the OECD's corporate tax reform and of the Basel III package of reforms on financial market stability.
On October 13, 2022, the Social Security Administration (SSA) announced a $13,200 increase in the Social Security taxable wage base from $147,000 to $160,200 in 2023. Next year's wage base notable increase is significantly greater than the wage base forecast by the SSA's Office of Chief Actuary in June 2022 and means that many employers will pay up to $818.40 more in payroll taxes in 2023.
What is Social Security tax? Social Security (Old-Age and Survivors Insurance and Disability Insurance) is financed through a payroll tax where employers and employees each pay 6.2% of wages up to the annual taxable wage base (self-employed pay 12.4%). Social Security tax is one component of employment taxes, which also include federal income tax withholding, Medicare tax, Additional Medicare tax, and Federal Unemployment Tax Act (FUTA) tax. Employers make deposits and file reports to the IRS to account for these taxes.
Payroll is expensive for a business. In general, payroll is the greatest expense for a business. As attorney/author Barbara Weltman points out in an August 22, 2019 Small Business Administration (SBA) blog post, the cost of payroll involves multiple components from a salary, to taxes (federal, state and possibly local), and benefits, which can add up. As 2022 comes to a close, several businesses are feeling the pinch of high inflation and other economic factors, which have resulted in layoffs. Some economists have said a recession is on the horizon for 2023.
Legal expert offers guidance. Employers looking to add talent to their business or make other costly business decisions next year may wish to consider and forecast for the potential liability. Checkpoint Payroll Update recently talked with Susan Lubow, partner at BakerHostetler and co-chair of the firm’s national Employee Benefits and Executive Compensation Group, to discuss the large increase in the 2023 Social Security wage base limit.
Not much buzz on the increase. On the topic of the Social Security taxable wage base increase, Lubow admits, "We have not heard much directly from employers or the payroll industry on the increase in the Social Security taxable wage base." She notes that, "Employers have been more concerned with other employee benefit compliance issues and employee turnover."
Things may change next year. However, Lubow said that recent economic trends and forecasting for a possible recession next year could result in employers beginning to "focus on any additional spending, including Social Security costs." Lubow points out that next year's increase affects workers with wages above the current Social Security wage base limit of $147,000, which, for most employers, will not affect a large percentage of their workers from a tax liability perspective. According to SSA data from August 2021, around 6% of employees have wages above the Social Security taxable wage base.
"Employers might...carefully determine the likely impact on their payroll costs, but may also keep in mind that a number of tax thresholds are changing for 2023," Lubow advises.
Are more large wage base increases expected? If the United States slips into a recession in 2023, could there be another large increase in the taxable wage base for 2024? "Whether employers should expect continued large increases depends on a number of factors, including wage growth and inflation," Lubow said. "But the situation is complex because wage growth can lag behind inflation, and employers may be dealing with a recession next year." She notes that what makes it more complex is that the SSA uses an average wage from the prior two years "when determining the taxable wage base."
In preparation for uncertain times, Lubow says, "Employers should continue to carefully monitor their finances and should consider how to best weigh employee-retention efforts and hiring against the potential recession." She also advises consulting with tax and legal advisors to get the full picture.
Legislative Social Security changes. Lubow said that both the House of Representatives and Senate have introduced legislation this year "that, if passed, would impact Social Security." She explains that several proposals focus on providing additional funding for the Social Security program with tax increases "to protect the program's ability to pay benefits in full and on time." According to the 2022 annual report of the Social Security Board of Trustees, the surplus in the trust funds that disburse retirement, disability and other Social Security benefits will be depleted by 2035.
Lubow explains that the existing proposed legislation for Social Security tends to be "politically one-sided" and with the current Congressional polarization, "no particular proposals stand out." She adds, "This is especially true moving forward because Republicans will control the House of Representatives in 2023, while Democrats will keep control of the Senate." The 2022 midterm elections on November 8, 2022 resulted in the Republicans gaining control in the House with the necessary 218-seat majority.
The SSA houses a webpage that contains proposals to change the program.
Communicating changes to employees. When it comes to alerting employees of changes involving wages, Lubow feels, "It is generally good practice for employers to communicate with their employees, when possible, particularly where pay is concerned."
Methods of communication can depend on a company's employee population and the variety of different methods to convey the message. "But generally speaking, electronic communications describing the change—briefly and with clear language—might be useful to employees," Lubow says. She also advises the alert to include information regarding the increase in income tax brackets next year.
Social Security change for affected employees. The increase in the Social Security taxable wage base in 2023 could be different for employees. For some employees, the impact of the Social Security taxable wage base "might be mitigated by the increase in the tax brackets," Lubow says. She advises employers to avoid "offering specific advice and should instead direct employees to their tax advisors."
