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January 30 - February 3 Compliance Updates

Feb 8, 2023 1:13:16 PM

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OCSE Seeks Public Comments on Revisions of Income Withholding Order and Instructions

The Office of Child Support Enforcement (OCSE) is requesting public comments on proposed changes to the Income Withholding for Support (IWO) form and the form instructions [OCSE, DCL-23-03, 1/30/23].

Background. An IWO form is used by state and tribal agencies to transmit child support withholding orders and notices to employers and other debtors using standardized formats prescribed by the Secretary of Health and Human Services. The IWO form notifies of required child support withholding and remittance information. 

Proposed revisions. On January 23, 2023, the OCSE published a notice for public comment in the Federal Register

OCSE proposes minor changes to the IWO form  that include moving the Paperwork Reduction Act language to page 4 of the form, changing the email contact to, and bolding some sections for emphasis.

Proposed changes to the instructions include adding an instruction to direct an employer to return a payment to an employee if the payment is returned to the employer because the order information is not on the system and the State Disbursement Unit is unable to process the payment. Additionally, the instructions have been updated to direct an employer to  reject and return the IWO to the sender when the IWO does not contain all information necessary for the employer to comply with the withholding such as a Remittance Identifier or sender contact information or when it contains an invalid case identifier. 

Public comments. Public comments may be sent to with a reference to OMB control number 0970-0154. Comments must be received by March 24, 2023.

ICYMI - Important Payroll News You May Have Missed (02/03/2023)

News cycles continue to move at a rapid pace. Payroll-related news involves many topics at the federal, state, local, and international levels involving legislation, regulations, guidance and more. There are deadlines and effective dates to track.

So, in case you missed it (ICYMI), the following is a list of some of the more important recent payroll news items you may have missed. 

Federal News

USCIS Announces Facelift for Green Card and Employment Authorization Document. The redesign will improve security and prevent fraud. 

H-1B Visa Cap Initial Registration Period Opens March 1 . The initial registration period for the fiscal year 2024 H-1B cap will open at noon (EST) March 1, 2023 and run through noon (EST) on March 17, 2023.

IRS Releases Corrected Electronic Filing Specifications for 1099s. The District of Columbia and Pennsylvania have been removed from the list of states participating in the Combined Federal/State Filing program for the 2022 tax year (2023 processing year). 

Client Update - How to Treat Tips for Tax Purposes. This client update discusses how workers who receive tips should treat those amounts for tax purposes.

Trendspotting - Top 10 Payroll Issues of State Legislatures. The top ten trending payroll topics of state legislatures are: (1) minimum wage, (2) paid leave, (3) employer tax credits, (4) unemployment, (5) earned wage access; (6) pay transparency, (7) tip credit elimination, (8) worker classification, (9) state-run retirement plans, and (10) work scheduling.

IRS Launches Form 1099 E-File Platform. Taxpayers can now apply for and use a free electronic filing option for submitting a suite of information returns, the IRS announced January 25.

Q&A Corner - W-2 De Minimis Corrections. While there is a safe harbor provision available under the PATH Act of 2015, the IRS still encourages corrections to avoid a Combined Annual Wage Reporting (CAWR) notice.

State News

California - Governor's Budget Proposal Calls to Withdraw $750 Million Payment to State's $18.5 Billion Plus Federal Unemployment Loans. California Governor Gavin Newsom's 2023-2024 Budget proposal includes a provision to withdraw a $750 million payment (part of the 2022 Budget Act) to the state's more than $18.5 billion outstanding federal unemployment loan used to keep California's unemployment trust fund solvent.

Delaware - 2023 Unemployment Taxable Wage Base Decreases. A spokesperson for the Delaware Department of Labor (DOL) has confirmed that the unemployment taxable wage base has been reduced by $4,000 to $10,500 in 2023.

District of Columbia-National Payroll Associations Ask That Employers Not Be Held Responsible for Underwithholding Due to Tax Rate Increases. The American Payroll Association (APA) and National Payroll Reporting Consortium (NPRC) asked the District of Columbia's (D.C.) Office of Tax and Revenue (OTR) to clarify that employers will not be held responsible for any underwithholding for 2022, as long as the employer complied with the FR-230 (Income Tax Withholding Instructions and Tables) issued in 2018.

Illinois - Bulletin Highlights Withholding Changes. The Illinois Department of Revenue has issued a bulletin summarizing changes for 2023 withholding tax forms and schedules, and changes for tax preparers and software developers. The bulletin also provides detailed information on the original and extended filing and payment due dates for various returns

Mississippi - Governor Announces His Desire to Eliminate the State's Income Tax. Governor Tate Reeves announced his desire to eliminate the state's income tax in his state of the state address on January 30, 2023. This includes immediately lowering the current income tax rate to a flat 4%, and would further reduce the rate by 1% per year over the next four years.

Missouri - Judge Rules That St. Louis Improperly Applied Earnings Tax on Nonresident Employees During the Covid-19 Pandemic. A state circuit court judge in Missouri has held that St. Louis improperly applied its 1% earnings tax on nonresident employees who worked outside the city during the COVID-19 pandemic.

Pennsylvania - Employer Withholding Guide Updated for 2023. The Pennsylvania Department of Revenue has released an updated version of REV-415 (Employer Withholding Information Guide, Rev. 01-23). The Guide contains information regarding employer withholding requirements, when taxable compensation is not subject to withholding, fringe benefits and expense reimbursements, calculating withholding, returns and payments, as well as W-2s and 1099 reporting.

Tennessee - Unemployment Tax Rates for First Half of 2023. The Tennessee Department of Labor and Workforce Development has announced that unemployment tax rates for experienced employers will continue to be determined under Table 6 for the first half of 2023 (January 1, 2023 to June 30, 2023). Rates range from 0.01% to 10.0%.

Why It Is Important For Employers to Know Which Employment Tax Records to Keep and For How Long?

In the first quarter 2023 edition of the SSA/IRS Reporter, the IRS advises that employers should know which employment records they need to keep and for how long.

What are employment taxes? Employers must deposit and report employment taxes. These taxes typically include federal income tax, Social Security and Medicare taxes (both the employer and employee portion), Additional Medicare tax (on wages in excess of $200,000), and Federal Unemployment Tax Act (FUTA) tax. Certain information obtained related to employment taxes must be kept by employers for a certain period of time.

Importance of good record keeping. Good recordkeeping practices for employment taxes is a vital application for any employer's payroll or tax department. It can be helpful when it comes time for making employment tax deposits or filing related returns. Also, good record keeping is essential in case of an IRS or other agency audit.

What records should be kept and for how long? Employers should keep records of employment taxes for at least four years after filing the fourth quarter for the year in case the IRS requests to review them. Employment tax records should contain the following: 

  • Employer identification numbers (EIN);
  • Amounts and dates of all wage, annuity, and pension payments;
  • Amounts of tips reported by employees;
  • Record of all allocated tips;
  • The fair market value of in-kind wages paid;
  • Names, addresses, Social Security Numbers, and occupations of employees and recipients;
  • Any employee copies of Form W-2 and W-2c returned to as undeliverable;
  • Dates of employment for each employee;
  • Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them;
  • Copies of employees' and recipients' income tax withholding certificates (Forms W-4, W-4P, W-4S, and W-4V);
  • Dates and amounts of tax deposits you made and acknowledgment numbers for deposits made by EFTPS (Electronic Federal Tax Payment System);
  • Copies of returns filed and confirmation numbers;
  • Records of fringe benefits and expense reimbursements provided to your employees, including substantiation; and 
  • Documentation to substantiate the amount of any employer or employee share of Social Security tax deferred and paid for 2020.

Specific COVID-19 tax credit recordkeeping. According to the IRS, records related to qualified sick leave wages and qualified family leave wages for leave taken after March 31, 2021, and records related to qualified wages for the employee retention credit paid after June 30, 2021, should be kept for at least six years.

