The IRS has released Notice 2022-61, as published in the Federal Register on November 30, that provides guidance on the prevailing wage and apprenticeship requirements for clean energy tax credits provided under the Inflation Reduction Act (P.L. 117-169) [87 FR 73580, 11/30/2022].
Background. On August 16, 2022, President Biden signed the Inflation Reduction Act (P.L. 117-169), that included provisions for increased clean energy tax credits or deduction amounts if certain prevailing wage and apprenticeship requirements are met.
Specifically, the prevailing wage and apprenticeship requirements pertain to:
The prevailing wage requirements pertain to:
When compliance must begin. To qualify for tax credits under the Inflation Reduction Act, taxpayers must comply with the prevailing wage and/or apprenticeship requirements where construction begins on or after January 29, 2023.
When construction begins is based on:
Additionally, the taxpayer must demonstrate either continuous construction or continuous efforts (continuity requirement) for beginning of construction to be satisfied regardless of which method to establish when construction begins. There is a "Continuity Safe Harbor" that will deem a taxpayer as satisfying the continuity requirement if the qualified facility is placed in service no more than four calendar years after the calendar year during which construction of the qualified facility began for purposes of Code Sec. 45 and Code Sec. 48 and no more than six calendar years after the calendar year during which construction of the qualified facility or carbon capture equipment began for purposes of Code Sec. 45Q.
Prevailing wage rates. For purposes of complying with the prevailing wage provisions of the Inflation Reduction Act, the prevailing wage refers to the minimum wage rates that taxpayers must ensure are paid to laborers and mechanics performing construction of a facility, project, property, or equipment and, in some cases, alteration or repair. A prevailing wage is the combination of the basic hourly wage rate and any fringe benefits rate, paid to workers in a specific classification of laborer or mechanic in the area where construction, alteration, or repair is performed, as determined under the Davis-Bacon Act, as required contractors and subcontractors on federal contracts. Prevailing wage rates are found in wage determinations published by the Wage and Hour Division (WHD) of the US Department of Labor (DOL) on www.sam.gov. A wage determination is the list of basic hourly wage rates and fringe benefit rates for each classification of laborers and mechanics in a predetermined geographic area, usually a county, for a particular type of construction. Questions regarding the applicability of prevailing wage rates may be sent to: IRAprevailingwage@dol.gov..
When prevailing wage rates are not available. The Notice provides that if prevailing wage rates have not been published for a particular geographic area or type of construction on www.sam.gov, the taxpayer must request a wage determination or wage rate by contacting the WHD via email at IRAprevailingwage@dol.gov. The request must provide the following information: (1) the type of facility, (2) facility location, (3) proposed labor classifications, (4) proposed prevailing wage rates, (5) job descriptions and duties, and (6) any rationale for the proposed classifications.
Recordkeeping requirements for prevailing wage compliance. The Notice states that taxpayers are required to maintain records that establish the amount of gross income, deductions, credits as shown on any tax return. Regarding the prevailing wage requirements, the Notice requires a taxpayer to maintain records that are sufficient to establish that the taxpayer and the taxpayer’s contractor and subcontractor paid wages not less than such prevailing wage rates. Records may include, but are not limited to, identifying the applicable wage determination, the laborers and mechanics who performed construction work on the facility, the classifications of work they performed, their hours worked in each classification, and the wage rates paid for the work.
Apprentice for the purposes of the Inflation Reduction Act. A qualified apprentice is an individual employed by the taxpayer, contractor, or subcontractor who is participating in a Registered Apprenticeship program registered under the National Apprenticeship Act.
Apprenticeship requirements. The guidance notes that a taxpayer complies with the apprenticeship requirements for the Inflation Reduction Act clean energy credits as provided under Code Sec. 45(b)(8) if the following are met: (1) the Apprenticeship Labor Hour Requirements, subject to any applicable Apprenticeship Ratio Requirements; (2) Apprenticeship Participation Requirements; and (3) general recordkeeping requirements are adhered to establish that the Apprenticeship Labor Hour and the Apprenticeship Participation Requirements have been satisfied. Specifically, the requirements apply to Registered Apprenticeship programs which is a program registered under the National Apprenticeship Act that meets DOL requirements. Employers may hire an apprentice by joining an existing group registered apprenticeship program or register their own apprenticeship program.
Example: A qualified facility begins construction on January 1, 2023. The total labor hours for the construction are 10,000 labor hours. To satisfy the Apprenticeship Labor Hour Requirements, apprentices must perform 12.5% of the total labor hours. Therefore, apprentices must perform 1,250 of the 10,000 total labor hours. The IRS does note in the guidance that a taxpayer may hire a contractor to help with the construction and the hours of the contractor's apprentices may contribute to the Apprentice Labor Hour Requirements. Good Faith Effort. A taxpayer will be considered to have made a good faith effort in requesting qualified apprentices if the taxpayer requests qualified apprentices from a registered apprenticeship program. The taxpayer must maintain records that establish that the request for qualified apprentices from a registered apprenticeship program was made and the program's denial or non-response to that request.
Recordkeeping for apprenticeship requirements. Taxpayers must maintain records sufficient to establish that the Apprenticeship Labor Hour and the Apprenticeship Participation Requirements have been satisfied.
Additional resources:
The U.S. Congress must take action by December 16, 2022 to avoid a federal government shutdown, which could affect agencies like the IRS and U.S. Department of Labor (DOL).
Funding for now. On September 30, 2022, President Biden signed a continuing resolution (CR) that temporarily funds the U.S. government through December 16, 2022. A CR is typically needed when Congress and the President do not reach an agreement on spending levels at the start of the federal fiscal year in October.
CRs help but shutdowns still occur. According to the Government Accountable Office (GAO), there were 47 CRs between fiscal year (FY) 2010 and 2022, which ranged from one to 176 days. The GAO also notes that on three occasions in FY 2014, 2018 and 2019 no CR was approved, which resulted in a federal government shutdown.
FY 2014 shutdown. In early October 2013, the federal government shutdown for the first time in 17 years, resulting in many federal agencies and services being closed, suspended or significantly cut back. The shutdown did not affect any IRS payroll-related deadlines. The IRS urged taxpayers to file electronically to help during the shutdown.
E-Verify issues. E-Verify was not available during the shutdown. This is the free service that determines the employment eligibility of new hires by comparing information from the new hire's Form I-9 (Employment Eligibility Verification) to Department of Homeland Security (DHS) and Social Security Administration (SSA) records.
Some Form W-2 submissions were also affected. Also, the due date for submitting Form W-2 (Wage and Tax Statement) files on the SSA's Business Services Online (BSO) was delayed during this government shutdown.
Wage and hour enforcement halted. While the DOL continued essential functions during the FY 2014 shutdown (i.e., unemployment benefits), its Wage and Hour Division (WHD) provided no enforcement activities.
FY 2019 shutdown more of the same. During the FY 2019 government shutdown, E-Verify and its services were again unavailable for the duration of the event (E-Verify and E-Verify Services Unavailable During Government Shutdown, 01/03/2019). This included a suspension of the "three-day rule" for creating E-Verify cases and extended the time period during which employees may resolve Tentative Non Confirmation (TNCs) during the shutdown.
Employers still had to verify employees. However, employment eligibility requirements remained in effect during the shutdown and employers were still required to complete Form I-9 no later than the third business day after an employee begins work and to comply with I-9 requirements.
