November 14 - 18 Compliance Updates: IRS Widens Status-Change Rules for Cafeteria Plan Health Insurance and Fixes the Family Glitch

Nov 18, 2022 10:57:53 AM
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IRS Widens Status-Change Rules for Cafeteria Plan Health Insurance and Fixes the Family Glitch

The IRS has issued guidance that expands the permitted “change-in-status” rules for health coverage under a cafeteria plan and issued final regulations under Code Sec. 36B that changed the rules for determining eligibility for the premium tax credit (PTC).

Status Change. The IRS has expanded the permitted “change in status” rules for health coverage under a cafeteria plan [Notice 2022-41, IRB 2022-43].

Per the new guidance, an employee will be able, prospectively, to opt out of family coverage and enroll in self-only coverage under the same health plan, provided specific conditions are met.  

In addition to the situations described in Notice 2014-55, 2014-41 IRB 672, a non-calendar-year cafeteria plan may allow an employee to prospectively revoke an election of family coverage under a group health plan that isn't a health flexible spending account and that provides minimum essential coverage (as defined in Code Sec. 5000A(f)(1)) provided certain conditions are satisfied. 

Note. Before an employee may take advantage of this guidance, the employer must amend their cafeteria plan on or before the last day of the plan year in which the election would be allowed.

Notice 2022-41, which amplifies Notice 2014-55, also announces the IRS' intent to modify the regs under Code Sec. 125 consistent with its guidance.

Notice 2022-41 applies to elections effective on or after January 1, 2023. Taxpayers may rely on the guidance in this notice pending further guidance.

Family Glitch under the ACA. Notice 2022-41 is issued in conjunction with final regulations under Code Sec. 36B, which provides that the affordability of an offer of group health plan coverage for a related individual is based on the employee’s cost to cover the employee and the employee’s related individuals [TD 9968, 10/11/2022].

Under the final regs, employer-sponsored minimum essential coverage for an employee's family members is considered "affordable" based on the employee's share of the cost of covering the employee and their family members, not just the employee. The final regs also make changes to the rules for determining whether employer coverage provides a minimum level of benefits (i.e., minimum value); conform amendments to the current regs; and clarify the treatment of premium refunds. 

These changes correct what some have called the "family glitch" within the Affordable Care Act (ACA).

The final regs are effective December 13, 2022.

Deadline Approaching to Inform Employees About the Earned Income Credit

The IRS has issued a December 2022 version of Notice 1015 , Have You Told Your Employees About the Earned Income Tax Credit (EIC)?

The earned income credit (EIC) is a tax credit available to low-income employees. The credit reduces taxes owed and is intended to offset living expenses and Social Security taxes paid. Eligible employees claim the credit on their personal income tax returns.

Which employees must be notified about the EIC? An employer must notify employees about the EIC if the employee worked for the employer at any time during 2022 and didn't have any withholding deducted. In addition, an employer is encouraged to notify employees whose wages for 2022 were less than $59,187 that they may be eligible to claim the EIC. An employer is not required to notify employees about the EIC if they claimed exemption from withholding on their W-4 form.

How to notify employees about the EIC? Employees who meet the EIC notification requirements must be provided one of the following:

  • Form W-2, which has the required EIC information on the back of Copy B;
  • A substitute Form W-2 with the same EIC information on the back of the employee's copy that is on Copy B of Form W-2;
  • A copy of Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit; or
  • A written statement that has the same wording as Notice 797.

No further action required. Employers are not required to provide any additional notice to employees about the EIC if: (a) the employee is required to receive Form W-2; (b) Form W-2 has the required information about the EIC on the back of the employee's copy; and (c) the employer timely gives the employee Form W-2.

Circumstances under which additional action is required. The employer must notify the employee about the EIC if a substitute Form W-2 is given on time, but does not have the required information about the EIC, within one week of the date that the substitute Form W-2 is issued. If a 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 that Form W-2 is required to be given to the employee. If the employee is not required to receive Form W-2, the employer must notify the employee about the EIC by Feb. 6, 2023.

Notice 797. The notice about the EIC must be handed directly to the employee or delivered to the employee 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 make all of its employees aware that they may be eligible to claim the EIC.

States requiring IRS EIC notification. There are eight states that require employers to notify eligible employees about the federal EIC:

  • California. Employers subject to or required to provide California unemployment insurance are required to notify all employees about the EITC by the week after employees receive Forms W-2, 1099, or other wage statement forms.
  • Illinois. Employers subject to and required to provide Illinois unemployment insurance are required to notify an employee about possible eligibility for the EITC by the week after the employee receives his or her W-2 form if the employee received less than $55,952 in gross wages in 2019.
  • Louisiana. Employers with 20 or more employees must provide notice about the federal EITC to new employees at the time of hire if the employee's anticipated annual wages are less than a state-determined threshold. Additionally, employers must post a written notice provided by the Louisiana Department of Labor on the EITC.
  • Maryland. Employers are required to provide written or electronic notice to employees who are eligible to receive the Maryland and/or federal EITC. Notice must be provided by December 31.
  • New Jersey. Employers must provide written notice to eligible employees about the availability of the New Jersey and federal earned income tax credits (EITC) using a statement provided by the New Jersey State Treasurer. Notice must be provided between January 1 and February 15 when the employer distributes Forms W-2.
  • Oregon. Employers must provide written notice to eligible employees about the availability of the Oregon and federal earned income tax credits (EITC) when the employee's W-2 form is sent. Additionally, information regarding the EITC must be included in any poster about the Oregon minimum wage rate.
  • Texas. Employers must notify employees about the federal EITC by March 1 of each year. Employers may use Notice 797 or a similar notice.
  • Virginia. Employers are required to post a notice regarding the federal and Virginia EITC in the same location as other mandated state and federal notices. The notice is issued by the Virginia Department of Social Services.