Lubow points out that an employee alert of tax changes provides an opportunity for employers to also "remind employees of any savings options under employer-sponsored retirement plans or to highlight other employee benefits offered (or even improved) in spite of rising inflation and the increased taxable wage base."
Following an investigation by the U.S. Department of Justice (DOJ), Tax Division, the operator of two staffing companies was found to have failed to pay more than $2 million in payroll taxes [DOJ Press Release No. 22-1339, 12/12/2022].
Two staffing companies provided manufacturing industry workers. According to court documents and statements made in court, Jonas Purisch, of Baltimore, operated two employee staffing companies – Titan Staffing Network, Inc. and Titan Services, LLC. Both staffing businesses provided workers for third-party manufacturing businesses in Maryland.
Operator fails to pay employment taxes. Purisch was responsible for withholding and paying employment taxes on behalf of their employees. The DOJ found that between March 2018 and March 2021, Purisch withheld taxes from his employees' pay, but did not pay to the IRS more than $2 million in such taxes.
Operator pleads guilty. On October 12, 2022, pleaded guilty today to willfully failing to account for and pay over employment taxes to the IRS.
Operator sentenced. On December 12, 2022, Purisch was sentenced to three years in prison for not paying over employment taxes to the IRS on behalf of his company’s employees. In addition to the term of imprisonment, the federal district judge ordered Purisch to serve three years of supervised release and to pay approximately $3.4 million in restitution to the United States.
Responsible person. Under Code Sec. 6672, an individual can be held personally liable for a penalty for the willful failure to collect, account for, and pay to the IRS the employment taxes of an employer. This action is a collective device that allows the IRS to impose a liability on a "responsible person" who "willfully" failed the employment taxes.
The Social Security Administration (SSA) has updated its list of contact information for a number of Regional Employer Services Liaison Officers. These officers provide individual assistance on a state-by-state basis for payroll reporting processes and applications. New contact information changes made are as follows:
The IRS has issued the final versions of Publication 15 and Publication 15-T (Federal Income Tax Withholding Methods) for use in the 2023 tax year.
Publication 15. Publication 15 explains the tax responsibilities as an employer regarding the requirements for withholding, depositing, reporting, paying, and correcting employment taxes. The publication also explains the forms an employer must give to its employees, those employees must provide, and those the employer must send to the IRS and the Social Security Administration (SSA).
Publication 15-T. Publication 15-T supplements Publication 15 and Publication 51 (Agricultural Employer’s Tax Guide). It describes how to figure withholding using the wage bracket method or percentage method, describes the alternative methods for figuring withholding, and provides the tables for withholding on distributions of Native American gaming profits to tribal members.
Qualified sick/family leave in 2023. Publication 15 notes that the rate of Social Security tax on taxable wages, including qualified sick leave wages and qualified family leave wages paid in 2023 for leave taken after March 31, 2021, and before October 1, 2021, is 6.2% each for the employer and employee or 12.4% for both.
However, qualified sick leave wages and qualified family leave wages paid in 2023 for leave taken after March 31, 2020, and before April 1, 2021, are not subject to the employer share of Social Security tax; therefore, the tax rate on these wages is 6.2%. The 2023 Social Security wage base limit is $160,200.
Payroll research tax credit. For tax years beginning before January 1, 2023, a qualified small business may elect to claim up to $250,000 of its credit for increasing research activities as a payroll tax credit. The Inflation Reduction Act of 2022 (the IRA) increased the election amount to $500,000 for tax years beginning after December 31, 2022.
The election and determination of the credit amount that will be used against the employer’s payroll taxes are made on Form 6765 (Credit for Increasing Research Activities). The amount from Form 6765, line 44, must then be reported on Form 8974 (Qualified Small Business Payroll Tax Credit for Increasing Research Activities).
Starting in the first quarter of 2023, the payroll tax credit is first used to reduce the employer share of Social Security tax up to $250,000 per quarter and any remaining credit reduces the employer share of Medicare tax for the quarter (any remaining credit is carried forward to the next quarter.
Forms 941-SS and 941-PR discontinued after 2023. Form 941-SS (Employer’s Quarterly Federal Tax Return—American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands) and Form 941-PR (Planilla para la Declaración Federal TRIMESTRAL del Patrono) will no longer be available after the fourth quarter of 2023. Instead, employers in the U.S. territories will file Form 941 (Employer’s Quarterly Federal Tax Return). There is also a version of the form and its instructions in Spanish with new Form 941 (SP) (Declaración del Impuesto Federal TRIMESTRAL del Empleador).