Prior lockdown affected comment period on proposed rulemaking. During the FY 2019 government shutdown, the National Labor Relations Board (NLRB) further extended the comment period on its then proposed joint-employer rule. But since the Office of the Federal Register was affected by the shutdown, it was unable to publish the extension and the NLRB used other options to make the notification (NLRB Further Extends Comment Period on Proposed Joint-Employer Rule, 01/17/2019).
On September 6, 2022, the NLRB released a notice of proposed rulemaking again regarding the standard for determining joint-employer status. The comment period ended in November 2022, so it is not likely that the NLRB would need to extend its comment period should there be a government shutdown.
The DOL is currently soliciting comments on its proposed worker classification rule with a comment period that will end on December 13, 2022. Unless these agencies announce further comment periods, it is unlikely that either agency will need to make adjustments regarding comments.
However, if agency employees are not working due to a shutdown, there could be delays in the release date of final rules for joint employers and worker classification.
Lawmakers are working on a solution but a shutdown is still possible. According to the November 29, 2022 Thomson Reuters Tax blog post, there are discussions by some Democratic leaders on extending the current CR for one more week to December 23, 2022. If there is no agreement on an extension of a funding measure by December 16, 2022, the federal government will shutdown and employers and payroll professionals should prepare for some of the similar issues from past shutdowns to occur again.
The Department of Justice (DOJ) has recently announced several guilty pleas from businesses in various areas throughout the United States for the failure to pay employment taxes.
What are employment taxes? Employers must deposit and report employment taxes. These taxes include federal income tax, Social Security and Medicare taxes, the Additional Medicare Tax, and the Federal Unemployment Tax Act (FUTA) tax. In general, employers must deposit the federal income tax withheld as well as the employer and employee Social Security and Medicare taxes and FUTA taxes.
Depositing employment taxes. Employers must use electronic funds transfer (EFT) to make all federal tax deposits. The two deposits scheduled for determining when an employer must deposit federal income tax, Social Security and Medicare taxes are: semi-weekly and monthly. The deposit schedule an employer must use is based on the total tax liability reported on Form 941, line 12, or Form 944, line 9, during a lookback period.
Determining deposit schedules. The lookback period begins July 1 and ends June 30. If an employer reported $50,000 or less of taxes for the lookback period, it's a monthly schedule depositor. If an employer reported more than $50,000, it's a semiweekly schedule depositor.
Next-day deposit rule. There are other employment tax deposit rules, such as the $100,000 next-day deposit rule, which requires an employer to deposit the tax liability by the next business day, regardless of whether the employer is a semi-weekly or monthly depositor. The employer's deposit schedule must then be a semi-weekly depositor for the rest of that calendar year and the following year.
Deposit penalties. Penalties may apply if an employer does not make the required deposits on time or if you make deposits for less than the required amount. The penalties don't apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect.
The penalty rates for failing to deposit employment taxes are as follows:
Trust fund penalty. A trust fund recovery penalty may apply for the failure to deposit employment taxes, which is 100% of the unpaid trust fund tax. The trust fund penalty may be imposed on all persons determined by the IRS to be responsible for collecting, accounting for, or paying over these taxes, and who acted willfully in not doing so, if these taxes cannot be immediately collected from the employer.
Iowa construction business fails to pay more than $1 million. On November 16, 2022, the DOJ announced that the owner of a Sergeant Bluff, Iowa construction firm pleaded guilty to tax evasion for evading payment of his company’s employment taxes. As the sole shareholder and president of K&L Construction, Kevin Alexander was responsible for filing quarterly employment tax returns and collecting and paying over to the IRS payroll taxes withheld from employees’ wages.
From the second quarter of 2014 through the first quarter of 2017, K&L Construction paid approximately $3.8 million in wages to its employees and withheld approximately $1 million in payroll taxes, but the company did not pay over any of these withholdings to the IRS.
Key West staffing conspirator defrauds IRS of more than $7.9 million. On November 22, 2022, the DOJ announced that a former Key West resident pleaded guilty to an immigration conspiracy related to the operation of several Key West labor staffing companies.
From January 2016 through at least January 2021, Oleksandr Morgunov helped operate a number of labor staffing companies in southern Florida, which facilitated the employment of individuals in hotels, bars and restaurants in Key West and other locations, even though the employees were not authorized to work in the United States.
Morgunov acknowledged that he and his co-conspirators defrauded the IRS out of more than $7.9 million in employment taxes. Morgunov is scheduled to be sentenced on January 31, 2023. He faces a maximum penalty of 10 years in prison for conspiring to harbor migrants and induce them to remain in the United States.
Miami business owner fails to pay more than $850,000 in employment taxes. On November 28, 2022, the DOJ announced that a Miami business owner pleaded guilty today to willfully failing to pay over employment taxes to the IRS. Ari Weingrad owned and operated two car rental companies with locations throughout Florida. The DOJ stated that Weingrad was aware he was responsible for collecting, accounting for and paying over payroll taxes withheld from his employees’ wages to the IRS.
However, between 2011 and 2016, Weingrad withheld from his employees but did not pay over more than $850,000 in employment taxes owed to the IRS. Instead, he caused one of his rental companies to spend corporate funds to pay discretionary expenses, including a $50,000 cashier’s check to himself, a $45,000 in cashier’s checks payable to his wife, and expenses related to a 55-foot yacht.
Weingrad faces a maximum penalty of five years in prison for willful failure to pay over employment taxes, a period of supervised release restitution and monetary penalties.
Detroit software developer fails to pay $691,000 in employment taxes. On November 29, 2022, the DOJ announced that a Michigan business owner pleaded guilty today to willful failure to collect and pay over employment taxes on behalf of his employees. Yigal Ziv owned and operated a software developer company named Multinational Technologies, Inc. (MTI).
Ziv was responsible for filing MTI’s quarterly employment tax returns and collecting and paying to the IRS payroll taxes withheld from employees’ wages. However, from the first quarter of 2014 through the first quarter of 2018, Ziv collected approximately $691,000 in employment taxes from MTI’s employees, but did not file employment tax returns or pay the withheld taxes to the IRS.
The DOJ said that even after learning of the IRS’s ongoing criminal investigation in May 2018, Ziv did not file MTI’s employment tax returns from the fourth quarter of 2019 through the fourth quarter of 2020 and did not pay over to the IRS approximately $199,000 in payroll taxes withheld from MTI’s employees. During the same period he did not pay over taxes to the IRS, Ziv caused MTI to spend hundreds of thousands of dollars for his personal benefit, including home mortgage payments, luxury auto lease payments and department store purchases.
Ziv is scheduled to be sentenced on February 22, 2023, and faces a maximum penalty of five years in prison. He also faces a period of supervised release, monetary penalties and restitution.
The IRS has announced that the interest rates for underpayments and overpayments for the first quarter 2023 will again increase by 1% [IR 2022-206; Rev Rul 2022-23, 2022-51 IRB].
Beginning January 1, 2023, the interest rates will be:
In addition, the interest rate on the portion of a corporate overpayment exceeding $10,000 will be 4.5% (up from 3.5%).
Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3% points.
Generally, for a corporation, the underpayment rate is the federal short-term rate plus 3% points, and the overpayment rate is the federal short-term rate plus 2% points. The rate for large corporate underpayments is the federal short-term rate plus 5% points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus a 0.5% point.
The interest rates for the first quarter 2023 are computed from the federal short-term rate determined during October 2022.