Additionally the city of Philadelphia requires all employers to provide notice about the EIC at the "same time" the W-2, 1099, or comparable forms are provided.”

IRSAC 2022 Report Recommendations Include E-Filing Information Return Threshold Reduction

On November 15, 2022, the IRS Advisory Council (IRSAC) issued its annual report for 2022, which includes a recommendation on the reduction in electronic filing threshold for information return filers [IR 2022-200; IRS Publication 5316].

IRSAC function. The IRSAC reviews existing tax policy and administrative issues and makes recommendations to achieve efficient and effective tax administration. It consists of five subgroups, which include the Information Reporting Program Advisory Committee (IRPAC). The IRPAC was more recently established to ensure that members have an effective forum to raise concerns and discuss information reporting and payroll issues and recommendations.

The 2022 report contains recurring themes. The IRSAC's November annual report addresses member and IRS raised topics, provides real-time feedback to the IRS, and provides actionable and informed recommendations for the IRS Commissioner. According to the report, there are several recurring themes, which includes the topic of multi-year funding for the Service to achieve its goals, achieving modernization, improving the taxpayer experience, supporting crucial enforcement efforts, and transitioning taxpayers to a more digital experience.

Change in e-filing threshold. Section 2301 of the Taxpayer First Act (TFA; P.L. 116-25) authorized the IRS to reduce the threshold for required electronic filing of information returns. Specifically, the TFA permits the gradual reduction of the electronic filing threshold for wage statements and information statements from 250 forms to 100 then finally 10 forms. The TFA permitted the reduction to begin for the 2021 calendar year.

However, the IRS did not issue proposed regulations until July 23, 2021. The proposed final regulations have not yet been finalized. Subsequently, the IRS has stated that business taxpayers continued to adhere to the original 250-return filing threshold limit until final regulations have been issued.

Status quo until final regulations are issued. According to the 2022 Form W-2 general instructions, the IRS has stated that until the final regulations lowering the e-filing threshold for information returns is issued, the number remains at 250 for the 2022 tax year. The Service added that if final regulations are issued that would affect the 2022 tax filing season, it would post an article on its website explaining the change. The 2022 IRSAC report notes that IRS members could not comment on the release of the final regulations.

Prior safe harbor recommendation. The IRSAC report explains that it met with members of the IRS Office of Chief Counsel to discuss the status of the timing of the release of the final regulations. The IRSAC previously recommended that the IRS include a safe harbor from penalties for 2021 and 2022 information returns for businesses that made good faith efforts to comply with the new requirements (among other recommendations).

Multiple factors may lead to risks.The IRSAC reasoned that the combination of delays in issuing final regulations, along with the delays and issues associated with IRS processes that an employer is dependent on when considering how to e-file information returns, provides significant risks to small businesses for the upcoming 2022 return filing season.

Pandemic plays a role too. Although most things are back to business as usual for the IRS, there is an unprecedented backlog from the 2020 and 2021 filing seasons at the IRS due to the COVID-19 pandemic, which makes the IRSAC concerned that the IRS may initiate an unnecessary administrative burden by rushing the implementation of the filing change for the 2022 calendar year returns

2022 recommendation. The IRSAC's 2022 report recommends that the Service ease this burden for both filers and the IRS by providing safe harbor relief for 2022 returns for businesses that demonstrate a good faith effort to comply with the electronic filing requirements. Further, the IRSAC encourages the IRS to consider a proactive approach to granting approval to filers that request a waiver from electronic filing via Form 8508, Request for Waiver from Filing Information Returns Electronically for 2022 to avoid a bottleneck and resulting backlogs in processing these paper form requests.

These recommendations are further explained as follows: 

  • Minimize risks to the IRS and filers for the 2022 filing season by including safe harbor language in the final regulations to provide Code Sec. 6721 penalty relief for filers who make good faith efforts to comply with the new requirements during the transition period.
  • Safe harbor language should incentivize filers to attempt “best efforts” at meeting the new filing requirements to ensure that filers that act in good faith do not need to be concerned that penalties will be imposed as a result of mistakes or failures during the transition period.
  • Paper filers for the 2022 season could be sent a “soft letter” waiving the penalty for filing paper information returns for 2022, but also remind them of the electronic filing requirements for 2023 and beyond.
  • Consider a proactive approach to granting approval to filers submitting Form 8508 (Request for Waiver from Filing Information Returns Electronically) for the 2022 season. 

Other recommendations. The 2022 IRSAC also contains other payroll-related recommendations. One issue of the report calls for the IRS to explore ways to tackle paper processing of employment tax returns by considering adding the amended Forms 941-X and 945-X to the MeF (Modernized e-File) system so that businesses can submit the information electronically. 

Another recommendation requests the IRS update Publication 15 (Circular E, Employer’s Tax Guide) and the instructions for Forms W-2 (Wage and Tax Statement) and 1099-NEC (Nonemployee Compensation) to include a cautionary note related to individuals who are incarcerated, and to reference the Office of Chief Counsel guidance.

The IRS Federal, State, and Local Government Employment Tax (FSLG/ET) group is responsible for ensuring federal employment tax compliance for various governmental units and has requested that the IRSAC offer guidance to increase effective engagement with states to promote employment tax compliance. 

In addition, the report recommends that the IRS increase the employer identification number (EIN) issuances (applied via Form SS-4) limitation to 10 per responsible party, per day (currently, one per responsible party, per day), to enable applicants that require multiple EINs to obtain them in a more expedited manner. 