Other agency requirements. While the IRS generally requires a four year time period for keeping employment taxes, other federal agencies have different time periods for different records. For example, the U.S. Department of Labor requires certain records related to the Fair Labor Standards Act (FLSA) to be kept for three years. The FLSA does not have a particular form requirement for the records, but it does require that the records include certain identifying information about the employee and data about the hours worked and the wages earned.

Also, the Equal Employment Opportunity Commission (EEOC regulations) requires that employers keep all personnel or employment records for one year. If an employee is involuntarily terminated, his/her personnel records must be retained for one year from the date of termination.

Consider periodic internal or independent payroll audits. A best practice for employers, even those that utilize a third-party payroll provider, is to periodically conduct an internal or independent payroll audit that includes a thorough exam of the business's employment tax records, among other things. Many businesses make valid attempts to maintain accurate records, however, errors can and do happen. Conducting an audit gives the employer the opportunity to review and correct any compliance practices. It is better to be proactive with such audits than hope for the best if and when the IRS or other agencies request business records for their own audits.

Las Vegas Company to Pay More Than $3.6 Million in Back Wages/Damages/Penalties for FLSA Violations

The U.S. Department of Labor (DOL) has announced that it obtained a consent judgment in federal court that requires a Las Vegas, Nevada paint and specialty coatings contractor and its owner to pay more than $3.6 million in back wages, liquidated damages, interest and penalties to 593 employees [DOL News Release, 23-132-NAT, 01/30/23].

Background. Founded in 2007, Unforgettable Coatings Inc. is a commercial and residential roof coating and painting contractor based in Las Vegas with locations in several states including Nevada, Arizona, Utah and Idaho. Cory Summerhays is the owner of the company that Inc. Magazine included in its 2020 annual list of "Best Workplaces." 

Multiple investigations. A 2013 DOL investigation recovered $47,393 from the company and its owner whose illegal pay practices denied 21 Utah workers overtime wages. In September 2019, the DOL's Wage and Hour Division (WHD) expanded and conducted a second joint investigation between its offices in Las Vegas and Phoenix that covered the company’s operations from September 2016 until December 2020.

Overtime. Unless exempt, employees covered by the Fair Labor Standards Act (FLSA) must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. There is no limit in the FLSA on the number of hours employees aged 16 and older may work in any workweek.

Recordkeeping. Every covered employer must keep certain records for each non-exempt worker. The FLSA requires no particular form for the records, but does require that the records include certain identifying information about the employee and data about the hours worked and the wages earned. The law requires this information to be accurate.

Retaliation.Most of the acts enforced by the WHD have regulations that prohibit retaliation, harassment, intimidation or the taking of adverse action against employees for: inquiring about their pay, hours of work or other rights; asserting their worker rights; filing a complaint about their worker rights; and cooperating with a WHD investigation.

Willful violations. Willful violations of the FLSA may result in criminal prosecution and the violator fined up to $10,000. A second conviction may result in imprisonment.

Investigation findings. Investigators found Unforgettable Coatings Inc. and Summerhays illegally paid straight time for all hours worked including hours over 40 in a workweek, falsified payroll records by omitting some workers, and required some workers to volunteer their time to work on weekends without pay.

Willful actions. The WHD also determined Summerhays deliberately hid the company’s theft of overtime by falsifying pay records. The employer hired employees to work between $12 and $25 an hour and created pay stubs showing a lower hourly rate to avoid paying the workers overtime based on their agreed-upon rate. Ultimately, employees were paid straight time for all hours worked.  

Threats of retaliation. Investigators also learned Summerhays threatened workers and stated that talking to the department could involve immigration consequences. He reduced all workers’ wages by 30% and cut employees’ hours if he believed they cooperated with the investigation. Despite the DOL obtaining a federal court order forbidding Summerhays and Unforgettable Coatings from retaliating, intimidating or discriminating against current or former employees who cooperated with investigators, Unforgettable Coatings continued to retaliate against workers and fired an employee for complaining about the company’s pay practices.

What the WHD said. “The wage theft committed by Cory Summerhays and Unforgettable Coatings Inc. was egregious and willful," said Principal Deputy Wage and Hour Administrator Jessica Looman. "The employer denied nearly 600 workers in four states their hard-earned overtime pay, attempted to hide their greed and illegal actions, and retaliated against workers who asked why they were being cheated,” she added.

Results of investigations. The WHD's investigations determined Unforgettable Coatings Inc. and Summerhays owed the affected workers in four states a total of $1,809,249 in back wages and an equal amount in liquidated damages. The DOL also assessed the employer $50,000 in civil money penalties due to the willful nature of its violations, and an additional $18,092 in interest.

Different company, similar offenses. Litigation by the DOL revealed Summerhays had established another company (Final Touch Painting in Idaho) where the employer also falsified payroll records by representing hourly wages as bonus pay. Back wages and liquidated damages calculated in this case were included in the consent judgment.

Nonresident Alien Withholding Publication Updated for 2023

The IRS has issued its 2023 version of Publication 515 (Withholding of Tax on Nonresident Aliens and Foreign Entities).

Background. Publication 515 is for withholding agents who pay income to foreign persons, including nonresident aliens, foreign corporations, foreign partnerships, foreign trusts, foreign estates, foreign governments, and international organizations. Specifically, it describes the persons responsible for withholding (withholding agents), the types of income subject to withholding, and the information return and tax return filing obligations of withholding agents. 

Also, the publication contains sections on the withholding that applies to the disposition of U.S. real property interests (USRPI) and the withholding by partnerships on income effectively connected with the active conduct of a U.S. trade or business.

Withholding of tax. In most cases, a foreign person is subject to U.S. tax on its U.S. source income. Most types of U.S. source income received by a foreign person are subject to U.S. tax of 30%. A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. The tax is generally withheld from the payment made to the foreign person.

Withholding agent. A withholding agent is the person responsible for withholding on payments made to a foreign person. However, a withholding agent that can reliably associate the payment with documentation from a U.S. person is not required to withhold. In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding.

Reporting obligations. Payments subject to withholding must be reported on Form 1042-S (Foreign Person's U.S. Source Income Subject to Withholding) and to file a tax return on Form 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign Persons). There is also a requirement to report withholdable payments applied on Form 1042-S and to file a tax return on Form 1042 to report the payments.

An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business.

Also, a payer may be responsible for reporting payments to a U.S. person, generally on Form 1099. The payer must withhold 24% (backup withholding rate) from certain reportable payments made to a U.S. person that is subject to Form 1099 reporting.

What's new? T.D. 9926  (85 FR 76910), published on November 30, 2020 (as corrected at 86 FR 13191), contains final regulations relating to the withholding and reporting required under Code Sec. 1446(f) on transfers of interests in certain partnership interests, which include withholding requirements that apply to brokers affecting transfers of interests in publicly traded partnerships (PTPs). While Code Sec. 1446(f) withholding generally applies to transfers occurring on or after January 1, 2018, certain provisions of the Code Sec. 1446(f) regulations apply to transfers on or after January 1, 2023, including:

  • The requirements for withholding on transfers of interests in PTPs under Code Sec. 1446(f)(1);
  • Certain changes to the withholding requirements under Regulations section 1.1446-4 for distributions made by PTPs (PTP distributions), which include an allowance for Qualified Intermediaries (QIs) and U.S. branches to act as withholding agents for the distributions; and
  • Partnership withholding under section 1446(f)(4) on distributions to transferees of non-PTP interests that failed to properly withhold under Code Sec. 1446(f)(1).

Withholding agreement application reminder. The IRS has temporarily waived the income requirement for which form to use when applying for a Central Withholding Agreement (CWA). Form 13930-A is currently unavailable. While the waiver is in effect, individuals with income below $10,000 can apply for a CWA using Form 13930 (Instructions on How to Apply for a Central Withholding Agreement). 