Year-end processing poses a number of challenges to payroll administrators, accountants, business owners, and employers of all types. Checkpoint Payroll has put together this series of articles aimed at guiding you through the trials of the year-end processing season.
As the holidays approach, many employers plan on paying out bonuses, incentives, or other supplemental wages to employees that may have unexpected tax and compliance implications.
Paying out bonuses: Employers have several options when it comes to paying out bonus checks. You may choose to pay employees their additional wages on the same check as regular wages for a scheduled pay date, or you may choose to issue a separate check on a date different from the regularly scheduled pay date. Whichever option you choose will have different tax and compliance implications.
When:
How:
Special considerations:
Bonuses and other incentives are a great way to give back to employees and thank them for a job well done throughout the year. Be sure to save this article as a quick reference guide on ensuring compliance and accuracy when issuing these supplemental payments.
The IRS has issued additional guidance regarding the use of electronic substitutes to paper Form W-4 (Employee's Withholding Certificate). The IRS noted that the guidance has been released in response to questions received regarding the new guidelines as specified in the 2022 Publication 15-A (Employer's Supplemental Tax Guide) and Publication 15-T (Federal Income Tax Withholding Methods).
Background. The Tax Cuts and Jobs Act (TCJA; P.L. 115-97) was signed into law on December 22, 2017. The legislation includes a provision that eliminates the use of federal withholding allowances from the 2020 tax year through the 2025 tax year. As such, the IRS was required to significantly revise the federal Form W-4. Beginning with the 2020 tax year, all new hires must use the revised Form W-4 that no longer includes personal exemptions or dependency exemptions. Also, all employees who need to make a change to their Form W-4 must use the revised version of Form W-4. The form has a series of five steps. For many employees, only a couple of these steps need to be followed to complete the form.
Electronic Substitute to Form W-4. Both Publication 15-A and Publication 15-T provide the guidelines for electronic substitutes for W-4 information. The IRS notes that while electronic substitutes are permitted, the W-4 form may not be simplified or modified. Specifically, the electronic substitute must exactly replicate the text and instructions from the face of the paper Form W-4 beginning with Step 1(c) through Step 4(c) (inclusive) and employees must be able to use all parts of the calculation shown on the paper Form W-4 and its worksheets.
Timeframe to implement electronic substitutes. The IRS noted that employers are not required to set up a system for the electronic submission of W-4s. The IRS says that in general, when guidelines are released, employers have a "reasonable amount of time" to implement the changes. Generally, a reasonable amount of time will not be extended beyond 90 days. Therefore, if Publication 15-T is released on December 1, 2022, a reasonable amount of time would generally not extend beyond February 2023.
References to page numbers. Employers have asked if references to page numbers must be replicated in the electronic version of the W-4. The IRS has explained that these may be replaced by appropriate references such as a link to the deductions worksheet.
Social Security Number (SSN) and personal information. Employers asked if they must require SSN and other personal information that is already stored in the employer's systems. The IRS has clarified that the electronic substitute will not require the collection of this information if: (1) the stored information is directly or indirectly linked to the electronic substitute; and (2) the source of the SSN and personal information was obtained from a previously submitted Form W-4 or Form I-9 (Employment Eligibility Verification) that is signed by the employee.
Step 3: Claiming dependents. The IRS explained that the electronic substitute cannot restrict dollar increments based on the number of qualifying children or dependents eligible for the child tax credit. Employees must be permitted to include other eligible tax credits as indicated in the instructions of the form. Any electronic substitute must permit employees to enter other estimated tax credits.
Paper substitute to Form W-4. Employers noted that there are no guidelines regarding paper substitutes to Form W-4. The IRS clarified that paper substitute are permitted if:
The IRS pointed out that paper substitutes do not necessarily have to follow the guidelines for electronic substitutes. For example, a web address may not be provided in a paper substitute. The instructions and worksheets must be provided with the paper substitute.
The IRS noted that if an employee should submit a paper substitute of their own design, it cannot be accepted and it should be considered a failure to provide a withholding certificate.
Once the confetti has been swept and the last chorus of "Auld Lang Syne" has been sung, the 2023 minimum wage rates and overtime salary thresholds will take effect.
Minimum Wage Increases, Effective January 1, 2023
Alaska. The minimum wage rate increases from $10.34 per hour to $10.85 per hour. The state does not permit the use of a tip credit toward the minimum hourly wage.
Arizona. The minimum wage rate increases from $12.80 per hour to $13.85 per hour. An employer may take a tip credit of up to $3.00 per hour against the minimum wage rate so the cash minimum wage for tipped workers increases to $10.85 per hour in 2023.
California. The minimum wage rate increases to $15.50 per hour for all employers. The state does not permit the use of a tip credit toward the minimum hourly wage.
Colorado. While the final Pay Calc (wage order) has not yet been issued, Colorado Governor Polis has announced that the minimum wage will increase from $12.56 per hour to $13.65 per hour, beginning January 1, 2023. The cash minimum wage for tipped workers will increase to $10.63 per hour ($3.02 per hour tip credit). The proposed Pay Calc indicates 2023 minimum wage increases for non-emancipated minors ($11.61 per hour) and agricultural range workers ($559.29 per week). The state has not yet finalized the Pay Calc.
Delaware. The minimum wage increases to $11.75 per hour in 2023. The cash minimum wage rate for tipped workers is $2.23 per hour. Employers may pay $11.25 per hour in 2023 to employees who are 18 years of age or older, during the first 90 consecutive calendar days of employment or employees under the age of 18.
District of Columbia. The minimum wage rate for workers at Dulles and Reagon International airports will increase to $15.00 per hour, beginning January 1, 2023. The current DC minimum wage rate is $16.10 per hour and remains in effect until June 30, 2023. The rate for tipped employees currently is $5.35 per hour but increases to $6.00 per hour on January 1, 2023 due to the passage of a ballot measure that increases the cash minimum wage for tipped workers until it is equal to the District minimum wage by July 1, 2027. For the first 90 days of employment, minors, newly hired persons 18 years old or older, and students employed by institutions of higher education may be paid the federal minimum wage ($7.25 per hour).
Illinois. The minimum wage rate increases from $12.00 per hour to $13.00 per hour. The minimum wage for tipped workers increases to $7.80 per hour. The minimum wage for minors under 18 that work less than 650 hours per year is $10.50 per hour.
Maine. The minimum wage rate will increase from $12.75 per hour to $13.80 per hour. The cash minimum wage rate for tipped workers will increase to $6.90 per hour in 2023.
Maryland. The minimum wage rate for employers with 15 or more employees will increase to $13.25 per hour and to $12.80 per hour for employers with 14 or fewer employees. The minimum wage for minors under the age of 18 is 85% of the state's minimum wage.
Massachusetts. The minimum wage rate increases from $14.25 per hour to $15.00 per hour. The cash minimum wage for tipped workers will increase to $6.75 per hour.
Michigan. While there is a scheduled minimum wage rate, effective January 1, 2023, of $10.10 per hour, a federal court has ruled that the adopt-and-amend strategy employed to overcome a prior bill that increased the minimum wage incrementally until it reached $12 per hour in 2022 was unconstitutional. The judge ordered that the minimum wage change not be implemented any earlier than February 19, 2023. The cash minimum wage for tipped workers is 38% of the state minimum wage.