Early Draft of 2023 Federal Income Tax Withholding Tables Released

The IRS has posted an early draft release of Publication 15-T (Federal Income Tax Withholding Methods) on its website, which employers use to figure the amount of federal income tax to withhold from employee wages.

Background. Publication 15-T supplements Publication 15 (Employer's Tax Guide) 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 Indian Gaming Profits to Tribal Members.

Form W-4. Beginning with the 2020 tax year, Form W-4 (Employee's Withholding Certificate) was redesigned and eliminated the use of withholding allowances to request withholding adjustments. Employees instead provide employers with amounts to increase or decrease the amount of taxes withheld and amounts to increase or decrease the amount of wage income subject to income tax withholding on Form W-4 for years 2020 and subsequent years.

The draft publication includes wage bracket and percentage method tables for determining federal income tax withholding with Forms W-4 (Employee's Withholding Certificate) from 2019 or earlier and also with Forms W-4 from 2020 or later. Also the publication includes tables for manual payroll systems.

Draft Publication 15-T. The draft does not contain the 2023 figures but rather uses the 2022 tax parameters to illustrate what the 2023 tables would look like. 

What's New? The draft Publication 15-T notes that the use of Form W-4R (Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions) is not optional for the 2023 tax year. Prior to the 2022 tax year, Form W-4P entitled Withholding Certificate for Pension or Annuity Payments was used for plan participants to indicate withholding on both periodic and nonperiodic payments. Beginning in 2022, the IRS split the withholding certificate into two forms: (1) Form W-4P now called Withholding Certificate for Periodic Pension or Annuity Payments; and (2) Form W-4R (Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions). The use of Form W-4R was optional for the 2022 tax year. The use of Form W-4R is required the later of: (1) January 1, 2023; or (2) 30 days after the final forms are released.

Note: The final version of Form W-4R has not yet been released. A draft was released in September.

The draft Publication 15-T Section 1 includes Worksheet 1B for payers to figure withholding on periodic payments based on a 2022 or later Form W-4P or a 2021 and earlier Form W-4P. Worksheet 1B is used with the Standard Withholding Rate Schedules in the 2023 Percentage Method Tables for Automated Payroll Systems and Withholding on Periodic Payments of Pensions and Annuities that are included in section 1. Also Section 3 contains the wage bracket method tables for users who compute payroll manually for employees who have not submitted a Form W-4 for 2020 or later. Section 5 contains the percentage method tables for users who compute payroll manually for employees who have not submitted a Form W-4 for 2020 or later. 

Payers may use an optional computational bridge for participants who did not submit a 2022 or later Form W-4P. 

Telephonic submissions of Form W-4P. The draft publications notes that payers may permit telephonic submissions of Form W-4P. Scripts must include all portions of the first page of Form W-4P from Steps 1(c)–4(c), including the step titles and text between Steps 1 and 2, with some specified exceptions.

Optional computational bridge. Employers may use an optional computational bridge to treat 2019 or earlier Forms W-4 as if they were 2020 or later Forms W-4 for purposes of figuring federal income tax withholding.

Annual amount for nonresident aliens. The draft contains the worksheet for the 2023 federal withholding tables that shows the annual amount to add to the wages of nonresident alien employees to be $13,850 when calculating withholding from Forms W-4 filed in 2020 and later. The amount is to be $9,550 for Forms W-4 filed in 2019 and earlier.

Four States Listed as FUTA Credit Reduction States on Draft 2022 Federal Form 940, Schedule A

The IRS has released the draft 2022 Form 940, Schedule A (Multi-State Employer and Credit Reduction Information). California, Connecticut, Illinois, New York, and the Virgin Islands are listed on the instructions for Schedule A as states and territories that will pay an additional 0.3% in federal unemployment (FUTA) taxes per employee because of failure to repay federal loans within the required time frame.

Background. Under the Federal Unemployment Tax Act, employers are liable for FUTA tax at a rate of 6.0% on the first $7,000 of covered wages paid to each employee during a calendar year, regardless of when those wages were earned, but are generally allowed a 5.4% credit against their FUTA tax (known as the “normal credit”) for amounts paid to a state unemployment fund by January 31 of the subsequent year. As a result, the net FUTA tax rate for most employers is 0.6%.

During the COVID-19 pandemic, a number of states took federal loans available under Title XII of the Social Security Act to keep their state unemployment trust funds solvent. If a state defaults in its repayment of the loan, the normal credit available is reduced. This effectively increases the employer's FUTA tax rate by 0.3% annually, beginning with the second consecutive January 1 in which the loan isn't repaid. California, Connecticut, Illinois, and New York failed to repay their loans and employers in these states will be subject to the FUTA credit reduction. The Virgin Islands remains subject to the credit reduction related to a loan that has remained unpaid since 2011.

FUTA credit reduction. California, Connecticut, Illinois, and New York will be subject to a 0.3% FUTA credit reduction while the U.S. Virgin Islands will be subject to a 3.6% reduction. 

Completion of Schedule A. Employers must place an "X" for each state where state unemployment tax was paid in 2022. The total amount of FUTA Taxable Wages for each state must be indicated and the Reduction Rate if greater than zero. The credit reduction column is calculated by multiplying the FUTA taxable wages by the Reduction Rate. 

Example: Prestige Worldwide paid state unemployment tax to California. Prestige would place an "X" for beside CA. The total FUTA taxable wages for California is $600,000. This amount would be placed in the FUTA Taxable Wages column. However, because California is a FUTA credit reduction state, the employer would also indicate "0.003" in the Reduction Rate column and then calculate the credit reduction. The credit reduction is $1,800 ($600,000 X 0.003). The Total Credit Reduction would be indicated at the bottom of the form. 