Additional H-2B Cap Reached for Returning Workers for First Half of Fiscal Year 2023

On January 31, 2023, the U.S. Citizenship and Immigration Services (USCIS) announced it had received enough petitions for returning workers to reach the additional 44,716 H-2B visas made available under a temporary final rule.  

H-2B visas. The H-2B temporary nonagricultural worker program is designed to serve U.S. businesses unable to find a sufficient number of qualified U.S. workers to perform nonagricultural work of a temporary nature. Congress sets the annual H-2B visa limit at 66,000, with 33,000 for workers who begin employment in the first half of the fiscal year (Oct. 1 - March 31) and 33,000 for workers who begin employment in the second half of the fiscal year (April 1 – Sept. 30).

Additional visas. On December 12, 2022, the DHS announced a joint temporary final rule with the U.S. Department of Labor that would make an additional 64,716 H-2B visas available for fiscal year (FY) 2023. The supplemental H-2B visa allocation consisted of 44,716 visas available to returning workers who received an H-2B visa, or were otherwise granted H-2B status, during one of the last three fiscal years. The remaining 20,000 visas, which are exempt from the returning worker requirement, are reserved for nationals of Haiti, El Salvador, Guatemala, and Honduras. The additional H-B visas became available to employers on December 15, 2022.

Cap reached. USCIS has received enough petitions to reach the cap for the additional 18,216 H-2B visas made available for returning workers for the first half of fiscal year (FY) 2023 with start dates on or before March 31, 2023. USICIS continues to accept petitions for the additional 20,000 visas allotted to nationals of Haiti, El Salvador, Guatemala, and Honduras. The deadline for these visas remains September 15, 2023. 

USCIS Announces Facelift for Green Card and Employment Authorization Document

The United States Citizenship and Immigration Service (USCIS) has announced that it is redesigning the Permanent Resident Card (also known as "Green Cards") and Employment Authorization Documents (EADs). The new designs will help improve security and prevent fraud.

New look. The changes include improved detailed artwork; tactile printing that is better integrated with the artwork; enhanced optically variable ink; highly secure holographic images on the front and back of the cards; a layer-reveal feature with a partial window on the back photo box; and data fields displayed in different places than on previous versions.

Current and redesigned documents. Currently issued cards will remain valid until their expiration date. Note that the DHS issued a policy alert that permits the acceptance of an expired Green Card under certain circumstances for employment eligibility verification purposes. Also, the USCIS cautions that some Green Cards and EADs issued after January 30, 2023 may feature the current design as the Department continues to use existing cardstock until the supplies are depleted. Older Green Cards that feature no expiration date remain valid, however, holders are encouraged to apply for a replacement card.

Employment eligibility. Both the current and redesigned documents are accepted for Form I-9 (Employment Eligibility Verification); E-Verify; and Systematic Alien Verification for Entitlements (SAVE).

As IRS Highlights EITC Awareness Day, Employers Should Make Sure They Have Properly Notified Employees About the Credit  Promote Earned Income Tax Credit Awareness Day

On January 27, 2023, the IRS and partners across the nation began their Earned Income Tax Credit (EITC) Awareness Day outreach campaign. Employers should be aware of EITC notification requirements so all eligible employees are aware of the credit [IR 2023-16].

Background. The EITC is a tax credit for certain people who work and have low to moderate income. A tax credit usually reduces tax owed and may also result in a refund. Even though millions of people get the EITC, the IRS estimates that about 20% of EITC eligible taxpayers do not claim it.

Employer notification requirements. Employers are required to notify all employees who have no income tax withheld — although not those who claim exempt from withholding — that they may be eligible for a personal income tax refund as a result of the earned income credit. In addition, employers are encouraged to provide such notification to all employees (including those who claim exempt from withholding) whose previous year's wages fell below the EITC cutoff. The cutoff is less than $59,187 in wages in 2022 for notification about the 2023 EITC (see IRS Notice 1015).

How to notify? In order to notify employees of the EITC, employers must give employees one of the following: (1) Form W-2 (Wage and Tax Statement) which has the required information about the EITC on the back of Copy B; (2) a substitute Form W-2 with the same EITC information on the back of the employee’s copy that is on Copy B of the Form W-2; (3) Notice 797 (Possible Federal Tax Refund Due to the Earned Income Credit); or (4) a written statement with the same wording as Notice 797. 

Alternative notification requirements. If an employer provides an employee a Form W-2 on time, no further notice is necessary if the Form W-2 has the required information about the EITC on the back of the employee's copy. If an employer provides an employee with a substitute Form W-2, but it does not have the required information, the employer must notify the employee within one-week of the date the substitute Form W-2 is given.

If Form W-2 is required but is not given on time, the employer must give the employee Notice 797 or a written statement by the date Form W-2 is required to be given. If Form W-2 is not required, the employer must notify the employee by February 6, 2023.

Notice delivery. An employer must hand the notice directly to the employee or send it by first-class mail to the employee’s last known address. An employer will not meet the notification requirements by posting Notice 797 on an employee bulletin board or sending it through office mail. However, an employer may want to post the notice to help inform all employees of the EITC.

Claiming the credit. Eligible employees claim the EITC on their 2022 tax return. Even an employee who has no tax withheld from wages and owes no tax may claim the EITC and ask for a refund, but they must file a tax return. For example, if an employee has no tax withheld in 2022 and owes no tax but is eligible for a credit of $800, they must file a 2022 tax return to get the $800 refund.

Workers at risk of overlooking the EITC. According to the IRS, in 2022, 31 million eligible workers and families across the country received about $64 billion in EITCs, with an average amount of more than $2,000.

The IRS also highlighted the workers at risk for overlooking the EITC:

  1. Living in non-traditional homes;
  2. Whose earnings declined or whose marital or parental status changed;
  3. Without children;
  4. With limited English skills;
  5. Who are veterans;
  6. Living in rural areas;
  7. Who are Native Americans; and
  8. With earnings below the filing requirement.

Acting IRS Commissioner notes EITC importance. "The EITC is an extremely important tax credit that helps millions of hard-working people every year," said IRS Acting Commissioner Doug O'Donnell. "But each year, many people miss out on the credit because they don't know about it or don't realize they're eligible. In particular, people who have experienced a major life change in the past year may qualify for the first time."

Worker Misclassification Leads to $106K in Back Wages for FLSA Violations

The U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) recently found a healthcare benefits services company misclassified workers as independent contractors, denying them overtime premium pay, as well as failing to include earned commissions in the regular rate calculation for overtime purposes of some workers [WHD News Release, 22-2204-ATL, 01/26/23].

Worker misclassification. A worker is entitled to minimum wage and overtime pay protections under the Fair Labor Standards Act (FLSA) when there is an employment relationship between the worker and an employer and there is coverage under the FLSA. The WHD is responsible for determining whether an employee has been misclassified as an independent contractor and has been denied critical benefits and labor standards protections.

Family and Medical Leave Act. Under 29 USC 2612(a) of the FMLA, employees are entitled to take up to 12 weeks of unpaid leave per year for specified family and medical reasons.

Investigation results. Senior Healthcare Advisors LLC operates Medicare benefits call centers and sells Medicare policies on behalf of national insurance carriers. The outfit misclassified workers as independent contractors and paid the workers straight-time hours for all hours worked, including hours worked in excess of 40 hours in a workweek. The DOL recovered $106,248 for 68 workers in back wages and liquidated damages. Additionally, the WHD discovered the employer failed to provide notice of FMLA rights to the workers.

What the WHD said. "Misclassifying workers as independent contractors denies them wage protections and other important benefits, making it harder for them to provide for themselves and their families," said Wage and Hour Division District Director Daniel Cronin in Miami. "We encourage employers to contact the Wage and Hour Division to ensure their pay practices comply with the law, and invite employees to contact us with any questions or concerns."