Publications discontinued after 2023. Publication 51 (Agricultural Employer’s Tax Guide), Publication 80 (Federal Tax Guide for Employers in the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands), and Publication 179 (Guía Contributiva Federal para Patronos Puertorriqueños) will no longer be available after 2023. Instead, information specific to agricultural employers and employers in the U.S. territories will be included in Publication 15, beginning with 2024 (there will also be a new Spanish language Publication 15 in 2024).
Form W-4P and W-4R. Form W-4P (Withholding Certificate for Periodic Pension or Annuity Payments) was redesigned for 2022. The new Form W-4P is now used only to make withholding elections for periodic pension or annuity payments. Previously, Form W-4P was also used to make withholding elections for nonperiodic payments and eligible rollover distributions.
Withholding elections for nonperiodic payments and eligible rollover distributions are now made on Form W-4R (Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions). Although the redesigned Form W-4P and new Form W-4R were available for use in 2022, the IRS postponed the requirement to begin using the new forms until January 1, 2023. Payers should have updated their system programming for these forms in 2022.
The IRS has released the final versions of the 2023 Form W-4 (Employee’s Withholding Certificate) and Form W-4R (Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions).
Form W-4. The IRS released three prior drafts of Form W-4. The final version of the 2023 Form W-4 contains no changes from the third draft. The 2023 version of the W-4 no longer refers taxpayers to the Withholding Estimator and allows taxpayers to enter other applicable credits such as the foreign tax credit and education tax credits in addition to claiming dependents on Step 3 of the form. The updated instructions include a new section for self-employed individuals.
Form split in 2022. Prior to 2022, Form W-4P (Withholding Certificate for Periodic Pension or Annuity Payments) was also used to make withholding elections for nonperiodic payments and eligible rollover distributions. Optionally, Form W-4R could be used in 2022.
Form W-4R. The use of Form W-4R is no longer optional beginning with the 2023 tax year. The form is used for taxpayers to figure federal withholding on non periodic withholding on retirement plans annuities as well as eligible rollovers. The form contains no substantive changes from the 2022 W-4R but contains updated 2023 Marginal Rate Tables.
Form W-4P. The IRS released a draft of the 2023 Form W-4P Withholding Certificate for Periodic Pension or Annuity Payments). The final version was not yet released at the time this article went to press.
The U.S. Department of Labor (DOL) has announced the results of a Wage and Hour Division (WHD) investigation that found Fair Labor Standards Act (FLSA) violations at an Ohio golf course and country club that included an invalid tip pool, minimum wage and overtime violations, and recordkeeping penalties [DOL WHD News Release, 22-2326-CHI, 12/15/22].
Tip pool rule. In 2020 and 2021, the DOL completed a series of rulemakings to update its regulations to protect tipped workers. These rulemakings addressed 2018 legislative amendments to 29 USC 203(m) and other sections of the FLSA to expressly prohibit employers, including managers and supervisors, from keeping employees’ tips.
Employer violated rule. Investigators at the WHD found that New Era Golf Ohio NAL Inc., operator of the semi-private golf course and country club, created an invalid tip pool by including salaried managers. As a result, the employer lost the ability to take a tip credit in weeks when managers receive tips from the tip pool, making the golf course and club’s operator responsible for repaying tips to workers that were illegally diverted to managers.
FLSA minimum wage and overtime. Under the FLSA, covered nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour. Many states also have minimum wage laws. In cases where an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher minimum wage.
Covered nonexempt employees must receive overtime pay for hours worked over 40 per workweek (any fixed and regularly recurring period of 168 hours – seven consecutive 24-hour periods) at a rate not less than one and one-half times the regular rate of pay. There is no limit on the number of hours employees 16 years or older may work in any workweek. The FLSA does not require overtime pay for work on weekends, holidays, or regular days of rest, unless overtime is worked on such days.
Additional violations. Investigators also determined that the employer did not keep accurate pay records and made automatic deductions for lunch breaks even when workers were unable to take a break. These deductions led to the employer’s failure to pay employees minimum wage for all hours worked and overtime compensation for hours over 40 in the workweek. Some of the basic recordkeeping requirements include: total hours worked each workweek and total overtime earnings for the workweek. Every covered employer must keep certain records for each non-exempt worker.
Wages/damages recovered for workers. WHD investigators recovered $88,822 in back wages and liquidated damages for 32 workers.
Alabama—Business Modernized Electronic Filing Handbook for 2022/2023
The Alabama Department of Revenue (ADOR) has posted the 2022/2023 business modernized electronic filing information on its website. AL4163 (Handbook for Electronic Filers of Alabama Business MeF Returns) was issued on December 17, 2022.