Draft Form 940. The IRS released a draft 2022 Form 940 on June 29, 2022. The form has not yet been finalized.

ICYMI - Roundup of Stories You May Have Missed the Week of November 7th

We understand. You're busy. You may not be able to read Checkpoint news every morning. So we have you covered with a new feature – ICYMI (In Case You Missed It) to get you up to speed on all of the latest payroll news from last week. 

Federal News

DOL announces final list of FUTA credit reduction states. On November 10, 2022, the U.S. Department of Labor (DOL) issued the final list of FUTA tax credit reduction states for the 2022 tax year, which includes four states and the U.S. Virgin Islands.

New 1099 Filing Portal Slated to Launch January 9. The launch date for the IRS' new 1099 filing platform, the Information Return Intake System (IRIS), will be January 9, 2023. Users will be able to file Forms 1099 through IRIS by typing information or uploading a.csv file using a downloadable template as provided by the IRS.

IRS releases draft versions of Publications 15 and 15-A. The IRS has issued draft versions of Publication 15 and Publication 15-A for 2023. 

IRS' Priority Guidance Plan includes employment tax topics. The 2022 to 2023 Priority Guidance Plan contains 205 guidance projects that are priorities for allocating Treasury Department and IRS resources during the 12-month period from July 1, 2022 through June 30, 2023.

Payroll on the ballot - November 2022 election results. Voters at the polls on Election Day not only had the opportunity to cast their ballot for candidates for various offices, but also to vote on state and local payroll-related ballot measures.

State News

Arizona city's minimum wage to increase in 2023. Tucson minimum wage increasing in 2023. Effective January 1, 2023, the minimum wage rate in the City of Tucson will increase to $13.85 per hour. Tucson's minimum wage rate is scheduled to incrementally increase to $15.00 per hour by January 1, 2025.

Arkansas unemployment tax rates for 202 announced. A spokesperson for the Arkansas Division of Workforce Services has informed Thomson Reuters that unemployment tax rates for experienced employers will range from 0.3% to 14.2%. The new employer tax rate for 2023 is 3.1%.

California releases 2023 Withholding Bracket and Exact Calculation Method tables. The California Employment Development Department has issued the 2023 versions of the two methods for determining the withholding amount from wages and salaries for state personal income tax.

Florida releases 2023 unemployment tax rate information. A spokesperson for the Florida Department of Revenue has informed Thomson-Reuters that the unemployment tax rate range for experienced employers will continue to be from 0.1% to 5.4%. However, the spokesperson noted that it is possible for employers in the state's Short Term Compensation program to have a rate as high as 6.4% and employers that engage in SUTA dumping can have their rates increase to 7.4%.

Georgia updates Employer's Guide with 2023 withholding tables. The Georgia Department of Revenue (GDOR) has issued an October 2022 version of its annual Employer's Withholding Tax Guide that contains the 2023 withholding tax tables, electronic filing information, general withholding tax information, and answers to frequently asked questions. 

Louisiana announces no new withholding tables for 2023. A spokesperson for the Louisiana Department of Revenue (DOR) has confirmed that there will be no adjustments to the existing withholding tables, released in August 2022, for tax year 2023.

Maine minimum wage increasing in 2023. The Maine Department of Labor has confirmed in an email that the state's minimum wage will increase to $13.80 per hour, effective January 1, 2023 (currently, $12.75 per hour).  The tip credit will be $6.90 per hour (50% of the minimum wage).

Michigan unemployment tax rates for 2023 now available. A spokesperson for the Michigan Department of Labor and Economic Opportunity (LEO) has notified Thomson Reuters that unemployment information for 2023 would remain unchanged from 2022.

Ohio issues 2023 Unemployment Tax Rate Information. The Ohio Department of Jobs and Family Services (DJFS) has informed Thomson Reuters that unemployment tax rates for experienced employers will range from 0.3% to 9.8% (0.3% to 9.7% in 2022) in 2023.

South Carolina sets 2023 unemployment tax rates. A spokesperson for the South Dakota Department of Labor and Regulation has told Thomson Reuters that there will be no changes to the unemployment tax rate schedules for 2023. Experienced employer unemployment tax rates will continue to be determined under Schedule B. Rates range from 0% to 9.3%

IRS Issues Updated Form 945 Instructions

The IRS has issued an October 31, 2022 version of the instructions for Form 945 (Annual Return of Withheld Federal Income Tax) for the 2022 tax year.

Form 945 is used to report federal income tax withheld (or required to be withheld) from non payroll payments, which may include: pensions, annuities, and IRS distributions; certain government payments on which the recipient elected voluntary income tax withholding; and payments subject to backup withholding.

The tax year 2022 instructions for Form 945 has several reminders to filers that includes correcting a previously filed Form 945, which is done using Form 945-X (Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund). The instructions also note that federal tax deposits must be made by electronic funds transfer (EFT), which is generally made using the Electronic Federal Tax Payment System (EFTPS). 

The instructions additionally remind filers to use Form 1099-NEC (Non-Employee Compensation) to report nonemployee compensation paid in 2022 and any backup withholding on the compensation.

The due date for the 2022 tax year Form 945 is January 31, 2023. However, if all deposits were made on time in full payment of the taxes for the year, the return may be filed by February 10, 2023.

Labor Department Investigation Recovers $47K in Overtime Back Wages for Three Home Healthcare Workers

Investigators with the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD) found that the home healthcare agency failed to pay some workers overtime rates for hours over 40 in a workweek.

Overtime. Unless exempt, employees covered by the Fair Labor Standards Act 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. The FLSA does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, unless overtime is worked on such days.