Wage violations by the numbers. The WHD reported that during fiscal year 2022, the DOL recovered more than $32.5M in back wages for workers related to the healthcare industry. 

Specifications for E-Filing Employer's Annual Tip Reporting Updated by IRS for Tax Year 2022

The IRS has issued a revised version of Publication 1239 (Specifications for Electronic Filing of Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips) for the 2022 tax year.

Background. The publication outlines the communication procedures, record format, validation criteria, and errors associated with the electronic filing of Form 8027 (Employer’s Annual Information Return of Tip Income and Allocated Tips). Filers with 250 or more returns must file electronically. The due date for the 2022 Form 8027 is March 31, 2023 for e-filers (February 28, 2023 for paper filers).

Note: The Taxpayer First Act of 2019 (P.L. 116-25) authorizes the Treasury and IRS to issue regulations that reduce the current 250-return electronic filing requirement. The Publication notes that if final regulations are issued and effective for the 2022 tax year, required to be filed in 2023, the IRS will post information on its website explaining the change. However, until final regulations are issued, the threshold will remain at 250 returns.

Use the current reporting year. IRS Publication 1239 is updated to reflect the current four-digit reporting year of 2022. The payment year must be updated with the four-digit reporting year of 2022, unless reporting prior year data.

Corrected return language change. The IRS updated language in Part A, Section 9 of Publication 1239 that has to do with corrected returns. Specifically, the wording for a changed file status of "Good, Not Released" and "Good, Released" to the file status of "Good."

In Section 9, the publication says that if an information return was successfully processed by the IRS and the filer identifies an error with the file after the IRS accepted the file, which is in "Good" status, the filer needs to submit a corrected return. The IRS says the filer should not submit the original return again because it may result in duplicate reporting. Only the returns that require corrections should be filed.

Merging file status results for FIRE. The IRS also updated language in Part B, Section 3 of Publication 1239 regarding file status results for connecting to the File Information Returns Electronically (FIRE) system. Specifically, the file status results of "Good, Not Released" and "Good, Released" have been merged into the single status of "Good." 

Users must obtain a Transmitter Control Code (TCC) before a filer can establish a FIRE account to transmit files through its production and test systems. The IRS says that it is the transmitter’s responsibility to check the status of submitted files. The file status results for the 2022 tax year are as follows: (1) "Good" (the filer is finished with this file if the “Count of Payees” is correct and the file is automatically released after 10 calendar days unless the filer contacts the TSO (Technical Services Operation) within this time frame); (2) "Bad" (the file has errors and the error message(s) should be viewed and fixed, and the file should be resubmitted timely as a "Replacement" file); and (3) "Not Yet Processed" (the file has been received, but results aren’t available and the filer should check back in a few days).

Steps added to connect/upload FIRE file. In Part B, Section 5 of Publication 1239, the IRS has updated security requirements and added steps to connect and upload a file to the FIRE system. System Internet Security Technical Standards are: (1) HTTP 1.1 Specification and (2) TLS 1.2, which is implemented using SHA and RSA 1024 bits during the asymmetric handshake.

The FIRE production and test system server no longer supports Secure Socket Layer (SSL) 3.0 as one of its Internet Security Technical Standards. Transmitters using IE 6.0 or lower as their browser may have problems logging in and connecting to the FIRE system. Publication 1239 includes steps to follow to connect and upload a file. 

New TCCs to submit. Beginning in September 2022, FIRE TCC holders who submitted their TCC Application prior to September 26, 2021, will need to submit and complete the Information Returns (IR) Application for Transmitter Control Code (TCC). The IR Application for TCC can be done at any time between September 25, 2022, and August 1, 2023. The user's TCC will remain active for use until August 1, 2023, after that date, any FIRE TCC that does not have a completed IR Application for TCC will be dropped and will not be available for e-file.

Extension to file. An automatic 30-day extension of time to file Form 8027 may be submitted by electronic filing or fill-in form on the FIRE system or submitting a paper Form 8809 (Application for Extension of Time to File Information Returns).

New IRIS system does not include Form 8027. The Information Returns Intake System (IRIS) taxpayer portal is a new system from the IRS that provides a no-cost, online method for taxpayers to electronically file Form 1099 series. The Taxpayer Portal allows you to enter data to create Forms 1099 by either keying in the information or uploading a.csv file. However, Form 8027 filers must continue to use the FIRE system

H-1B Visa Cap Initial Registration Period Opens March 1

The U.S. Citizenship and Immigration Services (USCIS) announced that the initial registration period for the fiscal year (FY) 2024 H-1B cap will open on noon (EST) March 1, 2023 and run through noon (EST) on March 17, 2023. During this period, prospective petitioners and representatives will be able to complete and submit their registrations using our online H-1B registration system.

Background. The H-1B program applies to employers seeking to hire nonimmigrant aliens as workers in specialty occupations or as fashion models of distinguished merit and ability. A specialty occupation is one that requires the application of a body of highly specialized knowledge and the attainment of at least a bachelor’s degree or its equivalent.

The intent of the H-1B provisions is to help employers who cannot otherwise obtain needed business skills and abilities from the United States workforce by authorizing the temporary employment of qualified individuals who are not otherwise authorized to work in the United States.

FY 2024 H-1B cap. The USCIS will assign a confirmation number to each registration submitted for the FY 2024 H-1B cap. This number is used solely to track registrations; you cannot use this number to track your case status in Case Status Online.

Prospective H-1B cap-subject petitioners or their representatives are required to use a myUSCIS online account to register each beneficiary electronically for the selection process and pay the associated $10 H-1B registration fee for each registration submitted on behalf of each beneficiary. Prospective petitioners submitting their own registrations (U.S. employers and U.S. agents, collectively known as “registrants”) will use a “registrant” account. Registrants will be able to create new accounts beginning at noon (EST) on February 21, 2023.

The USCIS has said that if it receives enough registrations by March 17, it will randomly select registrations and send selection notifications via users’ myUSCIS online accounts. The USCIS intends to notify account holders by March 31, 2023. An H-1B cap-subject petition, including a petition for a beneficiary who is eligible for the advanced degree exemption, may only be filed by a petitioner whose registration for the beneficiary named in the H-1B petition was selected in the H-1B registration process.

A temporary increase in the daily credit card transaction limit of up to $39,999.99 per day during the FY 2024 H-1B cap season has been approved by the Department of Treasury due to the volume of prior H-1B registrations that exceeded the daily credit card limit. More information will be released regarding this increase prior to the start of the H-1B registration period. 

IRS Issues 2023 Draft of Adjusted Small Employers' Annual Tax Return Instructions

The IRS has issued a January 26, 2023 draft version of the Form 944-X (Adjusted Employer's Annual Federal Tax Return or Claim for Refund) instructions used by small employers with limited annual employment tax liability to make adjustments or corrections to previously filed Forms 944 (Employer's Annual Federal Tax Return or Claim for Refund).

Annual employment tax return. Employers with an annual employment tax liability of $1,000 or less may file and pay these taxes only once a year, instead of every quarter, by filing a Form 944. In general, if the IRS has notified an employer to file Form 944, the employer must file this form instead of Forms 941, 941-SS, or 941-PR. The following exceptions apply to certain employers with regard to this form: household employers, agricultural employers, employers that are notified by the IRS to file quarterly Forms 941, 941-SS, or 941-PR, and employers that are not notified to file Form 944.

Even if an employer's annual tax liability exceeds $1,000, it must file Form 944. Once the employer's annual tax liability exceeds $1,000, the IRS will notify the entity that it is no longer eligible to file Form 944 in future years and that the employer must file Form 941, 941-SS, or 941-PR quarterly. However, until notice is received, the employer continues to file Form 944 annually. 