Minnesota. For large employers (gross volume of sales of $500,000 or more), the minimum wage will increase from $10.33 per hour to $10.59 per hour. For small employers, the minimum wage will increase from $8.42 per hour to $8.63 per hour. The state does not permit the use of a tip credit against the minimum wage.
Missouri. The minimum wage rate increases from $11.15 per hour to $12.00 per hour. The minimum wage for tipped workers increases to $6.00 per hour.
Montana. The minimum wage rate increases from $9.20 per hour to $9.95 per hour.Businesses not covered by the Fair Labor Standards Act (FLSA) whose gross annual sales are $110,000 or less may pay $4.00 per hour. However, if an individual employee is producing or moving goods between states or otherwise covered by the FLSA, that employee must be paid the greater of either the federal minimum wage ($7.25 per hour) or Montana’s minimum wage. The state does not permit the use of a tip credit. Farm workers under age 18 may be paid subminimum rates for 180 days (at least 50% of the minimum wage required).
Nebraska. The minimum wage rate increases from $9.00 per hour to $10.50 per hour. The minimum wage for tipped workers increases to $6.00 per hour. Subminimum wage rates apply to student learners and new hires under 20.
New Jersey. The minimum wage rate increases from $12.00 per hour to $13.00 per hour for most employers. The rate increases to $12.70 per hour for seasonal and small employers with fewer than six employees. The rate increases to $11.70 per hour for agricultural employers. The wage for long-term care facility direct care staff members increases to $17 per hour. The cash minimum wage for tipped workers will remain $5.13 per hour. Full-time students can be employed by the college or university in which they are enrolled at not less than 85% of the minimum hourly wage in effect.
New Mexico. The minimum wage rate increases from $11.50 per hour to $12.00 per hour in 2023. The tipped worker minimum wage is $3.00 per hour.
New York. The minimum wage rate will remain $15.00 per hour in New York City, Long Island and Westchester County. The minimum wage will increase from $13.20 per hour to $14.20 per hour for the remaining areas of New York State. The minimum wage for food service workers remains $10 per hour ($5.00 per hour tip credit) in New York City, Long Island and Westchester County, but increases to $9.45 per hour ($4.75 per hour tip credit) in the remainder of the state. The minimum wage for service workers who are not in the food industry but are customarily tipped will remain $12.50 per hour ($2.50 per hour tip credit) in New York City, Long Island and Westchester County, but increases to $11.85 per hour ($2.35 per hour tip credit). The fast food minimum wage remains $15 per hour. A tip credit is not permitted for fast food workers. The minimum wage for health care aides, effective October 1, 2022, is $17.00 per hour in New York City, Long Island and Westchester, and $15.20 per hour for the remainder of New York State.
Ohio. The minimum wage rate increases from $9.30 per hour to $10.10 per hour for employers with annual gross receipts of $371,000 or more. Employers with less than $371,000 in annual gross receipts may pay $7.25 per hour. The minimum wage for tipped workers increases to $5.05 per hour. Employees under the age of 16 may be paid the federal minimum wage rate of $7.25 per hour.
Oregon. The minimum wage will not increase until July 1, 2023.
Rhode Island. The minimum wage rate increases from $12.25 per hour to $13.00 per hour. The minimum wage for tipped workers is $3.89 per hour. For full-time students under 19 working in certain nonprofit organizations, the minimum wage increases to $11.70 per hour (90% of the minimum wage). For 14 and 15-year-olds who work more than 24 hours per week, the minimum rate is $9.75 per hour (75% of the minimum wage).
South Dakota. The minimum wage rate increases from $9.95 per hour to $10.80 per hour. The minimum wage for tipped workers is $5.40 per hour. Any employee under 20 years of age may be paid an opportunity wage of $4.25 an hour for the first 90 days of employment.
Vermont. The minimum wage rate increases from $12.55 per hour to $13.18 per hour. The minimum wage for tipped workers is $6.55 per hour.
Virginia. The minimum wage rate increases from $11.00 per hour to $12.00 per hour. The cash minimum wage for tipped workers is $2.13 per hour. Vermont allows employers to take advantage of the federal opportunity wage which specifies that new hires under 20 years of age may be paid $4.25 per hour for the first 90 calendar days after the date of hire.
Washington. The minimum wage rate increases from $14.49 per hour to $15.74 per hour. The state does not permit the use of a tip credit toward the minimum hourly wage. Minors aged between 14 and 15 years old may be paid $13.38 per hour (85% of the minimum wage) in 2023.
Garnishment Withholding Calculation Changes
Beyond general wage and hour compliance, minimum wage rate increases may also impact the maximum withholding for creditor garnishments. While many states adhere to federal limits or use a percentage of disposable earnings or multiplier of the federal minimum wage rate in regards to calculating the maximum amount that be withheld for garnishment, the maximum withholding for the following states will increase in 2023:
Minimum Wage Increases Occurring Later in 2023
Connecticut. The minimum wage will increase to $15.00 per hour, effective June 1, 2023. The cash minimum wage is frozen at $6.38 per hour for hotel and restaurant staff and is frozen at $8.23 per hour for bartenders.
Florida. The minimum wage will increase from $11.00 per hour to $12.00 per hour, beginning September 30, 2023. The cash minimum wage rate for tipped workers will increase to $8.98 per hour ($3.02 per hour tip credit).
Nevada. Currently, the minimum wage is $9.50 per hour with qualified health benefits and $10.50 per hour without. The minimum wage will increase to $10.25 per hour with qualified health benefits; $11.25 per hour without, beginning July 1, 2023. Beginning January 1, 2024, the minimum wage is $12.00 per hour regardless of benefits, as approved by ballot measure.
Puerto Rico. The current minimum wage is $8.50 per hour. The minimum wage is scheduled to increase beginning July 1, 2023 to $9.50 per hour. Tipped employees are entitled to the federal minimum wage in effect for such workers ($2.13 per hour), which tips added to the federal minimum wage must, at least equal the Puerto Rico minimum wage of $9.50 per hour.
Texas. The current minimum is $7.25 per hour and is only adjusted by legislative action. However, the airport workers in Houston received a minimum wage increase of $14.00 per hour, beginning October 1, 2022. It further increases to $15.00 per hour, beginning October 1, 2023.
The IRS has published the 2023 Tier 2 tax rates. Tier 2 taxes are imposed on railroad employees, employers, and employee representatives and are one source of funding for benefits under the Railroad Retirement Act. The Tier 2 tax rates remain unchanged from 2022.
For 2023 the Tier 2 tax rates are:
These Tier 2 tax rates apply to compensation paid in the calendar year 2023.
For more information about Tier 2 taxes and benefits.
We understand. You're busy. You may not be able to read Checkpoint news every morning. So we have you covered with ICYMI (In Case You Missed It) a weekly feature to get you up to speed on all of the latest payroll news from last week. Due to the Thanksgiving holiday, this ICYMI covers news from November 14-23.
Federal News
IRS releases draft 2023 instructions for W-2s/W-3 and 1099 series and other items. The IRS has released a number of draft instructions and one draft publication: (1) 2023 General Instructions for Forms W-2 and W-3; (2) 2023 General Instructions for Certain Information Returns; (3) 2022 Instructions for Form 8941 (Credit for Small Employer Health Insurance Premiums); and (4) 2023 Publication 926.
IRS Releases Form for Credit for Social Security and Medicare Employer Paid Taxes on Tips for 2022. The IRS has released the 2022 version of Form 8846 (Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips). Certain food and beverage establishments use Form 8846 to claim a credit for Social Security and Medicare taxes paid or incurred by the employer on certain employees' tips.