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. Some basic records include: the regular hourly pay rate, the total daily or weekly straight-time earnings, and the total overtime earnings for the workweek.

Investigation results. The WHD investigation found that the employer paid straight time for overtime to direct care workers when they worked for more than one client in a week or when they worked on-call, actions that violate the Fair Labor Standards Act. The company, 5 Caring Hearts, also failed to keep proper records of overtime hours worked. As a result, the DOL recovered $23,688.43 in back wages  and $23,688.43 in liquidated damages for three workers.

Comment from the WHD. "We encourage employers and employees to contact the Wage and Hour Division with any questions or concerns regarding pay practices," said Wage and Hour Division District Director John DuMont in Pittsburgh.

Court Declares Biden's Student Loan Relief Plan Unlawful

The U.S. District Court for the Northern District of Texas Fort Worth Division has ruled that President Biden's student loan debt relief plan to be unlawful and has vacated the program [Brown et al. v. U.S. Department of Education et al., N.D. Tex., Dkt. No. No.4:22-cv-0908-P, 11/10/22].

Executive action on student loan debt. On August 24, 2022, President Biden announced a three-part student loan forgiveness plan that further extends the suspension of collection actions and wage garnishments for student loans to provide additional assistance to borrowers through the end of 2022. The plan allows for a certain amount of debt forgiveness for certain individuals and extends the pause on student loan debt repayments until December 31, 2022.

Prior attempts to forgive student loan debt. The Trump Administration considered its statutory authority under the Higher Education Relief Opportunities for Students Act of 2003 (“HEROES Act”) to forgive student loans due to the COVID-19 pandemic. However, the Department of Education concluded that it lacked such authority. House speaker Nancy Pelosi agreed with the decision and noted that student loan debt can be postponed by the President, forgiveness must be done through an act of Congress.

DOE changes tune. According to the Court, the Biden Administration also instructed the DOE to explore legal avenues to justify a loan forgiveness program, which it did and changed course by saying that the HEROES Act allows the executive branch to create a loan-forgiveness program to address the financial harms of the COVID-19 pandemic.

HEROES Act. The HEROES Act (P.L. 108-76) grants the Secretary of Education the authority to “waive or modify any statutory or regulatory provision applicable to the student financial assistance connection with a war or other military operation or national emergency.” 

HEROES Act claim. The Secretary claims that the pandemic was declared a national emergency by President Trump in 2020 and thus a “national emergency” under the HEROES Act. The Secretary further claims that every portion of the country is a “disaster area due to COVID-19,” and “every person with a federal student an affected individual."

Plaintiff claims. The plaintiffs in the case claim that they have student loans but are ineligible because the loans are commercially held and did not receive a Pell Grant. The Program did not undergo notice-and-comment rulemaking procedures under the Administrative Procedure Act. Therefore, the plaintiffs could not voice their disagreement.

Court conclusion. The Court said that if the executive branch seeks to use its delegated power to create a law of vast economic and political significance, it must have clear congressional authorization. If not, the executive branch unconstitutionally exercises “legislative powers” vested in Congress, the Court explained.

The Court further said that in this case, the HEROES Act does not provide the executive branch clear Congressional authorization to create a $400 billion student loan forgiveness program. It concluded that the program is an unconstitutional exercise of Congress’s legislative power and must be vacated.

Federal student aid webpage. The U.S. government's Federal Student Aid webpage notes that courts have issued orders blocking the student debt relief program and are no longer accepting applications at this time.

DOE confirms DOJ appealing decision. U.S. Secretary of Education Miguel Cardona said that the DOE believes the student loan debt forgiveness program is lawful. He added that the U.S. Department of Justice appealed the decision on November 11, 2022 and that borrowers will be kept informed about further efforts.

What about student loan garnishments? One of the three parts of Biden's student loan debt forgiveness program includes extending the suspension of collection actions and wage garnishments for student loans to provide additional assistance to borrowers through the end of 2022.

According to the Court's ruling, Pelosi claims that the President does have the power to postpone student debt. Also, these collection actions had been postponed before under President Biden and former President Trump. Although the Court ruled Biden's program to be unlawful and vacated it, this may not mean student loan garnishments collection actions are beginning again.

Even if the ruling includes the collection actions, it would seem possible for President Biden to order these actions suspended again until 2023 as a stand alone order without legal issues, since the focus of the case is the debt forgiveness.

Biden's Next IRS Commissioner Pick Would Oversee $80 Billion Overhaul

On November 10, 2022, President Biden announced his intent to nominate Danny Werfel to serve as Commissioner of the Internal Revenue Service. IRS Commissioner Charles Rettig's term ended on November 12, 2022.

According to the White House's announcement, Werfel served both Democratic and Republican administrations for more than 15 years, including as acting commissioner of the IRS and controller of the Office of Management and Budget (OMB). Werfel is currently employed at the Boston Consulting Group. 

The Inflation Reduction Act (P.L. 117-169) contains a provision that allocates $80 billion to the IRS. According to a Reuters news article, an internal Treasury memo in August 2022 showed Treasury Secretary Janet Yellen directed the organization to produce within six months a detailed plan for deploying $80 billion in newly enacted enforcement funding.

The IRS recently announced thousands of new hires with more to come. If approved, Werfel would oversee the IRS overhaul with the funding from the Inflation Reduction Act.

The IRS's mission critical web page includes a section on tax returns, which is updated for November 9, 2022 for Forms 941 (Employer's Quarterly Federal Tax Return) and Forms 941-X (Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund), where the backlog has decreased since October 20, 2022 from 4.8 million to 2.7 million for Forms 941. However, there was an increase in the backlog of Forms 941-X since that same time from 230,000 to 281,000, as of November 9, 2022. 