Alaska—Unemployment Tax Rates for 2023
The Alaska Department of Labor and Workforce Development (DLWD) has issued unemployment tax rate information for the 2023 tax year. Unemployment tax rates for experienced employers in the 21 rate classes continue to range from 1.0% to 5.4%. For new employers, unemployment tax rates vary by industry and will range from 1.45% to 1.86% in 2023. The unclassified new employer rate for those not assigned to a particular industry is 1.86% in 2023. Employees must also make unemployment tax contributions. The employee unemployment tax withholding rate will be 0.51% in 2023. The taxable wage base will increase from $45,200 to $47,100 in 2023.
Arizona—State Revenue Department Announces Withholding Submission Available Online Beginning January 2023
The Arizona Department of Revenue has announced that withholding submissions will be available online, beginning in January 2023. The DOR has said it took steps to make submitting Forms W-2 and 1099 "easier and faster for employers." Employers are required each year to submit to the Department of Revenue copies of all the W-2s issued to their employees, and the 1099s that include Arizona withholding, along with the annual Form A1-R (Arizona Withholding Reconciliation Return) and Form A1-APR (Arizona Annual Payment Withholding Tax Return). Employers must submit all withholding returns electronically. The methods by which employers may file Forms A1-R and A1-APR electronically include: AZ Web File (AZFSET) and AZTaxes. For the 2022 tax year, due January 31, 2023, all Forms W-2 will need to be submitted by one of these online electronic methods.
Arizona—Tax Year 2022 Information Posted on E-Services for Forms W-2/1099
The Arizona Department of Revenue (ADOR) has updated its website for e-services for Forms W-2 and 1099 to explain that for the 2022 tax year (due date January 31, 2023), all Forms W-2 must be submitted through AZTaxes and AZ Web File (AZFSET). Employers and payers can electronically submit Arizona reconciliation Form A1-R and Form A1-APR and supported federal Forms 1099 (which do not include Form 1099-NEC on the ADOR webpage). ADOR only requires submission of Form 1099 that reports Arizona income tax withheld. Taxpayers only need to submit Form 1099-NEC if there is Arizona withheld. All federal attachments (including Form 1099-NEC) are due with Arizona reconciliation forms (January 31 due date). The state is not offering a general withholding electronic filing or electronic payment waiver for the 2022 tax year.
California—Employer Requirements of New "Non-Emergency" COVID-19 Prevention Regulations
On December 15, 2022, the California Standards Board voted to adopt a new “non-emergency” COVID-19 prevention regulation. For two years of the coronavirus (COVID-19) pandemic, employers followed the CAL/OSHA and its Emergency Temporary Standards (ETS). The California Office of Administrative Law has 30 days to review and approve the new regulation. During this time, the ETS remains in effect. Under the new emergency prevention regulation, employers must identify, assess, and respond to COVID-19 hazards as part of their Injury and Illness Prevention Plan (“IIPP”). The long list of requirements under the ETS are not included in this regulation, but employers must now review applicable orders and guidance from the California Department of Public Health (CDPH) and local health departments when determining how to protect against COVID-19. Employers must still “immediately exclude” all COVID-19 cases from the workplace. Both asymptomatic and symptomatic persons may not return to work until after their respective “infectious period” runs. Employers continue to provide information regarding COVID-19-related benefits and other things like providing testing at no cost and face coverings.
Colorado—State Labor Department Offers Tips for Responding to Unemployment Claim Documents
In the December 2022 version of the Colorado Department of Labor and Employment's (CDLE) Employer Update email, there is a list of tips for employers responding to unemployment insurance claim documents. The CDLE recommends using its online portal to respond to questionnaires, file an appeal, or upload supporting documentation as one complete document when possible, rather than faxing or mailing (mailing/faxing will extend processing times). Also, employers should return the barcoded CDLE form with any supporting documentation, and put that form on the top (barcodes tell the CDLE with which issue the documentation belongs). In addition, the CDLE warns not to upload one page at a time for multiple page documents (submit as one complete document when possible). Unemployment fraud may be reported online at: https://cdle.colorado.gov/fraud-prevention
Connecticut—Withholding Calculation Rules and Tables Unchanged for 2023; Other Related Forms Updated
The Connecticut Department of Revenue Services (DRS) has issued the 2023 Withholding Calculation Rules. The note at the top of the publication states that 2023 withholding calculation rules and 2023 withholding tables are unchanged from 2022. Employers use either the withholding calculation rules or the withholding tables to determine the amount of tax to be withheld from the wages of employees. There is no percentage method available to determine Connecticut wage withholding. The DRS has also posted Form CT-W-4 (Employee's Withholding Certificate) for use in 2023. Other state withholding tax forms for 2023 additionally issued by the DRS include: Form CT-941 (Connecticut Quarterly Reconciliation of Withholding), Form CT-8109 (Connecticut Withholding Tax Payment Form for Nonpayroll Amounts), Form CT-W4P (Withholding Certificate for Pension or Annuity Payments), and Form CT-W4NA (Employee's Withholding or Exemption Certificate-Nonresident Apportionment).