IRS Releases 2022 Employer's Annual Federal Tax Return and Instructions. The IRS has released the 2022 versions of Form 944 (Employer’s Annual Federal Tax Return) and its instructions. The Form 944 (Employer’s Annual Federal Tax Return) is designed so the smallest employers (those with an annual liability for Social Security, Medicare, and withheld federal income taxes is $1,000 or less) will file and pay these taxes only once a year instead of every quarter
2023 Version of Form W-3 Contains No Substantial Changes. The Social Security Administration (SSA) strongly suggests employers report Form W-3 and Forms W-2 Copy A electronically, instead of on paper
State News
Arkansas withholding certificates updated for 2023. The Arkansas Department of Finance and Administration (DFA) has issued a 2023 version of its Form AR4EC (Employee's Withholding Exemption Certificate). The form may be used for withholding on all types of income, including pensions and annuities.
Iowa announces tax brackets and interest rate for 2023. The Iowa Department of Revenue has announced the 2023 interest rate, individual income tax brackets, and that there will be no standard deduction amount for the 2023 tax year (applicable for taxes due in 2024).
Massachusetts announces 2023 minimum wage. The Massachusetts Department of Labor Standards (DLS) indicated that the state's minimum wage has increased to $15.00 per hour as of January 1, 2023.
New York State and Yonkers withholding tables released. The New York Department of Taxation and Finance (DTF) has issued revised New York State and the City of Yonkers withholding tables, which take effect January 1, 2023.
Oklahoma releases 2023 withholding tables. 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.
South Carolina releases 2023 withholding tables. The South Carolina Department of Revenue (SCDOR) has released its 2023 withholding tables, withholding tax formula and the 2023 SC W-4.
Utah taxable wage base increasing but unemployment tax rates unchanged. The taxable wage base will increase from $41,600 to $44,800 in 2023 but unemployment tax rates remain the same.
The Security Summit-a partnership between the IRS, state tax agencies, and the tax software and tax professional community-will be conducting its seventh annual National Tax Security Awareness Week from November 28 through December 2.
To help combat the additional security threats that may occur during the holiday season, the Summit partner's National Tax Security Awareness Week will feature a week-long series of educational materials to help protect individuals, businesses and tax professionals from identity theft [IR 2022-202, 11/18/2022].
According to the IRS, the special week will "focus attention on empowering taxpayers to protect sensitive financial information against identity thieves as the holidays and the 2023 tax season get closer."
The Security Summit warned tax professionals and taxpayers alike not to be lackadaisical when it comes to protecting financial information. They should "take extra steps" to protect financial and tax information, the summit urged.
The Security Summit reminds small business owners that most cyberattacks are aimed at small businesses with fewer than 100 employees. The Security Summit notes that:
In addition to reviewing IRS Publication 4557 (Safeguarding Taxpayer Data), tax professionals can also get additional recommendations regarding security by reviewing Small Business Information Security: The Fundamentals by the National Institute of Standards and Technology. The IRS Identity Theft Central pages for tax pros, individuals and businesses have important details as well.
On November 22, 2022, President Biden announced that Education Secretary Cardona is extending the pause on student loan payments through June 2023 while Biden's student loan relief plan is on hold following court rulings. The Biden Administration is requesting that the Supreme Court take up the matter to lift a lower court ruling that blocked the program.
Student debt relief plan. 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.
District court declares the plan unlawful. On November 10, 2022, a Texas district court ruled that President Biden's student loan debt relief plan is an unconstitutional exercise of Congress’s legislative power and must be vacated. The Court said that the HEROES Act justification does not provide the executive branch clear Congressional authorization to create a $400 billion student loan forgiveness 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].
Preliminary injunction granted. On November 14, 2022, the Eighth Circuit Court of Appeals granted a preliminary injunction against Biden's loan debt relief program. The Court said that the injunction will remain in effect until further order from it or the Supreme Court.
President announces student loan payment pause. In response to the recent court rulings that effectively halt Biden't student debt relief plan, the President commented on Twitter that Cardona is extending the student loan payment pause "to no later than June 30, 2023." In the video attachment to his tweet, Biden says that "payments will resume 60 days after the pause ends." The President believes this will give the Supreme Court time to hear the case within its current term. The Supreme Court's current term, which began on October 2, 2022, ends on the first Monday in October 2023.
DOE confirms pause includes collections. On November 22, 2022, the DOE issued a press release that announced the extension of the pause on student loan repayment, interest and collections. This means any wage garnishments having to due with student loan debt will continue to be postponed until June 30, 2023 (payments resume 60 days after this date).
The U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) and Office of Federal Contract Compliance Programs (OFCCP) have announced three recent investigations that resulted in millions in wage recovery for hundreds of workers due to employers violating the Fair Labor Standards Act (FLSA) for compensation discrimination, overtime miscalculation, failure to pay the required rate of pay, among other penalties.
$1.9 million agreement to resolve compensation discrimination allegations. The Bank of New York Mellon Corp. (BNY Mellon) has agreed to pay $1.9 million in back wages to resolve compensation discrimination allegations at its Jersey City, New Jersey location. A routine compliance review by the OFCCP says that BNY Mellon discriminated against 120 female workers in investment services technology positions and 47 Black and 26 Hispanic workers in its technology services group from December 1, 2016, to December 1, 2017.
BNY Mellon entered into a conciliation agreement voluntarily to resolve the allegations before OFCCP issued a notice of violation. The agreement says the federal contractor will pay $1.925 million in back wages and interest to the affected employees and take additional steps that include: conducting a compensation analysis for the affected group; making salary adjustments to remedy significant pay disparities based on gender, race and/or ethnicity; reviewing and revising its overall compensation system; providing enhanced training to its managers to ensure future compliance; and analyzing compensation annually for disparities.
Overtime miscalculation costs the employer $1.15 million in back pay. An investigation by the WHD has resulted in the recovery of $1,158,536 in back wages for overtime due to 710 workers at an Elkhart, Indiana, recreational vehicle manufacturer due to the employer incorrectly calculating overtime wages for workers paid on a piece-rate basis. Alliance RV LLC paid less for each piece in weeks when workers worked more than 40 hours, which resulted in employees receiving less overtime pay than they were entitled to under the FLSA.
The example below illustrates how to calculate overtime for a piece-rate worker.
In DOL guidance, it is noted that another way to pay a piece-rate worker for overtime is to have an agreement prior to services performed that the rate is one and one-half times the piece rate for each piece produced during overtime hours.
Employers are responsible for ensuring their pay practices comply with federal law, and that workers are paid no less than the federal minimum wage and for overtime for hours over 40 in a workweek. “No matter how they pay, employers must ensure that they comply with overtime obligations and compute overtime wages correctly,” said Principal Deputy WHD Administrator Jessica Looman.
$134K recovered from agricultural employers for multiple FLSA violations. In an ongoing series of investigations into allegations of wage theft and illegal displacement of U.S. workers by Mississippi Delta agricultural employers in the H-2A temporary guest worker program, the U.S. Department of Labor identified several violations by 11 employers.
WHD investigators found that employers failed to pay the required rate of pay for U.S. workers in corresponding employment; did not disclose all conditions of employment and did not provide accurate anticipated hours of work and bonus opportunities; made illegal pay deductions and failed to reimburse travel-related expenses as required; and did not comply with federal recordkeeping requirements, all violations of the H-2A program requirements.