Adjustments/corrections to annual return. If an employer discovers an error on a previously filed Form 944, it should make the correction using Form 944-X, which is filed separately from Form 944. According to the draft 2023 Form 944-X instructions, some of the reporting corrected by a Form 944-X includes: 

  • Wages, tips, and other compensation;
  • Federal income tax withheld from wages, tips, and other compensation;
  • Taxable Social Security wages/tips; 
  • Taxable Medicare wages and tips;
  • Taxable wages and tips subject to Additional Medicare Tax withholding;
  • Deferred amount of the employer/employee share of Social Security tax;
  • Qualified small business payroll tax credit for increasing research activities;
  • Amounts reported on Form 944 for the credit for qualified sick and family leave wages for leave taken after March 31, 2020, and before April 1, 2021, including adjustments to Form 944, lines 4a(i), 4a(ii), 8b, 10d, 15, and 16;
  • Amounts reported on Form 944 for the credit for qualified sick and family leave wages for leave taken after March 31, 2021, and before October 1, 2021, including adjustments to Form 944, lines 8d, 10f, 19, 20, 21, 22, 23, and 24;
  • Amounts reported on Form 944 for the employee retention credit, including adjustments to Form 944, lines 8c, 10e, 17, 18, 25, and 26; and
  • Amounts reported on Form 944 for the COBRA premium assistance credit for periods of coverage beginning on or after April 1, 2021, through periods of coverage beginning on or before September 30, 2021, including adjustments to Form 944, lines 8e, 8f, and 10g

Special instructions for worker classification. Generally, Form 944-X should be filed separately from Form 944. However, if an employer did not previously file Form 944 because it mistakenly treated its employees as nonemployees, the entity may have to file Form 944-X with Form 944. This is discussed in the instructions for line 42 (Did You Reclassify Any Workers?). The instructions explain that if an employer did not previously file Form 944 because it mistakenly treated workers as independent contractors or as nonemployees, the employer should file a Form 944 for each delinquent year.

Sick/family leave adjustments. The credit for qualified sick and family leave wages, as enacted under the Families First Coronavirus Response Act (FFCRA) and amended and extended by the COVID-related Tax Relief Act of 2020, is for leave taken after March 31, 2020, and before April 1, 2021, and the credit for qualified sick and family leave wages under Code Sec. 3131, Code Sec. 3132, and Code Sec. 3133 of the Internal Revenue Code, as enacted under the American Rescue Plan Act of 2021 (ARRP), is for leave taken after March 31, 2021, and before October 1, 2021. 

Corrections to amounts reported on Form 944, lines 4a(i), 4a(ii), 8b, 10d, 15, and 16, for the credit for qualified sick and family leave wages for leave taken after March 31, 2020, and before April 1, 2021, are reported on Form 944-X, lines 9, 10, 16, 25, 28, and 29, respectively. Corrections to amounts reported on Form 944, lines 8d, 10f, 19, 20, 21, 22, 23, and 24, for the credit for qualified sick and family leave wages for leave taken after March 31, 2021, and before October 1, 2021, are reported on Form 944-X, lines 17b, 26b, 33, 34, 35, 36, 37, and 38, respectively.

Employee retention credit adjustments. The employee retention credit enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and amended and extended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 was limited to qualified wages paid after March 12, 2020, and before July 1, 2021. The employee retention credit under Code Sec. 3134, as enacted by the ARP and amended by the Infrastructure Investment and Jobs Act, was limited to qualified wages paid after June 30, 2021, and before October 1, 2021, unless the employer was a recovery startup business.

Corrections to amounts reported on Form 944, lines 8c, 10e, 17, and 18, for the employee retention credit are reported on Form 944-X, lines 17a, 26a, 30, and 31, respectively. However, how an employer figures the employee retention credit for qualified wages paid after March 12, 2020, and before July 1, 2021, is different from how it figures the credit for qualified wages paid after June 30, 2021, and before January 1, 2022.

Therefore, other than in rare circumstances, due to the COBRA notice and election period requirements (generally, employers have 60 days to provide notice and assistance eligible individuals have 60 days to elect coverage), January 2022 was generally the end of the period in which an assistance eligible individual would have elected coverage. Under some rare circumstances, it may be possible for a premium payee to become entitled to the COBRA premium assistance credit after January 2022. In these rare instances, the credit was still claimed on Form 944 filed for 2022 and an adjustment, if needed, can be made on Form 944-X for 2022.

IRS Releases Corrected Electronic Filing Specifications for 1099s

The IRS has released the corrected version of the October 2022 Publication 1220 (Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G).

The IRS previously alerted taxpayers that Publication 1220 contained an error in its listing of states that participated in the Combined Federal/State Filing (CF/SF) Program for the 2022 tax year (2023 processing year). The District of Columbia and Pennsylvania have been removed from the list and a note has been added to explain that D.C. and Pennsylvania will be participating in the CF/SF program in the 2023 tax year (2024 processing year).

Client Update: How to Treat Tips for Tax Purposes

Individuals who perform services in certain industries receive tips as part of their compensation for the services they provide. Businesses where individuals commonly receive tips are restaurants, hotels, and salons. For individuals who work in these types of businesses, tips usually make up a large part of their pay.

What are tips? Tips are optional payments that customers usually make to employees who perform services in a business where tips are customary. 

Tips can be cash or noncash.

  • Cash tips include those received directly from customers, electronically paid tips distributed to the employee by their employer and tips received from other employees under any tip-sharing arrangement. Generally, workers must report cash tips to their employer.
  • Noncash tips are items of value provided to a worker in any medium other than cash. Noncash tips can include items as tickets, passes or other goods or commodities that a customer gives the employee. Workers don't have to report non cash tips to their employer.

For tax purposes, four factors determine whether a payment qualifies as a tip. Normally, all the following four factors must apply:

  • The customer makes the payment voluntarily (i.e., free from compulsion);
  • The customer must have the unrestricted right to determine the amount;
  • The payment is not negotiated with or dictated by employer policy; and
  • Generally, the customer has the right to determine who receives the payment.

Tips can also be direct or indirect. 

A direct tip occurs when an employee receives the tip directly from a customer, even if it is part of a tip pool. Examples of directly tipped employees include waiters, waitresses, bartenders, and hairstylists.

An indirect tip occurs when an employee, who normally does not receive tips directly from customers, receives a tip. Examples of indirectly tipped employees include bussers, service bartenders, cooks, and salon shampooers.

Daily tip record. Tipped workers must keep a daily record of the cash tips they receive. Tipped workers can use Form 4070A (Employee's Daily Record of Tips), which can be found in Publication 1244, (Employee's Daily Record of Tips and Report of Tips to Employer) to keep track of the cash tips they receive.

Tipped workers should also keep a record of the date and value of any noncash tips. Although the IRS doesn't require workers to report non cash tips to their employer, noncash tips must be reported as income on the worker's tax return.

How to report tips to your employer. Employees must report tips to their employer by the 10th of the month following the month the tips were received. The IRS doesn't require a worker to use a particular form to report their tips. However, a worker's tip report generally should include:

  • Employee signature;
  • Employee's name, address and social security number;
  • Employer's name and address (and business name if different);
  • Month or period the report covers; and
  • Total of tips received during the month or period.

Whatever method or system the employee uses to report tips, it must contain the above information.

Note. Employees whose tips are less than $20 per month don't need to report them to their employer but must include them as income on their tax return. 

How to report tips on a tax return. Employees should receive from their employer a Form W-2 (Wage and Tax Statement), that includes their reported tips. Any tips an employee didn't report to their employer should be reported on their tax return as additional wages. 

Employees with unreported tips (i.e., tips not reported to their employer) should use Form 4137 (Social Security and Medicare Tax on Unreported Tip Income), to report their tips to the IRS. 

Note. The employee is liable for the employee's share of Social Security and Medicare tax on tips they don't report to their employer.