District of Columbia—2023 Living Wage Poster Available
The District of Columbia's Office of Wage-Hour Compliance has posted the City's living wage notice for 2023. From January 1, 2022 through June 30, 2022, the living wage is $16.50 per hour. Effective July 1, 2023, the living wage will increase to $17 per hour. The requirement to pay a living wage applies to: (1) all recipients of contracts in the amount of $100,000 or more, and all subcontractors that receive $15,000 or more from the funds received by the recipient from the District of Columbia; and (2) all recipients of government assistance in the amount of $100,000 or more, and all subcontractors of these recipients that receive $50,000 or more from the government assistance received by the recipient from the District of Columbia.
District of Columbia—No Changes to 2023 Unemployment Tax Rate Information
The District of Columbia Department of Employment Services (DOES) has announced that unemployment tax rates will continue to be determined under Rate Table VI in 2023. Experience rates under Table VI range from 1.0% to 4.4% for positive-balanced employers and from 6.2% to 7.4% for negative-balanced employers. The new employer tax rate remains at 2.7% and the 0.2% administrative assessment (paid by both experienced and new employers) continues to be in effect in 2023. The unemployment taxable wage base remains at $9,000 in 2023. In addition, the DOES is scheduled to transition to its new, modernized tax system, the District of Columbia Employer Tax System (DCETS), on February 28, 2023. Once DCETS has been deployed it will replace the existing DOES Employer Self Service Portal (ESSP). The DOES said it will provide instructions for accessing and logging into the system prior to the change.
Florida—Payroll Tax Relief for Victims of Hurricane Nicole
The IRS has announced payroll tax relief from Hurricane Nicole for those with a business in the following Florida counties: Brevard, Duval, Flagler, Indian River, Lake, Martin, Nassau, Palm Beach, Putnam, St. Johns, St. Lucie, and Volusia. Beginning November 7, 2022, victims in the mentioned counties have until March 15, 2023 to file the quarterly payroll tax returns typically due by January 31, 2023. Penalties on payroll tax deposits due on or after November 7, 2022, and before November 22, 2022, will be abated as long as the tax deposits were made by November 22, 2022.
Hawaii—2023 Unemployment Tax Information
The Hawaii Department of Labor and Industrial Relations (DLIR) has announced the following 2023 unemployment tax information: (1) experienced employer rates will be determined under Schedule F (Schedule D in 2022) with a 6.2% maximum tax rate (5.8% maximum tax rate in 2022), (2) new employers will have a 4.0% tax rate (up 1% from 2022), (3) the employment and training assessment rate remains at 0.01%, (4) the taxable wage base increases from $51,600 to $56,700, and (5) the maximum weekly benefit increases from $695 to $763.
Indiana—Local Income Tax Bulletin Updated
The Indiana Department of Revenue has updated its Information Bulletin addressing local income taxes. The revised bulletin notes that the various county income taxes in effect in Indiana prior to 2017 have been replaced with a single local income tax. Unlike the previous county income taxes, there is no separate local income tax rate for resident and nonresident taxpayers. The taxpayer pays the full rate of local income tax even if he or she is a nonresident.
Kentucky—2023 Employer Withholding Calculator Released
The Kentucky Department of Revenue (DOR) has posted the 2023 version of its Employer Withholding Tax Calculator to its website, which assists employers in computing the correct amount of state withholding tax for employees. The calculator was developed in a spreadsheet format so employers may use it for multiple employees. Employers select the payment frequency from the drop down box, enter the amount of taxable wages for the pay period and the calculator will generate the amount of withholding.
Kentucky—Reminder: PEO Requirements Begin January 1, 2023
The Kentucky Office of Unemployment Insurance is reminding employers that Professional Employer Organizations (PEOs) must comply with new PEO registration requirements as of January 1, 2023. Pursuant to recent legislation, PEOs are considered "co-employers" with the clients they enter into a professional employer agreement with, and as such share employer requirements. The new PEO registration process for an unemployment insurance reserve account can be found on the KEWES website. The website notes that PEOs will be assigned their own Kentucky Employer Identification Number (KEIN) and assigned the new employer rate of 2.7%. When rates are calculated for 2024, the PEO rate will be based on the combined experience of all its Kentucky clients. PEOs must file quarterly reports for each individual client using the client's KEIN.