The WHD recovered $134,532 in wages for 45 workers and assessed $122,610 in civil money penalties. “The outcome of these investigations confirms that employers denied many farmworkers their lawful wages and, in some cases, violated the rights of U.S. workers by giving temporary guest workers preferential treatment,” said WHD District Director Audrey Hall in Jackson, Mississippi.
The DOL said that these investigations are part of a larger effort and are a priority and noted that H-2A violations and recovery of back wages have increased significantly in the past five years. This expanded agricultural enforcement in the Delta region is a collaborative effort with other federal agencies.
Alabama—Irondale Occupational Tax Rate Decreased on October 1
The City of Irondale has decreased its occupational tax rate. Effective October 1, 2022, the rate was reduced from 1.0% to 0.75%. Irondale City Ordinance 2022-14 amended Ordinance 2018-10.
Arkansas—Rules of Procedure of the Tax Appeals Commission Adopted
The Arkansas Tax Appeals Commission has adopted Rules of Procedure of the Tax Appeals Commission, effective December 10, 2022. The rules are required to establish the Commission, which was created July 1, 2022, within the Arkansas Department of Inspector General, as a new agency for the purpose of resolving tax controversies within the jurisdiction of the Commission between the Arkansas Department of Finance and Administration and taxpayers. The rules provide: (1) definitions; (2) a statement of organization and operations; (3) information for public guidance and requests under the Freedom of Information Act; (4) general organizational requirements; (5) rulemaking procedures; and (6) information on adjudication proceedings.
California—Legislation Expands State's Family Rights Act
The California Family Rights Act has been expanded by legislation. The Act makes it an unlawful employment practice for a California public employer or an employer with five or more employees to refuse to grant a request from an employee who meets specified requirements to take up to a total of 12 workweeks in any 12-month period for family care and medical leave. Assembly Bill 1041 expands the Act regarding the class of people for whom an employee may take leave to care for to include a designated person. This is defined as any individual related by blood or whose association with the employee is the equivalent of a family relationship. The bill authorizes a designated person to be identified at the time the employee requests the leave. The bill also authorizes an employer to limit an employee to one designated person per 12-month period. In addition, the bill expands the definition of the term family member in the Healthy Workplaces, Health Families Act of 2014 to include a designated person identified by the employee at the time the employee requests paid sick days, subject to limitation by the employer [L. 2022, A1041].
California—Los Angeles City Council Passes Fair Work Week Ordinance
On November 22, 2022, the Los Angeles City Council voted to approve its proposed Fair Work Week Ordinance, which will require certain employers to provide schedules to employees two weeks in advance. The ordinance defines an employer as any retail business (in the North American Industry Classification System categories 44 through 45) with 300 employees globally. Individuals employed through staffing agencies and employees of subsidiaries and franchises count toward this total. Employees are considered anyone working in the City at least two hours or more per week for an employer and who is entitled to be paid at least minimum wage under state law. The ordinance is to take effect in April 2023.
California—Unpublished Opinion Rules Real Estate Salesperson Not Employee for Wage Claim Purposes
The U.S. Court of Appeals for the Fifth Circuit, in an unpublished opinion, ruled that the applicable test or governing standard for determining whether a real estate salesperson is an “employee” or an “independent contractor” for wage and hour purposes is not determined under Cal. Unemp. Ins. Cd. § 2778. The provision specifically exempts certain occupational classifications from the application of the ABC test. One of the exempted occupations is "real estate licensee." As a result, the exemption, the Borello multi-factor test would be applied. The court determined that Whitlach was not an employee and therefore was not eligible to pursue claims under the Labor Code Private Attorney General Act of 2004 (PAGA). This opinion is unpublished and may not be cited or relied upon in future opinions.
California—Berkeley City Council Votes on Fair Workweek Ordinance
On November 21, 2022, the Berkeley City Council voted on its Fair Workweek Ordinance to: (1) enact and enforce fair and equitable employment scheduling practices in the City; (2) provide the working people of Berkeley with protections that ensure employer scheduling practices do not unreasonably prevent workers from attending to their families, health, education, and other obligations; and (3) require employers needing additional hours, whether temporary or permanent, to first offer those hours to current part-time employees. Near the end of the meeting, the Council voted to approve the addition of the ordinance to the City's Municipal Code.
California—Anaheim Minimum Wage for Hospitality Workers Increases in 2023
A spokesperson for the City of Anaheim has confirmed with Thomson Reuters that the minimum wage for employees of hospitality employers under Measure L will increase from $18 per hour to $19.40 per hour in 2023. Measure L applies to any for‐profit business that is a hotel, motel, amusement or theme park, or any retail store, restaurant, or other venue offering food or beverages, that is within or adjacent to a hotel, motel, or amusement or theme park and that: (1) is located in whole or in part within the Disneyland or Anaheim Resort Specific Plan Zones, (2) has an agreement to receive a tax rebate from the City, or is a hospitality industry contractor or tenant of an entity that has such an agreement, and (3) has 25 or more employees. Measure L calls for an adjustment in 2023 based on either 2% or the actual official rate of inflation, whichever is higher. Based on the Consumer Price Index for the Los Angeles-Long Beach-Anaheim area, the wage rate rises by 7.8% or $1.40 per hour.
California—Court of Appeals Rules that FMCSA Preempts Truck Drivers from State's Meal and Breaks Laws
The U.S. Court of Appeals for the Ninth Circuit has ruled that the Federal Motor Carrier Safety Administration (FMCSA), under the Motor Carrier Safety Act of 1984, preemption of California's meal and break rules applies retroactively under the test set forth in Landgraf v. USI FilmProducts, 511 U.S. 244, 263-64, 280 (1994). The court applied only the first step of the test and found that Congress intended that the FMSCA have the authority to preempt state laws including as it applies to pending lawsuits regardless of when the underlying conduct occurred. The court found there was no need to apply the second step of the test [Valiente, et al., v. Swift Transportation Co. of Arizona, LLC, CA9, Dkt. No. 21-55456, 11/23/2022].
California—First Amendment Based ABC Test Challenge by Canvassing Organizations Fail
Organizations that provided or used canvassers as doorknockers and signature gatherers brought action against California Attorney General, alleging that California statute setting forth the test for classifying workers as employees or independent contractors violated the First Amendment by subjecting canvassers to a test that would make them employees, even though similar occupations like newspaper carrier were exempt from that test, and that the law prevented organizations from hiring or using canvassers because treating canvassers as employees, rather than independent contractors, was not economically or administratively feasible. The court ruled that the statute regulated economic activity and not speech for the purposes of the First Amendment challenge. Further, the court found that the statute did not have a direct impact on speech and therefore did not violate the First Amendment. Finally, the court held that the fact that direct sales persons, newspaper distributors, and newspaper carriers were exempt from ABC test was not content-based discrimination and did not cause statute to violate the First Amendment [Mobilize the Message, LLC et al. v. Bonta, CA9, Dkt. No. 21-55855, 10/11/2022].
Colorado—Respiratory Syncytial Virus (RSV) and Flu Now Eligible for Public Health Emergency Leave
The Colorado Department of Labor and Employment (CDLE) has announced that Public Health Emergency (PHE) leave provisions expanded to include flu and Respiratory Syncytial Virus (RSV). All employers, regardless of size or industry, are required to provide full-time employees with up to 80 hours of paid PHE leave. PHE leave is usable for a range of PHE-related needs, not just for confirmed cases.