Employer requirements. Employers with tipped employees are required to:

  • Keep their employees' tip reports.
  • Withhold taxes, including income taxes and the employee's share of Social Security tax and Medicare tax, based upon employee's wages and reported tip income.
  • Pay the employer share of Social Security and Medicare taxes based on the total wages paid to tipped employees as well as the reported tip income.
  • Report this information to the IRS on Form 941 (Employer's Quarterly Federal Tax Return).
  • Deposit the withheld taxes in accordance with federal tax deposit requirements.
  • "Large" food or beverage establishments are required to file an annual report disclosing receipts and tips on Form 8027 (Employer's Annual Information Return of Tip Income). 


Coffee Shop in Hot Water for Improperly Redistributing Tips

The U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) has announced the recovery of back wages and damages for hundreds of workers at a coffee shop chain when it determined that the business violated minimum wage provisions of the Fair Labor Standards Act (FLSA) [WHD News Release, 23-46-ATL, 01/25/23].

Tipped employees. A tipped employee engages in an occupation in which he or she customarily and regularly receives more than $30 per month in tips. An employer of a tipped employee is only required to pay $2.13 per hour in direct wages if that amount combined with the tips received is equal or greater than the federal minimum wage (currently, $7.25 per hour).

If the employee's tips combined with the employer's direct wages of at least $2.13 per hour do not equal the federal minimum hourly wage, the employer must make up the difference. Many states, however, require higher direct wage amounts for tipped employees. The DOL has a webpage on the minimum wages for tipped employees. 

Tip pooling rule. In late-2020, the DOL announced a final rule protecting the tips of employees. This rule addresses amendments made to 29 USC 203(m) of the Fair Labor Standards Act (FLSA) by the Consolidated Appropriations Act (CAA) of 2018. The amended provision prohibits employers from keeping tips received by their employees, regardless of whether the employer takes a tip credit toward the minimum wage to employees covered by the FLSA. The rule also prohibits employers from allowing managers or supervisors to keep any portion of employees’ tips. 

Recordkeeping. Every covered employer must keep certain records for each non-exempt worker. The FLSA does not prescribe a particular form for the records, but does require that the records include certain identifying information about the employee and data about the hours worked and the wages earned. The law requires this information to be accurate. 

Investigation results. The WHD investigation of Heine Brothers' coffee shop chain found that the operator of a Louisville, Kentucky location redistributed tips improperly and diverted workers’ tips to managers. Heine Brothers also failed to keep a record for tips, specifically pennies which it mandated be donated to a charity, violating the minimum wage provisions of the FLSA. The WHD recovered $150,000 in back wages for 492 workers and an equal amount in liquidated damages.

What the WHD said. “In this case, our collaboration with the National Conference of Fireman and Oilers provided important help in our efforts to protect the rights of nearly 500 workers whose employer denied them their full wages,” said Wage and Hour Division District Office Director Karen Garnett-Civils in Louisville, Kentucky.

State Payroll Tax News

Alabama—Federal Payroll Tax Relief Expanded for Victims of Severe Storms, Straight-Line Winds, and Tornadoes

The IRS has expanded its federal payroll tax relief to victims of severe storms, straight-line winds, and tornadoes beginning January 12, 2023. The expansion is for the following counties: Coosa, Elmore, Greene, Hale, Sumter, and Tallapoosa. The extension is until May 15, 2023. This deadline applies to the quarterly payroll tax returns that are normally due on January 31, 2023 and April 30, 2023. Also, penalties on payroll tax deposits due on or after January 12, 2023, and before January 27, 2023, will be abated as long as the tax deposits are made by January 27, 2023. Initially, payroll tax relief was granted to Butts, Henry, Jasper, Meriwether, Newton, Spalding, and Troup counties (see Federal Tax Relief Available to Storm Victims, 01/20/23) [AL-2023-01, January 19, 2023].

California—City of Los Angeles Minimum Wage Increasing to $16.78 Per Hour on July 1

The minimum wage rate in Los Angeles City will increase by $0.74 to $16.78 per hour, effective July 1, 2023. This increase is applicable to employees covered by the City's minimum wage ordinance, specifically, those who perform at least two hours of work within the geographic boundaries of the City for an employer and qualify as an employee entitled to payment of a minimum wage from any employer under the California minimum wage law. Covered employers are required to post a notice, which includes the current minimum wage rate, in a conspicuous place at any workplace or job site where an employee works. Los Angeles County: Also, the minimum wage rate will increase to $16.90 per hour, beginning July 1, 2023, in Los Angeles County

California—Federal Payroll Tax Relief for Victims of Storms, Flooding, and Landslides Expanded

The IRS has expanded its federal payroll tax relief for victims of storms, flooding, and landslides in the California counties of: San Benito, San Mateo, Tulare, and Ventura. In response to the disaster, the IRS has postponed certain tax deadlines falling on or after December 27, 2022, and before May 15, 2023, to May 15, 2023. The May 15, 2023 deadline applies to the quarterly payroll tax returns normally due on January 31, 2023 and April 30, 2023. In addition, penalties on payroll tax deposits due on or after December 27, 2022, and before January 11, 2023, will be abated as long as the tax deposits were made by January 11, 2023. All of the California counties included in the disaster payroll tax relief include: Calaveras, Merced, Monterey, Sacramento, San Benito, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Cruz, Tulare and Ventura [CA-2023-02, 1/24/23, updated 1/27/23].

California—Governor's Budget Proposal Calls to Withdraw $750 Million Payment to State's $18.5 Billion Plus Federal Unemployment Loans

California Governor Gavin Newsom's 2023-2024 Budget proposal includes a provision to withdraw a $750 million payment (part of the 2022 Budget Act) to the state's more than $18.5 billion outstanding federal unemployment loan used to keep California's unemployment trust fund solvent. For the 2022 tax year, California was a FUTA tax credit reduction state, which means employers in the state must pay 0.3% more in this tax (due by January 31, 2023 with Form 940 and Schedule A). This is because California carried outstanding unemployment loans from the federal government for more than two years. The 2022 Budget Act included a $1 billion payment toward these loans. However, the current budget proposal intends to nix $750 million from the payment. The $250 million payment is allocated from federal funds. The $750 million was to come from the state's General Fund. The 2023-2024 Budget proposal also intends to remove the $500 million one-time General Fund commitment made as part of the 2022 Budget Act to offset the anticipated rising federal unemployment insurance tax rates resulting from the state's unemployment trust fund insolvency. This will make it very challenging for California to avoid continuing the FUTA tax credit reduction for the 2023 tax year. The current budget proposal does include a $279 million one-time General Fund payment for the annual interest on the state’s federal unemployment loan balance (due September 30).

California—FAST Act Referendum Approved; Voters Decide on Law in 2024 Election

On January 24, 2023, California Secretary of State Shirley Weber announced that the referendum initiative challenging California’s fast food council law (FAST Act) reached the required number of verified signatures to get on the November 5, 2024 state ballot. Until this election, the FAST Act is not permitted to be implemented. The law is on hold until voters decide its fate later next year. The FAST Act established a Fast Food Council until January 1, 2029, comprised of fast food employees, worker advocates, franchisors, franchisees, and government officials that would set industry-wide standards for wages, working hours, and other working conditions related to the health, and safety of fast food workers. The legislation was to take effect on January 1, 2023. However, the National Restaurant Association and International Franchise Association petitioned to get a measure on the state's 2024 ballot to reverse the FAST Act. At the end of 2022, a court granted a temporary injunction against the California Department of Industrial Relations (DIR) from implementing the FAST Act. A couple weeks later, the court granted a preliminary injunction for implementing the FAST Act until: (1) it is determined that the proposed referendum for the 2024 ballot contains the required number of valid signatures; or (2) the FAST Act is approved by voters on the November 5, 2024 ballot. With Weber's announcement last week, the FAST Act's implementation is halted until November 2024.