Maine—Wage and Hour Compliance Assistance Webinars Coming Soon
The Maine Department of Labor (DOL) is offering a series of Wage and Hour Compliance Assistance classes in January and February 2023. The DOL's webinar series will cover minimum wage, overtime, youth employment, severance pay, equal pay, rest breaks, and paid or unpaid leave requirements. Classes are offered in person as follows: (1) January 18, 2023 from 9:00 a.m. to 3:00 p.m. at the Tri-County Career Center in Bangor; (2) January 25, 2023 from 9:00 a.m. to 3:00 p.m. at the Safety Works Training Institute in Augusta: (3) February 8, 2023 from 9:00 a.m. to 3:00 p.m. at the Portland Career Center in Portland; and (4) February 15, 2023 from 9:00 a.m. to 3:00 p.m. at the Presque Isle Career Center in Presque Isle. Registration is available now on the SafetyWorks website.
Michigan—Paid Leave Provisions in Limbo in Pending Court of Appeals Decision
The pending Michigan Court of Appeals decision that will decide whether or not the full increase in minimum wage passed by state voters in a ballot initiative in 2018 also holds a potential paid leave requirement for employers in the balance. The paid leave provision passed by the same ballot initiative would require large employers to provide 72 hours of paid sick leave and 40 hours of paid leave, with 32 hours of unpaid leave for small employers. Employees would accrue one-hour of leave for every 30 hours worked under the initiative. If the decision in Mothering Justice v. Nessel at the Court of Claims level is upheld, the full increase in both minimum wage and paid leave requirements will go through in February 2023.
Michigan—2023 Unemployment Tax Rates to be Mailed December 29
In the December 2022 version of the Michigan Employer Advisor from the state's Unemployment Insurance Agency (UIA), it was announced that the 2023 unemployment tax rate notices for employers (Form 1771) will be mailed on December 29, 2022. The deadline for employers to protest their 2023 rates is February 1, 2023. The UIA notes that if an employer has missing tax reports and submits a protest, the employer's tax rate will not change the overall rate. The UIA says employers should be filing the missing reports first before submitting a protest, which will also help to avoid the 3% non reporting penalty portion of the tax rate. On November 9, 2022, the UIA mailed Form 1761 (Potential Tax Rate Increase Due to Missing Report(s)). Employers had until December 13, 2022 to file any missing reports and avoid the additional 3% rate penalty.
Montana—2023 Unemployment Tax Rate Information Has Been Released
Montana's Department of Labor and Industry, Unemployment Insurance Division, has released the state's unemployment insurance rates for 2023
Nebraska—Guides for Computer Reporting of Information Returns Updated
The Nebraska Department of Revenue (DOR) has issued a November 2022 version of its Computer Reporting Procedure for Forms 1099 (21CM) and Computer Reporting Procedure (21EFW2)Employers and payors licensed for Nebraska income tax withholding must report Nebraska non‑employee compensation, other payments, and withholding to the state's DOR. Several filing options are available; however, any company reporting more than 50 Nebraska Forms W-2, 1099-MISC, 1099-NEC, 1099-R, and W-2G must e-file them, using the DOR’s NebFile for Business program on the DOR’s website. Payroll companies and other third parties filing Forms W-2 and 1099 for multiple taxpayers (bulk filing), may contact the DOR to receive an ID and PIN that will give them access to the online filing program.
New York—2023 Employee Withholding Allowance Certificate Released
The New York Department of Taxation and Finance has released its 2023 version of Form IT-2104 (Employee's Withholding Allowance Certificate), as well as updated instructions. The worksheet and the charts provided, have been revised. Those who previously filed a Form IT-2104 and used the worksheet or charts should complete a new 2023 Form IT-2104 for the employer. The form also reminds employers that they must report individuals under an independent contractor arrangement with contracts in excess of $2,500 using the New York New Hire Online Reporting Center, not Form IT-2104. A copy of an employee’s Form IT-2104 must be submitted to the Department when an employee claims more than 14 allowances.
North Carolina—Department of Revenue Releases Summary of 2022 Tax Law Changes
The Department of Revenue (DOR) has released its annual summary of 2022 legislative changes affecting the state's tax laws. The highlighted laws pertaining to payroll include: (1) N.C. Gen. Stat. §105-153.5(b)(11a) amended to permit a deduction to employers for the amount of qualified wages disallowed for federal income tax purposes because the employer claimed the federal Employee Retention Credit against federal payroll tax ; (2) N.C. Gen. Stat. §105-263(c) amended to clarify that the automatic extension of time granted for filing a North Carolina return when an extension is granted by the IRS only applies to extension applications filed by a taxpayer with the Commissioner of Internal Revenue; and (3) N.C. Gen. Stat. §105-153.5(b)(14a) — the law originally decoupled North Carolina from the federal provision that makes grant monies received from North Carolina's Business Recovery Grant Program taxable upon receipt as gross income. The amendment expands the deduction to grant monies received from additional North Carolina COVID-19 relief programs, allowing a taxpayer to deduct from adjusted gross income ("AGI") the following payments received from North Carolina to the extent the income was included in the taxpayer's AGI: (a) the Business Recovery Grant Program; (b) the ReTOOLNC grant program for recovery from the economic impacts of the COVID-19 pandemic, and (c) rent and utility assistance pursuant to Section 3.3 of Session Law 2020-4.