IRS Releases Modernized e-File (MeF) Guide for Software Developers and Transmitters For 2023 Processing Year

The IRS has released Publication 4164(Modernized e-File (MeF) Guide for Software Developers and Transmitters), on its website. The publication provides software developers and transmitters with specific requirements and procedures for electronic filing through the MeF system for Tax Years 2022 returns filed during the 2023 Processing Year (PY). The procedures in this publication apply to all MeF business e-file programs.

Publication 4164. The publication includes information regarding: MeF communication procedures, transmission formats, business rules and procedures, and XML schemas for software development. This guide is to be used in conjunction with Publication 4163, Modernized e-file (MeF) Information for Authorized IRS e-file Providers for Business Returns.

Employment tax forms. MeF processes the following employment tax forms: 940, 940-PR, 941, 941-PR, 941-SS, 943, 943-PR, 944, 945, and 94x On-Line Signature PIN Registration.

State Payroll Tax News

Arizona—State Revenue Department Searching for Military Personnel Owned Unclaimed Property

The Arizona Department of Revenue (ADOR) has announced that its Unclaimed Property program is seeking members of the U.S. military who have unclaimed property or funds in their names from a time they were stationed in Arizona. Unclaimed property generally consists of money due to an individual from sources, including uncashed payroll checks. The agency has identified more than 24,009 military personnel with last known Arizona addresses from Camp Navajo Army Base, Fort Huachuca Army Base, Luke Air Force Base, Tucson’s Davis-Monthan Air Force Base, Yuma Proving Ground Army Base, and Marine Corps Air Station (MCAS) Yuma. These properties total $7 million, with the largest property due to a single owner being $217,187. The ADOR routinely sends a notice to the last known address of military members with large properties, encouraging the property owner or family member to contact ADOR’s Unclaimed Property Unit to claim what they are owed.

Arkansas—Revised Specifications for E-Filing Forms W-2 and 1099 Issued

The Arkansas Department of Finance and Administration (DFA) has issued a November 8, 2022 revised version of its Specifications for Filing Forms W-2/1099 Electronically that notes there are no changes for the tax year 2022 magnetic media specifications. Form W-2 information must be submitted on or before January 31, 2023. Electronic media can be mailed to the following address: Withholding Tax Section, P. O. Box 8055, Little Rock, AR 72203. Employers with 250 or more W-2’s must file electronically. Accepted media for the transmission of electronic W-2 information include: Arkansas W-2 submission website, ATAP users, CDs, and DVDs. Arkansas follows the data formats as outlined in the EFW2 formats for submitting W-2 information to the Social Security Administration.

Connecticut—State Labor Department Says 2023 Unemployment Tax Reduction to Offset FUTA Credit Reduction

On November 10, 2022, the U.S. Department of Labor (DOL) announced that Connecticut will be a Federal Unemployment Tax Act (FUTA) credit reduction state for the 2022 tax year. Employers in the state will pay 0.3% more in FUTA taxes this year. Connecticut Public Act 22-118, which was enacted earlier, contains a provision that reduces the state's unemployment tax rates by 0.2% for the 2023 calendar year. The Connecticut Department of Labor says that this reduction will more than offset the FUTA tax increase. 

District of Columbia—Voters Approve Measure to Eliminate the Tip Credit

On November 8, 2022, voters in the District of Columbia approved a ballot measure that will gradually eliminate the minimum wage tip credit for employees in the District. On July 1, 2022, the District's minimum wage rate was increased to $16.10 per hour for non-tipped employees. The rate for tipped employees is $5.35 per hour. The tip credit allows employers to pay tipped employees at a rate below the minimum wage so long as the hourly tips equal or exceed the District's minimum wage rate. If not, the employer must pay the difference. Initiative 82 increases the tip credit until 2027 when the mandatory base wage matches the minimum wage established by District law, according to the text of the ballot measure. After such time, tips continue as the property of employees and will be in addition to the statutory minimum hourly wage.

District of Columbia—Certain Employers Must Begin Complying With Transportation Benefits Law Early Next Year

Certain employers in the District of Columbia (D.C.) must begin compliance with its Transportation Benefits Equity Amendment Act of 2020 in early 2023. D.C. Law 23-113 requires covered employers that offer parking benefits to any employees to offer them a Clean-air Transportation Fringe Benefit, pay a Clean Air Compliance fee, or successfully implement a transportation demand management plan. The law also requires the covered employers and the D.C. Mayor to submit reports. Employees may use Clean Air Transportation Fringe Benefit amounts for: (1) transportation in a commuter highway vehicle, (2) a transit pass, (3) a qualified bicycle commuting reimbursement, or (4) keeping the amounts and walking or bicycling to work. However, these amounts may not be used for rideshare platforms. Covered employers include those with 20 or more employees in D.C. Some employers are exempt from these requirements. These requirements take effect as early as January 15, 2023. 

Idaho—Unemployment Information Released for 2023

The Idaho Department of Labor (DOL) has updated its 2023 rate class array tables with tax rates. There are no changes from 2022. For 2023, the UI rate, the Admin rate, and the Workforce rate combine to result in a standard tax rate ranging from 0.207% to 0.691% for employers with positive account balances, and from 1.245% to 5.4% for employers with negative account balances. The new employer rate will continue to be 1.0% for 2023. The taxable wage base for 2023 has not yet been published to the DOL website.

Indiana—Withholding Bulletins Updated for 2023

The Indiana Department of Revenue has updated its income tax information bulletins concerning income derived from investment funds holding U.S. Government obligations, and the unreimbursed education expenses deduction. The revised bulletins include updated contact information and incorporate minor, non substantive changes. (Indiana Information Bulletin No. IT79, 11/01/2022; Indiana Information Bulletin No. IT107, 11/01/2022.)