Delaware—Wage Theft Legislation Cracks down Multiple Offenses
Senate Bill 35, signed into law by Governor Carney in October, sets the conviction of two or more instances of wage theft to a class E felony charge. A class E felony sentence includes imprisonment of up to five years and may also include the imposition of fines. The new law clarifies worker classification requirements, defines "wages", and outlines each action an employer may take that constitutes wage theft. These actions include: (1) employing an individual without reporting that worker's employment to the appropriate agencies, (2) failure to withhold state and federal taxes from that employee's pay, (3) paying an employee wages less than the minimum wage established by federal and state law, (4) misclassifying workers as independent contractors for purposes of avoiding wage, tax, or workers' compensation requirements, and (5) knowingly conspiring to assist, advise, or facilitate any of the listed violations. Finally, the law outlines the government's notification requirements, as well as potential punishments for violations of the law [L. 2022, S35].
District of Columbia—Recently Signed Government Family Bereavement Leave Emergency Act Expires February 20, 2023
On November 22, 2022, District of Columbia Mayor Muriel Bowser signed and enacted the "District Government Family Bereavement Leave Second Emergency 19 Amendment Act of 2022." The Act says that an employee is entitled to 10 days of bereavement leave without loss of pay, leave, or service credit when the employee suffers a stillbirth or the employee suffers the death of the employee’s child under the age of 21 years. The leave authorized must be exercised within 60 days after the death of the employee’s child or after the employee suffers a stillbirth. Also, the leave does not count toward the unpaid medical and family leave entitlements in the District of Columbia Family and Medical Leave Act of 1990. Furthermore, the leave is in addition to paid medical or family leave otherwise available to the employee. The emergency legislation expires on February 20, 2023 [L. 2022, B24-1075].
Hawaii—Bulk Filing System Registration Form Updated
The Hawaii Department of Taxation (DOT) has revised Form EF-2 (Hawaii Bulk Filing System Registration). The form is used by direct transmitters, reporting agents, and software developers to submit a new or amended registration for bulk filing of HW-14 (Withholding Periodic Tax Return), W-2 information, and/or ACH debit bulk withholding payments. Once the form is completed, it may be emailed to Tax.Efile.Test.Bulk@hawaii. gov.
Idaho—Employer Compliance Department Systems Offline through Monday, December 5, 2023
The Idaho Industrial Commission's Employer Compliance Department has announced that it is moving case management and business processes to a new business application. The online systems will be down for maintenance until December 6, 2023 at 8:00 am MST [Idaho Industrial Commission, Important Announcement].
Idaho—2023 Unemployment Taxable Wage Base Increases
The Idaho Department of Labor (DOL) has announced that the unemployment taxable wage base will increase from $46,500 to $49,900 in 2023. The DOL has already announced its unemployment tax rates for next year (see Payroll Updates, 11/18/22).
Illinois—Illinois Announces Pandemic Federal Unemployment Loan To Be Paid Off
On November 29, 2022, Illinois Governor JB Pritzker announced that an agreement with bipartisan members of the General Assembly has been reached that will pay off the remaining $1.36 billion unemployment insurance loan balance as incurred during the COVID-19 pandemic. Illinois is one of the five tax jurisdictions with outstanding federal loans that failed to repay the funds by November 10, 2022, making it a FUTA credit reduction state in 2022. The move will save an estimated $20 million in interest costs that would be due September 2023 and preserve the full FUTA credit in the future [Governor Pritzker Announces Historic Agreement to Eliminate Pandemic Unemployment Debt, Protect Benefits for Workers, 11/29/2022].
Indiana—Paper Filers of Form WH-3 Need to Complete New Schedule in 2023
Beginning in 2023, paper filers of Form WH-3 (Annual Withholding Reconciliation Form) must also complete the new Schedule IN-WH3. This schedule will also be required for prior year returns. All employers must file the WH-3 by January 31 each year. Form WH-3 must be filed even if no tax is due or to report no employees for that time period. Late filed WH-3s are subject to a penalty of $10 per withholding document. Any business that files more than 25 Forms W-2, W-2G, or 1099-R statements must file them electronically.
Iowa—Withholding Tables Updated for 2023
The Iowa Department of Revenue (IDR) has issued the tax table instructions, withholding formula and instructions, and wage bracket tables for 2023. Employers use the withholding formula to determine how much income tax to withhold from wages. Alternatively, the wage bracket tables may be used to make this determination. Beginning January 1, 2023, federal withholding is no longer subtracted from taxable wages for Iowa withholding calculations. Standard deductions, rates, and brackets have been updated for 2023. Iowa withholding will be determined using a four-step formula (previously, five steps where the first step subtracted federal withholding for the pay period) as provided in the Withholding Formula and Instructions. The Withholding Tax Rates and Brackets are now used in Step 2 rather than Step 3 and feature only four percentages (4.4%, 4.82%, 5.7%, and 6%) as opposed to nine for the 2022 tax year.
Iowa—DOR Releases Updated Third Party Entity Authorized Representative Form
The Iowa Department of Revenue (DOR) has released an updated Third Party Authorized Representative Form for taxpayers to appoint representatives to act on their behalf with the DOR. The updated form provides specific fields for tax types, including withholding tax. Completed forms must be mailed to the DOR at Registration Services, Iowa Department of Revenue, PO Box 10470, Des Moines, IA 50306-0470 or faxed to (515) 281-3906.
Iowa—State Announces 2023 Interest Rate, Individual Income Tax Brackets and No Standard Deduction
The Iowa Department of Revenue has announced the 2023 interest rate, individual income tax brackets, and that there will be no standard deduction amount for the 2023 tax year (applicable for taxes due in 2024). Effective January 1, 2023, the annual interest rate for overdue taxes and refunds in 2023 will be 6% and the monthly interest rate will be at 0.5%. The interest rate was 5% for 2022. Effective with tax year 2023, there are two sets of individual income tax brackets. One set applies to married taxpayers filing jointly, and the other set is for all other taxpayers. For each of these two sets there are four tax brackets. The standard deduction amount has been repealed effective with tax year 2023 [2023 Interest Rate, Deduction, and Income Tax Brackets, Iowa Dept. of Rev., 11/21/2022].
Kentucky—Occupational Tax Changes Announced for Madisonville, Olive Hill
Madisonville and Olive Hill have increased their Occupational Tax rates in 2022. Madisonville's increase from 1.5% to 2.5%, beginning July 1, 2022, places the locality at the highest rate in the commonwealth, and Olive Hill has increased its rate from 1.5% to 2% as of October 1, 2022.
Maine—Portland Minimum Wage Increases to $14 in 2023
The City of Portland has announced that the minimum wage will increase to $14 per hour. The cash minimum wage for tipped workers who earn over $100 in tips per month will increase to $7.00 per hour.
Massachusetts—Combined Transit Pass and Commuter Highway Vehicle Exclusion Amount Now Conforms to Federal
Massachusetts has adopted the increase in the federal monthly exclusion amount for the combined value of transit pass and commuter highway vehicle transportation benefits for the 2022 tax year. Recent legislation has amended Mass. Gen. Laws Ch. 62 § 1(c) to conform to Code Sec. 132(f) for taxable years beginning on or after January 1, 2022. For tax years beginning in 2022, the Massachusetts monthly exclusion amounts are $280 for employer-provided parking and $280 for the combined value of the transit pass and commuter highway vehicle transportation benefits. Transit pass and commuter highway vehicle transportation benefits are combined for purposes of sharing the $280 maximum monthly exclusion [Massachusetts Technical Information Release No. 22-13, 11/28/2022].