Connecticut—March 30 Deadline Approaching for Small Employers to Register for State Retirement Program

Employers with between five and 25 employees must register for Connecticut's retirement savings program by March 30, 2023. MyCTSavings is a new retirement savings program overseen by the Connecticut Office of the State Comptroller. Qualified employers with five or more employees in Connecticut (at least five of whom have been paid more than $5,000 in the calendar year) are required by law to join MyCTSavings if they do not offer a retirement plan for their employees. According to the MyCTSavings website, there is no cost to employers and the program works with any payroll process. There have already been two waves of registration for employers with 100 or more employees (June 30, 2022 registration deadline) and employers with between 26 and 99 employees (October 31, 2022 registration deadline). This third wave has a March 30, 2023 deadline. 

Connecticut—Governor Proposes Earned Income Tax Credit Increase

Connecticut Governor Ned Lamont announced that his fiscal years 2024 and 2025 biennial state budget proposal that he will present to the General Assembly in February will include a plan to increase Connecticut’s earned income tax credit (EITC) from the current rate of 30.5% of the federal credit to 40%. The Connecticut EITC is a refundable state income tax credit for low income working individuals and families that mirrors the federal EITC. Increasing the rate to 40% would make Connecticut among the top five states in the nation with the largest EITC rates. Twenty-nine states and the District of Columbia offer their residents an EITC, and the average rate among them is 22%. Governor Lamont’s proposal to increase Connecticut’s rate would make it higher than each of its neighboring states, including Massachusetts (30%), New York (30%), and Rhode Island (15%) [Governor Lamont announces 2023 legislative proposal on EITC, 01/30/2023].

Delaware—2023 Unemployment Taxable Wage Base Decreases to $10,500

A spokesperson for the Delaware Department of Labor (DOL) has confirmed that the unemployment taxable wage base has been reduced by $4,000 to $10,500 in 2023. Employers must pay a training tax assessment on taxable wages, which is based on what the taxable wage base is for the year. When the wage base is $10,500, the training tax rate is 0.15%. The spokesperson has also confirmed that the unemployment tax rates for experienced employers range from 0.3% to 5.6% this year, including the additional supplemental assessment rate of 0.2%. Legislation signed into law by Delaware Governor John Carney on January 26, 2023 additionally confirms the average employer assessment rate, the average industry assessment rate, and the average construction industry assessment is 1.2%, including the 0.2% additional supplemental assessment rate. Delaware House Bill 49 further changes the state's unemployment weekly benefit amounts, beginning April 2, 2023, as follows: an individual's weekly benefit amount is an amount equal to one forty-sixth of the individual's total wages for employment by employers paid during the two quarters of the individual's base period in which such wages were highest. The minimum weekly amount is $20 and the maximum weekly amount is $450.00 [L. 2023, H49].  

Idaho—Annual Withholding Formula Revisions to Include New Flat Tax

The Idaho State Tax Commission does not plan on making any early revisions to its withholding formula and tables prior to its annual July revision, despite the passage of the new flat income tax rate of 5.8% on income over $2,500 ($5,000 for married filing jointly) that took effect on January 1, 2023. As per usual procedure, the state updates the withholding tables in May or June of each year [Response to email inquiry, 11/2022].

Indiana—Employer Unemployment Insurance Handbook Updated

The Indiana Department of Workforce Development (DWD) has issued a revised version of its Unemployment Insurance Employer Handbook. The guide provides a quick overview of unemployment insurance, and topic areas include: (1) how to get started, including topics like employer qualifications; (2) quarterly reporting; (3) ESS wage guide; (4) special types of employment and payments; (5) seasonal employment; (6) considerations when closing a business; and (7) collection actions. 

Maryland—Proposed Bill would Incentivize Businesses to Try Shortened Work Weeks

Proposed legislation currently under review in the Economic Matters and Ways and Means committees in the Maryland House of Representatives would create a pilot program wherein businesses would try out a 4-day work week instead of the traditional 5-day week. Participants would be eligible for a credit against corporate income tax, and would be required to submit status reports to the Maryland Department of Labor.

Maryland—Governor Proposes Extending EITC and Increasing Minimum Wage in State-of-the-State Address

Maryland Governor Wes Moore proposed permanently extending the enhanced Earned Income Tax Credit and expanding the Child Tax Credit. In his first State of the State speech, More also expressed a desire to raise the state's minimum wage to $15 per hour and index future increases to inflation. Currently, the state's minimum wage is $13.25 per hour and is slated to increase to $14 per hour in 2024.

Michigan—LEO Issues Official Statement on Minimum Wage Battle

The Michigan Department of Labor and Economic Opportunity (LEO) issued an official statement on its website summarizing the state of the minimum wage and paid leave battle ongoing in the state. LEO indicated that, pursuant to the Court of Appeals' ruling on January 26, 2023, it will not be enforcing an increase to the minimum wage at this time and paid sick leave requirements are unchanged. The LEO noted that the case may be appealed to the Michigan Supreme Court.

Michigan—Minimum Wage and Paid Leave Saga Continues with Appellate Court Ruling

A Michigan appellate court reversed a lower state court ruling that deemed the state legislature's bills aimed at heading off a voter-endorsed minimum wage increase and paid leave benefits to be illegal. The reversed ruling has both slowed and slashed employee benefits, which would have seen the state's minimum wage increase to $12 per hour in 2022 and require employers to provide a minimum of 72 hours of sick leave. The new ruling also maintains the lower tipped wage rate and exempts employers with 10 or fewer employees from the mandatory sick leave [Mothering Justice v. State of Michigan, Michigan State Ct. App., Dkt. No. 362271, 01/26/2023]. The saga continues, however, as the plaintiff will likely appeal to the state's Supreme Court, and the newly elected Democrat-led legislature may pass new legislation expanding these benefits back to initiative-levels.

Minnesota—Laid Off Iron Ore Miners Eligible for Additional Unemployment

  1. 2023, S40, signed into law by Governor Walz on January 25, 2023, provides an additional 26 weeks of unemployment benefits to applicants laid off from an iron ore mining industry employer due to reduced operations. This extended unemployment is available to specific workers in tax years 2023 and 2024. Certain employers in the iron ore mining industry who laid off 50% or more of their workers between April 3, 2022 and March 4, 2023 will see their unemployment accounts charged for the payout of the benefits provided by the legislation.

Mississippi—Governor Signals Desire to Eliminate Income Tax in State of the State Address

Governor Tate Reeves announced his desire to eliminate the state's income tax in his state of the state address on January 30, 2023. This proposal includes immediately lowering the current income tax rate to a flat 4%, and would further reduce the rate by 1% per year over the next four years. 

Missouri—Tax Registration Application Forms Have Been Revised

The Missouri Department of Revenue (DOR) has released updated businesses registration Form 2643 and Form 2643A. The forms can also be completed online on the DOR's business registration webpage. Businesses can use the forms to register for a variety of business taxes, income withholding and unemployment taxes. 

Missouri—Judge Rules That St. Louis Improperly Applied Earnings Tax on Nonresident Employees During the Covid-19 Pandemic

A state circuit court judge in Missouri has held that St. Louis improperly applied its 1% earnings tax on nonresident employees who worked outside the city during the COVID-19 pandemic. St. Louis adopted an earnings tax back in 1959 which imposes a 1% tax on the earnings of non-residents "for work done or service performed in the City." Mark Boles and the other plaintiffs were nonresidents who claimed that the tax was improperly applied against their wages when they did not work in the city, but from home, during the pandemic. The court found that the tax was wrongfully applied to these workers as the work was not "rendered or performed" in the city. The workers were entitled to a refund of the taxes collected on those earnings [Boles v. City of St. Louis, Mich. Cir. Ct., 22nd Judicial Circuit, Dkt. No. 2122-CC00713, 1/19/2023 (view here)].