Maine—Withholding Tables Updated for 2023

Maine Revenue Services (MRS) has issued new withholding tables that go into effect on January 1, 2023. The Maine personal exemption amount increased to $4,700 in 2023 (up from $4,450 in 2022) and the Maine basic standard deduction amounts are $13,850 for filers with a single filing status ($12,950 in 2022) and $27,700 for married individuals filing joint returns ($25,900 for 2022). The Maine standard deduction amounts for 2023 are phased out for single taxpayers with Maine income over $91,500 ($85,850 in 2022) and married taxpayers filing joint returns with Maine income over $183,050 ($171,700 in 2022). Withholding tax rates have been adjusted. The supplemental withholding rate also remains at 5%. Form W-4ME (Employee’s Withholding Allowance Certificate for Maine) must be updated if the employee or payee makes a change to their federal Form W-4 and must be provided on the same date as the federal Form W-4. Finally, MRS highlights a change that imposes a $50 penalty for each failure to knowingly furnish a correct information return.

Maryland—Information Return Filing Specifications Released for 2022 Tax Year

The Maryland Comptroller's Office has released Filing Specifications guides for information returns forms W-2 and 1099 for the 2022 tax year, 2023 filing year. Notably, the Comptroller's Office is no longer accepting diskettes or CDs, and prior year data for tax years 2019 and prior must be submitted via SFTP (secure file transfer protocol). Record layouts have not been adjusted. 

Massachusetts—Paid Family and Medical Leave Poster Released for 2023

The Massachusetts Department of Family and Medical Leave released an updated version of its family leave poster for 2023. The updated poster contains details of the paid family and medical leave afforded to employees in the state under Massachusetts law. Employers must display the poster in a prominent, visible location in all work locations in English and any other language that is the primary language of at least five employees. 

Massachusetts—Minimum Wage for 2023

The Massachusetts Department of Labor Standards (DLS) is reminding employers that the state's minimum wage has increased to $15.00 per hour as of January 1, 2023. The service minimum wage rate for tipped workers has increased to $6.75 per hour, and employers subject to Sunday and holiday premium pay requirements no longer have to pay a premium as of January 1, 2023. Additionally, the DLS is advising employers that all minimum wage waivers will only be processed electronically as of January 1, 2022.

New Hampshire—PFML Plan Information Update: Enrollment Period Begins December 1; Tax Credit Available

The Granite State Paid Family and Medical Leave (PFML) Plan, approved back in June 2021, is the country's only voluntary PFML state-run program. Unlike other state programs that require participation through employer and/or employee contributions, the New Hampshire voluntary program allows employers to purchase a PFML insurance plan that provides up to 60% wage replacement (up to the Social Security wage base limit) for covered workers. Employers with 50 or more workers are required to collect worker premium payments through payroll deductions if the employer opts into the program. Employers have the choice to pay 100% of the premium. Additionally, these larger employers are required to continue health insurance during leave with workers paying any shared costs. Employers with fewer than 50 workers are not required to collect worker premiums. The plan allows for PFML for up to six weeks of work annually with the option of a 12-week plan available. Premium funding may be made through employer and/or employee contributions. 50% of premiums paid by the employers are eligible for a Business Enterprise Tax (BET) credit when PFML insurance is purchased through MetLife, the state's PFML insurance partner. While employers are free to use another PFML insurance plan, the BET credit is only available to employers who use MetLife. If an employer opts for a 12-week plan, the BET credit is only available for 50% of the premium paid for six weeks of coverage. Employer enrollment is ongoing and begins December 1, 2022 and the plan begins January 1, 2023. Worker open enrollment begins January 1, 2023 through March 2, 2023. The PFML program has released a flier, FAQs, and is offering webinars regarding the program. Pre-recorded webinars are available. An Employer Toolkit is currently being developed and will be available soon. Employers may contact the MetLife Customer Solution Center for NH PFML at (866) 595-PFML (7365).

Ohio—November 8 Unofficial Election Results for Local City and Village Withholding

Based on unofficial election results of November 8, 2022, a number of additional income tax rates have been passed for several municipalities: (1) Beverly: a measure passed for an additional 0.25% component rate and the rate increases to 1.25% as of January 1, 2023; (2) North Lewisburg: a measure passed for an additional 0.75% component rate and the rate increases to 1.75% as of January 1, 2023; (3) Trotwood: a measure passed for an additional 0.5% component rate and the rate increases to 2.75% on January 1, 2023; and (4) Tuscarawas: a measure passed that increases the income tax rate from 1% to 1.5% beginning January 1, 2023.

Ohio—November 8 Unofficial Election Results for School Income Tax Issues

Based on unofficial election results of November 8, 2022, the following Ohio local school districts will have income tax rate changes: (1) Arlington LSD: an additional component rate of 0.5% has passed and the rate increases to 1.75% on January 1, 2023; (2) Fremont CSD: a measure to renew a 1.25% income tax rate has failed and the rate becomes 0% on January 1, 2024; (3) Granville EVSD: a measure to renew the 0.75% income tax rate has failed and the income tax rate will be 0% as of January 1, 2024; (4) Hillsdale LSD: a measure to renew the 1.25% income tax failed and the rate becomes 0% on January 1, 2024; (5) Walnut Township LSD: a measure to renew a 1.75% income tax rate has failed and the rate becomes 0% on January 1, 2024; and (6) Wilmington CSD: a measure to renew a 1% income tax rate has failed and the rate becomes 0% on January 1, 2023. 