Minnesota—2023 Unemployment Tax Information
Effective January 1, 2023, the taxable wage base for unemployment tax purposes will increase from $38,000 to $40,000. Tax rates for experienced employers will range from 0.0% to 8.9%. The minimum base tax rate is 0.10% and the maximum base tax rate is 0.50% for 2023. Tax rates for new employers vary by industry and will range from 1.0% to 8.9% in 2023. An additional assessment will not be applied in 2023 as prescribed by Senate Bill 2677. Taxpayers can view a full breakdown of unemployment tax calculations on the Minnesota Unemployment Insurance website. Employers will receive 2023 tax rate notices by December 15 [Minnesota Unemployment Insurance Program website, Overview of 2023 Tax Rates].
Minnesota—Income Tax Information Released for 2023
The Minnesota Department of Revenue has set the inflation-adjusted personal income tax rate brackets, standard deduction and dependent exemption amounts for tax year 2023. The brackets are adjusted annually for inflation and apply to tax year 2023. These amounts will be used to revise the income tax withholding tables for 2023, which have yet to be released. For tax year 2023, the state’s individual income tax brackets will change by 7.081% from tax year 2022. The standard deductions for 2023 are as follows: (1) Married Filing Joint standard deduction, $27,650, (2) Married Filing Separate standard deduction, $13,825, (3) Single standard deduction, $13,825, and (4) Head of Household standard deduction, $20,800. The dependent exemption will be $4,800 in 2023 [News release: Minnesota income tax brackets, standard deduction and dependent exemption amounts for 2023, Minn. Dept. Rev., 11/29/2022;Tax Year 2023 Inflation-Adjusted Amounts In Minnesota Statutes, Minn. Dept. Rev., 11/03/2022].
Missouri—Updated Employer's Tax Guide with 2023 Withholding Tables Has Been Released
The Missouri Department of Revenue has released a revised Employer's Tax Guide, including withholding tables and other pertinent information for 2023. It also includes Form MO W-4, Employee's Withholding Certificate (updated October 2022). For 2023, the withholding rate on supplemental wages will be 4.95% (currently, 5.3%). There are now 8 withholding percentage brackets, ranging from 0% to 4.95%. The annual standard deduction is $13,850 ($12,950 in 2022). The withholding tax brackets have been adjusted in accordance with the recently signed legislation reducing income tax rates.
New Mexico—Withholding Tax Publication Updated for 2023 with Updated Percentage Tables
The New Mexico Taxation and Revenue Department has issued revised Publication FYI -104 that provides information on 2023 changes for New Mexico withholding tax. There are no longer adjustments made to New Mexico withholding due to the number of allowances taken on pre-2020 Federal Form W-4. However, employees should continue to use the correct number of withholding allowances if using pre-2020 Federal Form W-4. Employees may continue to use any Federal Form W-4 for New Mexico withholding but the New Mexico state withholding tables found in this publication should be used. The FYI-104 contains general information for New Mexico withholding tax; changes to forms beginning in 2020; who must withhold; the amount to be withheld; how to use the withholding tax tables; how to report and pay withholding taxes; additional withholding amounts; withholding on gambling winnings; annual withholding statements; annual reconciliation; annual withholding statements; withholding from irregular or supplemental wages or fringe benefits; special situations; and the New Mexico state wage withholding tables effective January 1, 2023. The supplemental tax rate remains 5.9% [FYI -104: New Mexico Withholding Tax Effective January 1, 2023, N.M. Tax. and Rev. Dept., 11/01/2022].
New York—New Legislation Prohibits Disciplinary Action for Legally Protected Absences From Work
Newly amended legislation, effective Feb. 19, 2023, provides that employers may not punish employees for any lawful absences. The amended law specifically provides that employers are prohibited from “assessing any demerit, occurrence, any other point, or deductions from an allotted bank of time, which subjects or could subject an employee to disciplinary action” for using “any legally protected absence pursuant to federal, local, or state law.” Further, employers are prohibited from firing, threatening, or otherwise discriminating or retaliating against employees for using their legally permitted time off. The Department of Labor (DOL) can issue penalties up to $10,000 for initial violations of the law, and up to $20,000 for subsequent violations. The DOL can also order reinstatement of the employee, with back pay and front pay, as well as liquidated damages [L. 2022, S1958-A].
Oregon—Rule Change for Employee Count for PFML Program Purposes
The Oregon Paid Leave program has released a special bulletin advising, effective January 1, 2023, that there is a change in how employees are counted for the purposes of determining an employer's size. The change was due to public feedback that the current method was confusing. The new method now aligns to how employees are counted for unemployment purposes. Previously, employer size was based on the average number of employees over the previous four quarters using payroll reports. Under the new rule, employers count their size using the average number of employees on the 12th of each month from the previous twelve months. This means there are twelve numbers to calculate the average instead of just four. A guide and chart are available on the new method.
Pennsylvania—Two Bills Amend Child Labor Requirements
Pennsylvania Governor Wolf has signed two bills that make changes to child labor law requirements. Work permit change: New legislation (House Bill 1829), effective January 2, 2023, removes the requirement that a minor seeking a work permit sign the permit in front of the issuing officer. It also allows the issuing officer to perform the required examination of the minor seeking a work permit via a video conference or other electronic means. Currently, minors must complete the process in-person [L. 2021, H1829]. Volunteer emergency services: Senate Bill 1027 permits a minor aged 17 or older, to engage in training for an interior firefighting module with live burns if: (1) permission has been granted by a fire chief and a parent or guardian; and (2) the minor is under the supervision of a credentialed Pennsylvania State Fire Academy instructor. The bill was signed November 3, 2022 and takes effect immediately.
Washington—2023 Paid Family and Medical Leave Paycheck Insert and Poster Released
The Washington Paid Family and Medical Leave program has released the 2023 versions of the paycheck insert and poster for use by employers. The paycheck insert notes that workers may be eligible for up to 12 weeks of paid leave (in some cases, 18 weeks) if they work at least 820 hours. The PFML contribution rate is 0.8% of wages which may be shared by the worker and the employer. Employers are required to post the PFML notice in an accessible location for workers.
Washington—PFML Employer's Toolkit Updated for 2023
The Washington Paid Family and Leave (PFML) program has updated the Employer's Toolkit. The updated guidance provides information regarding employer responsibilities, premiums, reporting requirements, benefits, and sample documentation for compliance. For 2023, the premium is 0.8% of each employee’s gross wages, minus tips. An online calculator is available to estimate premiums. Reports are due on a quarterly basis on April 30, July 31, October 31, and January 31, 2024. The benefit is generally up to 90% percent of an employee's weekly wage, with a maximum of $1,427 per week in 2023.
West Virginia—2023 Unemployment Tax Rate Information
A spokesperson for Workforce West Virginia has told Thomson Reuters that unemployment tax rates for experienced employers continue to range from 1.5% to 8.5% in 2022. Employers with a debit balance (paid out more in unemployment benefit claims than paid in unemployment tax) are assessed a surtax of 1.0%. The tax rates for these employers range from 6.5% to 8.5%, including the surtax. The new employer rate remains at 2.7%, except that foreign businesses engaged in the construction trades will pay 8.5%. The wage base remains $9,000 in 2023.
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