Montana—Cutting Top Income Tax Rate Among Governor's Proposals Highlighted in 2023 State of the State Address

Montana Governor Greg Gianforte's 2023 State of the State Address outlined his tax proposals, including cutting income tax rates and expanding the earned income tax credit. Specifically, Gianforte proposed reducing the state's top income tax rate from 6.5% to 5.9%. Gianforte noted that "...we still have the highest income tax rate in the Rocky Mountain West and one of the highest in the nation." He also proposed raising the business equipment tax exemption to $1 million for every small business in Montana [2023 Montana State of the State Address, 01/25/2023].

Montana—State of the State Address Includes Tax Relief Proposal

Montana Governor Greg Gianforte delivered his annual State of the State address on January 25th. The address included a tax reform proposal, set forth in Senate Bill 121, that would permanently reduce the income tax rate for most residents from 6.5% to 5.9%, and increase the Montana earned income tax credit (EITC) match from 3% to 10%. The proposed law would also lower the state’s top income tax rate to 5.9%. 

Nebraska—Governor Announces Tax Relief Proposals in His State of the State Address

In his January 18 State of the State address, Nebraska Governor Jim Pillen highlighted several pieces of key legislation currently in the works aimed at providing tax relief. Specifically, Pillen noted two bills that would accelerate previously passed tax cuts. One (LB806) would lower both the personal income tax rate and business income tax rate to 5.84% and the other (LB641) would increase the Social Security exemption to 100% (currently 60%). He also mentioned another bill (LB387) that would reduce personal and business income tax by increasing cuts to at least 3.99% by 2027. 

New Hampshire—Employer Toolkit for Voluntary Paid Family and Medical Leave Program Now Available

An Employer Toolkit has been released to provide guidance to employers on the Granite State Paid Family Leave Program, the state's voluntary Paid Family and Medical Leave (PFML) program. The Toolkit provides: (1) an overview of the PFML program (including employer responsibilities); (2) how to determine plan eligibility; (3) guidance on purchasing a NH PFML group plan; (4) information for individual worker coverage; and (5) details on NH PFML benefits coordination. A list of available resources is also provided. 

New York—Albany County Adopts Pay Transparency Law

Albany County has adopted Local Law E, a pay transparency law that requires disclosure of pay ranges in job postings. The law requires job ads to include, in good faith, the minimum and maximum salary or hourly wage for the posted position. It does not apply to temporary employment at a temporary help firm. The new law becomes effective March 9, 2023, adding to the number of jurisdictions that have adopted pay transparency requirements. New York State has a pay transparency law that goes into effect September 17, 2023 that requires employers to disclose compensation or a salary range to applicants and employees for both internal and external postings. New York City (effective Nov. 1, 2022) and Westchester (effective No. 6, 2022) already have transparency requirements.

Ohio—City of Rittman Retroactively Decreases Income Tax Rate to 1% Beginning January 1, 2022

The Ohio City of Rittman has decreased its municipal income tax rate from 1.5% to 1%, retroactively beginning January 1, 2022, due to an error. In a set of FAQs, the City explained that it discovered the error in the third quarter of 2022. For 45 years, the City collected a 1.5% income tax while the authorized rate for the last 15 years was 1%. In 1977, Rittman voters approved a 1.5% rate for 30 years by authorizing an additional 0.5% income tax that was to expire at the end of 2007. When the City’s tax code was updated, the expiration date was omitted. The City is advising taxpayers that already paid the 1.5% tax in 2022 that a refund may be requested by filing a Short Form 10A being developed by Regional Income Tax Agency (RITA) [City of Rittman FAQs on Municipal Income Tax Error, 2/1/2023]. 

Oregon—Guidance on Adding Payroll Providers to OregonSaves Program

OregonSaves, the state-run retirement savings program, has updated its website with guidance for employers who use payroll providers. The program is available to workers whose employers do not offer an employer-sponsored retirement plan. The employer portal integrates with a number of payroll providers, however, if a payroll provider has not integrated, payroll contributions can be uploaded. Employers can add payroll provider teammates to the portal to manage employee lists and process payroll if the provider has not been integrated. Payroll providers may bulk upload employee payroll files or enter data manually. A template is provided on the website for use.

Rhode Island—Larger Business Registrant Electronic Filing Mandate Guidance Available

The Rhode Island Division of Taxation has a web page available on the electronic filing and payment mandate for larger business registrants that took effect on January 1, 2023. A "larger business registrant" is one who: (1) operates as a business whose combined annual liability for all taxes administered by the Division of Taxation for the entity is or exceeds $5,000; or (2) operated as a business whose annual gross income is over $100,000 for the entity. The web page provides information regarding filing and payment methods, penalties, and how the $100,000 annual gross income threshold is determined.

South Dakota—Governor Announces Proposals for Paid Family Leave for State Employees and Voluntary Program for Private Employers with Rebates

South Dakota Governor Kristi Noem announced two pieces of legislation that are part of the state's Paid Family and Medical Leave (PFML) initiative. House Bill 1151 proposes to enhance PFML benefits for state employees and permits private and public sector employers to offer the same benefits on a voluntary basis. The bill allows insurance providers to bid on providing PFML wage replacement coverage. The coverage would replace wages of up to 80% of a state employee’s salary for 12 weeks. The remaining 20% would be covered by the state through the applicable state agency's budget. Qualifying reasons under the federal Family and Medical Leave Act (FMLA) would apply to the program. Senate Bill 154 would provide an incentive for private employers to participate in the voluntary PFML program by providing $20 million in rebates. Rebates of up to $200 per covered employee would be offered to employers with 50 or fewer employees, $100 per employee for employers with 51 to 100 employees, $50 per employee for employers with 100 to 1,000 employees, and $25 per employee for employers with 1,000 to 2,500 employees. Rebates will not exceed 50% of the employer-paid premium for the plan. 

Tennessee—Unemployment Information for the First Half of 2023

The Tennessee Department of Labor and Workforce Development (DLWD) has announced that unemployment tax rates for experienced employers will continue to be determined under Table 6 for the first half of 2023 (January 1, 2023 to June 30, 2023). Rates range from 0.01% to 10.0%.. Tennessee’s rate year begins July 1 and ends June 30. New employer rates based on NAICS industrial sectors will be calculated/published by the end of August 2023. The taxable wage base for unemployment remains $7,000.

Wisconsin—Voluntary Disclosure for Unclaimed Property (Including Wages) Due by February 28

The Wisconsin Department of Revenue (DOR) has reminded taxpayers that its voluntary disclosure program agreement application for unclaimed property (including wages) is due by February 28, 2023. Holders not in compliance with Wisconsin unclaimed property laws may apply for an Unclaimed Property Voluntary Disclosure Agreement. Under this agreement, the DOR will accept property from the previous five years without assessing penalties. Once an application is approved, holders have 120 days to complete the due diligence process and submit the holder report and payment. Applications are accepted from February 1, 2022 through February 28, 2023.

Wisconsin—Federal Appellate Court Rules Employers Did Not Violate State Law When Employee Elects a Shorter Lunch Break

The U.S. Court of Appeals for the Seventh Circuit has ruled that an employer did not violate state regulations that require employers to pay employees "for all time spent in physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer’s business” (Wis. Admin. Code DWD 272.12(1)(a)(1)). The employee argued that under Wis. Admin. Code DWD 272.12(2)(c)(1), she must be paid for "rest periods of short duration," which are breaks of fewer than 30 minutes. However, the court pointed out the state distinguishes rest periods from meal periods. Meal periods of 30 minutes or more are not compensable under Wis. Admin. Code DWD 272.12(2)(c)(2). The employee argued her meal break was transformed into a rest period by "clocking back in after less than 30 minutes." The court found that her election to shorten her meal break did not turn the meal period into a rest period and therefore the time remained noncompensable [Wirth v. RLJ Dental, S.C., CA7, Dkt. No. 22-2122, 1/31/2023].

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Proliant puts the human in human resources. We provide a fully integrated, cloud-based HCM solution that simplifies payroll and HR processes. The company serves small to large clients in multiple industries in all 50 states and is committed to providing the highest quality customer service in the industry.

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