Ohio—State Tax Appeals Board Affirms Three Employer Withholding Assessments
The Ohio Board of Tax Appeals (BTA) affirmed three employer withholding tax assessments issued against the taxpayer as a responsible party for an HVAC corporation, of which she was the sole shareholder since January 2013. The corporation was assessed for failing to remit Ohio employer withholding tax for 2011 through 2012 and as the assessments were never satisfied, the taxpayer was derivatively assessed as a responsible party. The taxpayer objected to the assessments, arguing that pursuant to the stockholder purchase agreement, she became the owner after the assessments had accrued. She also contended that the prior owner was liable for the taxes under the terms of the agreement. In his final determination, the tax commissioner concluded that the taxpayer was a responsible party and, as the employer's successor, had been required by statute to withhold a sufficient amount from the purchase of the business to cover taxes, penalties, and interest. On appeal, the BTA noted that the law requires personal liability to fall on any officer or employee having the requisite indices of responsibility, and such responsible party may not challenge the correctness of the underlying corporate assessment. In addition, it found that the stock purchase agreement did not support the taxpayer's contentions and it did not absolve her of responsibility. She was required to withhold a sufficient amount to cover taxes, penalties, and interest due and unpaid under the governing statute. Accordingly, the BTA found that the taxpayer failed to meet her burden to demonstrate error in the commissioner's determination and affirmed his determination [Brooks v. McClain, Ohio BTA, Dkt. No. 2021-1222, 12/19/2022].
Ohio—Cleveland Wage Theft and Payroll Fraud Ordinance Awaits Mayor's Approval
On December 5, 2022, the Cleveland City Council approved an Emergency Ordinance that would establish the Fair Employment Wage Board (FEWB) that will monitor wage theft and payroll fraud in city contracts through creation of an adverse determination list and make recommendations to Council, as appropriate, regarding wage theft and payroll fraud policy. Under the Ordinance, city contractors would be required to disclose any final adjudication or final action related to wage theft or payroll. Wage theft includes violations of wage payment and minimum wage requirements. Payroll fraud includes concealing true payroll tax liability, worker misclassification, and failure to maintain proper records. Contractors who receive an adverse determination within the previous three years of the due date of a bid or proposal are ineligible to enter into a contract with the City. The FEWB would also monitor that covered employees are receiving incentives or benefits equivalent to those provided to City employees. The ordinance is currently awaiting approval by Mayor Justin Bibb.
Oregon—Transit District Payroll Tax Guide and Due Date Schedule Released
The Oregon Department of Revenue has released an updated guide to TriMet and Lane Transit district payroll taxes. The guide provides information on who is required to pay transit district taxes, how to register, which zip codes are required to pay transit district taxes, current tax rates, and when and how to file the taxes. For 2023, the TriMet Transit District tax rate is 0.008037 and the Lane Transit District tax rate is 0.0078. The DOR has also released the 2023 Withholding and Transit Tax Calendar containing due dates [Oregon Transit Payroll Taxes for Employers (150-211-503), 12/15/2022; 2023 Withholding and Transit Tax Calendar and Important Due Dates (150-206-400), 12/15/2022].
Pennsylvania—Employer Withholding Brochure Updated
The Pennsylvania Department of Revenue has updated REV-580 (Employer Withholding) that provides information regarding: (1) definition of an employer; (2) how to obtain an Employer Identification Number; (3) due dates for filing and paying employer withholding tax; (4) how to file returns and pay taxes; (5) W-2 reporting; and (6) nonresident withholding.
Puerto Rico—2022 Developer Guide for Electronic Filing Requirements for Form 499R-2C/W-2cPR Released
The Puerto Rico Department of the Treasury (PRDOT) has released Publication 22-02 (Developer Guide Form 499R-2c/W-2cPR). Forms 499R-2c/W-2cPR must be submitted to El Sistema Unificado de Rentas Internas (SURI) in the EFW2CPR format. Forms 499R-2c/W-2cPR printed without a confirmation number will be rejected. The publication notes a number of modified fields, new records, exempt salaries code changes, and other additions and changes. New Box F is used if remuneration includes payments for direct employment by an exempt business under Act 135-1997, Act 73-2008 or Act 60-2019 to participate directly in the activities covered by a tax exemption decree. The hours worked and EIN are required.