Oklahoma—Withholding Tables for 2023 Released

The Oklahoma Tax Commission (OTC) has released its 2023 withholding tables (both bracket and percentage formula), which will be effective January 1, 2023. The personal exemption remains at $1,000 per exemption annually. The tables are unchanged. 

Pennsylvania—myPath the New Employer Registration Application Begins November 30

The Pennsylvania Department of Revenue has announced that the Pennsylvania Online Business Entity Registration (PA-100) will be replaced with myPATH, beginning November 30, 2022. Currently, PA-100 is used to register for employer withholding, unemployment compensation, and workers' compensation coverage. New registrations for employer withholding, unemployment compensation, and workers' compensation coverage must be done with myPATH, starting on November 30. Any registrations submitted through PA-100 will remain available to view and print on myPATH. MyPATH will be down for maintenance from Friday, November 25, 2022 at noon to Wednesday, November 30, 2022 at 8:00AM.

South Carolina—Batch Withholding Program Reminder

The South Carolina Department of Revenue (SCDOR) is reminding filers who file 10 or more state withholding returns in a quarter that they should opt for the Batch Withholding Program to file returns electronically. Forms WH-1605 (Withholding Quarterly Tax Return) or WH-1606 (Withholding Fourth Quarter and Annual Reconciliation Return) for multiple clients can be filed through the Batch Withholding Program. Tax preparers who file 100 or more returns per year are required to file electronically and may use the Program. Benefits of the Program include: (1) being able to submit a single file for multiple clients; (2) including original and amended returns in one submission; (3) a receipt for the submission and notice of errors. 

South Carolina—2023 Withholding Tables, Tax Formula and State W-4 Released

The South Carolina Department of Revenue (SCDOR) has released its 2023 withholding tables, withholding tax formula and the 2023 SC W-4. The personal allowance is increasing to $4,310 (previously, $2,750). The standard deduction is 10% of gross wages if claiming one or more allowances, up to a total of $6,475 (previously, $4,580). The number of brackets has been reduced from six (0.2%, 3%, 4%, 5%, 6%, and 7%) to two (3% and 6.5%). Wages of less than $3,330 are not subject to income tax withholding. The withholding tables and formula have been revised to reflect income tax legislation reducing rates passed in June. The SC W-4 may also be used to claim exemption from withholding by spouses of a military servicemember. Boxes 8 through 10 are completed if the employer is submitting a copy for new hire reporting. SCDOR notes that starting January 1, 2023, all newly-hired South Carolina employees are required to complete the 2023 SC W-4 and the 2023 federal W-4.

Texas—New Unemployment Filing Portal Coming Soon

The Texas Workforce Commission (TWC) has announced that TWC will be replacing the current employer registration and report filing applications with a new consolidated Texas Unemployment System. These include the following current applications: Unemployment Tax Registration (UTR), Unemployment Tax Services (UTS), QuickFile, GoAnywhere portal, and Magnetic Media. The new Texas Unemployment System will allow employers and agents to use a single system to: (1) register a new account and report wages; (2) submit wage adjustment reports; (3) upload wage data using a variety of formats; (4) update business information and change liability information; (5) obtain an account number with a future liability date (one quarter in advance); and (6) use a separate login portal just for agents. TWC account numbers will not change, however, users will need to create a new user profile, password and security questions during setup. There is no "go live" date at this time. 

Vermont—2023 Minimum Wage Poster Released

The Vermont Department of Labor has released the 2023 minimum wage poster. The minimum wage will be increasing to $13.18 per hour and $6.59 per hour for tipped workers in 2023. Employers are required to post the minimum wage notice in an accessible location to workers.

Vermont—Electronic Reporting of New Hires Required Beginning January 1

The Vermont Department of Labor (DOL) is requiring the electronic reporting of new hires beginning January 1, 2023, for all employers (previously, employers with 10 or more employees). Electronic reporting is required using the DOL's portal. Filers must register for the UI Employer Portal. Paper forms and CD submissions will no longer be accepted after December 31, 2022. Filers with questions regarding electronic submission, contact the DOL at (802) 828-4344 or email

Washington—2023 Seattle Minimum Wage Poster Released

The Seattle Office of Labor Standards (OLS) has released the 2023 Seattle minimum wage poster. The minimum wage applies to all employees working in Seattle regardless of the workers’ immigration status. The 2023 minimum wage increases to: (1) $18.69/hour for large employers (501 or more employees); (2) $18.69/hour for small employers (500 or fewer employees) who do not pay at least $2.19 per hour toward the employee’s medical benefits and/or where the employee does not earn at least $2.19 per hour in tips; (3) $16.50/hour for small employers who do pay at least $2.19 per hour toward the employee’s medical benefits and/or where the employee does earn at least $2.19 per hour in tips. The poster must be displayed in a noticeable area at the workplace, in English and the language(s) spoken by employees. The poster also includes information regarding Paid Sick and Safe Time, Fair Chance Employment, Wage Theft, and Commuter Benefits.

West Virginia—Unemployment Magnetic Media Wage Reporting Specifications Updated

Workforce West Virginia recently updated its website with a revised Magnetic Media Unemployment Wage Reporting Specifications Manual (September 2022). Quarterly wage information may be filed on 3.5 inch diskettes and CD-Rs. The federal magnetic media format is not acceptable. The required record layouts for mag media submissions are provided in the manual. Workforce West Virginia recommends that filers keep a backup copy of mag media files. All quarterly wage data mag media files are sent to: WorkForce West Virginia Contribution Accounting Section–Room 507, P.O. Box 106, Charleston WV 25321-0106. The external label must include the following information: (1) employer name; (2) WorkForce West Virginia employer account number; (3) quarter(s) for which wages are being reported; and (4) contact person and telephone number.