Rhode Island—Reminder: E-Filing Mandate for Large Businesses Takes Effect January 1
Rhode Island legislation enacted in June 2022 imposes a mandate that larger business registrant taxpayers use electronic means to file returns and remit taxes beginning on January 1, 2023. A “larger business registrant” is any person who operates as a business whose combined annual liability for all taxes administered by the Rhode Island Department of Taxation (DOT) for the entity is or exceeds $5,000; or operated as a business whose annual gross income is over $100,000 for the entity. Employers can file electronically and make a payment online through the DOT's Taxpayer Portal. Taxpayers who already use the portal to file returns and remit taxes do not need to do anything differently. First-time users must create an account; request and obtain a PIN (delivered by postal mail); and validate the account before filing and paying. Same-day guest services are available for taxpayers who have not received a PIN, but require several verification steps [Rhode Island Advisory No. 2022-23, 09/14/2022].
Rhode Island—2023 Withholding Tables Released
The Rhode Island Division of Taxation (DOT) has issued a booklet with new withholding tables that should be used beginning on January 1, 2023. Tax rates in the percentage method withholding tables will remain the same, but the range of wages in each tax rate will change. Exemption amounts will remain the same as in the 2020 tax year, but the dollar thresholds under which the exemption allowance is phased out will change. For example, in 2023, exemptions should not be subtracted from the wage payment in percentage method withholding computations if weekly wages are greater than $5010.58 ($4,650.96 in 2022). The supplemental wage withholding rate will continue to be 5.99% in 2023. The withholding table booklet also includes the 2023 version of Form RI W-4 (Employee's Withholding Allowance Certificate). A new Form RI W-4 is only completed if employees are making changes to their withholding allowance or have a new employer. Form RI W-4 must be completed each year that an employee claims "EXEMPT" or "EXEMPT-MS" on line 3 of Form RI W-4. The DOT has also issued a 2023 Withholding Tax Payment Calendar that includes 2023 filing deadlines for weekly, monthly, and quarterly filers [2023 Rhode Island Employer's Income Tax Withholding Tables].
Rhode Island—2023 Disability Insurance Information
The Rhode Island Department of Labor and Training (DLT) has released a press release that includes temporary disability insurance (TDI) limitations for the 2023 tax year. The employee contribution rate to the TDI fund will remain 1.1% in 2023. The TDI taxable wage base will increase from $81,500 to $84,000 [DLT press release, 12/14/2022].
Utah—Workforce Services Urges Employers to Review Benefit Claim Notices for Fraud Prevention
Utah Workforce Services is urging employers to review notifications received from the Unemployment Insurance Department regarding benefit claims. Employers should follow the instructions on the form and respond by email, fax, or phone regarding whether the individual is still working. If the employer suspects identity theft, it should be reported on the form and the Department will investigate the matter. Responding to the notification will help prevent fraud and identity theft [Workforce Services, Employer Advisor, Winter 2022].
Vermont—2023 Income Tax Withholding Tables, Charts, and Instructions
The Vermont Department of Taxes has issued the 2023 income tax withholding tables, charts and instructions. Wages, pensions, annuities, and other payments are generally subject to Vermont income tax withholding if the payments are subject to federal tax withholding and the payments are made to a Vermont resident or a nonresident of Vermont for services performed in Vermont. The Vermont Income Tax Withholding is calculated in the same manner as federal withholding tax by using the Vermont withholding tables or wage bracket charts. All employers are required to file Form WHT-434 (Annual Withholding Reconciliation) by January 31 each year, which serves as the transmittal for Forms W-2 and/or 1099 and reconciles the amount of Vermont income tax withholding reported during the previous year to the amount of withholding tax shown on those forms. Form WHT-434 and Forms W-2 and 1099 may be filed through myVTax.
Virginia—Governor Proposes Tax Cuts in Budget Amendments
Governor Glenn Youngkin proposed income tax rate cuts and expanded deductions through Biennial Budget amendments in a speech to the Virginia General Assembly's Joint Meeting of the Senate Finance, House Appropriations, and House Finance Committee. Specifically, he proposed lowering Virginia's business tax rate to 5% from 6%, cutting the state's top individual income tax rate to 5.5%, doubling the standard deduction, giving small businesses a 10% deduction on their business income, and expanding military retirement tax relief to all veterans. Youngkin stated that his budget proposals include about $1 billion in tax cuts, but some would be contingent on hitting fiscal year 2023 revenue targets.
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