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October 17 - 21 Compliance Updates

Oct 24, 2022 12:53:34 PM
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"Future of Payroll Survey" Says No Time Like the Present to Look Ahead for Keeping Up With Industry Trends

According to a recent global payroll survey,  the "future of payroll starts today" for understanding the industry's major challenges, which include global workforces, hybrid work, increased compliance concerns, and other important issues.

The survey was conducted by Ceridian in partnership with the American Payroll Association (APA) and the Global Payroll Management Institute (GPMI). In June and July of 2022, APA and GPMI members and subscribers were surveyed online. There were 882 respondents from 23 countries around the globe that represent companies of all sizes.

Payroll of the past. Payroll has come a long way since the ratification of the 16th Amendment to the U.S. Constitution in 1913, which gives Congress the "power to lay and collect taxes on incomes." The Social Security Act of 1935 followed, where contributions to the Old-Age, Survivors, and Disability program were imposed through a payroll tax on both employers and employees. Then, the Fair Labor Standards Act of 1938 (FLSA) established minimum wage, overtime pay, recordkeeping, and youth employment standards.

Many changes. Since these major amendments and laws involving payroll, there has been a myriad of changes to them and the addition of many others. There are also state and local laws, rules, regulations, and guidance related to payroll. Organizations with an international presence are required to know each country's payroll laws in which they operate in order to maintain compliance and avoid audits, penalties, and lawsuits. 

Payroll is typically a business's greatest expense, which encompasses several different areas of a business's operations. Technology has affected how many payroll professionals (either in-house or third parties) operate. Understanding, awareness, and compliance are paramount. It is also important to keep up with industry trends and efficiencies that can allow more flexibility to analyze data to support business objectives.

Payroll strategies are more prevalent in businesses. In March of 2022, a Global Payroll Survey from Ernst & Young (EY) said that for "organizations to reduce risk, increase compliance and build a leading operational model, creating and documenting an organization-wide formal payroll strategy is essential." That survey showed that 67% of respondents said they had a formalized payroll strategy in place (up from 61% in 2019).

"Formalizing a payroll strategy is really important for the success of an organization and its workers because it's going to help those payroll practitioners embrace new technologies that offer them access to payroll data [and] the means to measure their success...by utilizing modern systems that help give them access to that information...so they can overcome those obstacles they face today," Weckman said.

Workers want more from payroll. Also, a recent Price Waterhouse Coopers (PwC) survey showed that employees want more from their payroll experience, where some 76% of respondents stressed about their finances said they would be attracted to another employer that cares more about their financial well-being.

"One option employers should consider is prioritizing employees' financial wellness," Weckman noted.

Payroll revolution? According to Ceridian's "Future of Payroll" survey, "changing business and employee expectations will spur a payroll revolution." It is becoming more common for a payroll practitioner to need to identify industry trends, share insights, and even resolve business-critical issues. The survey suggests that the future of payroll involves using this vital part of a business's operations as part of its overall strategy for success.

"Payroll is going to move from that traditional back office sort of function to a more strategic business partner," Weckman said on payroll's future.

Pain points. According to the survey's respondents, the biggest payroll pain points are compliance challenges (43%), managing the complexities of multi-jurisdictional payroll (34%), and inefficient processes (27%). Despite those responses, the survey discovered that just over half (54%) of respondents said they use cloud-based technology to process payroll. The survey urges organizations to modernize their payroll systems, methods and people to take advantage of payroll's complete potential.

"With the advances in technology, the cloud is the future," Weckman said, adding the following three benefits to moving to the cloud: (1) scalability, (2) resiliency, and (3) elevation of security, which Weckman believes is the most important reason. 

Strategic systems. The survey explains that having payroll systems that promote efficiency and visibility aids in helping organizations become more strategic, but its findings show that 85% of organizations experience limitations with their payroll technologies. Respondents said that the main limitation is the payroll system not having the necessary features (39%). Other limitations include not utilizing the payroll software to its fullest capacity (37%) and the payroll technology requiring too much manual effort (34%).

Issues with payroll data. The survey also showed that 69% of the respondents noted widespread payroll data issues, with the most commonly cited data challenge as not having the right tools to properly analyze the data. The survey says that "this is especially problematic because unlocking insights from data, like overall labor costs or absenteeism trends, should be an essential part of a more strategic payroll function."

"There's still a lot of work to be done, to prepare organizations," Weckman said. She noted that such preparations "will be driven by technology and advancing technology solutions" and added that "we're on the cusp" of these changes.

"Payroll professionals are sitting on a wealth of data," Weckman stated. "If they can get access to slice and dice it, analyze it, they would put themselves in a position where they can now make business decisions based on that data...that are going to drive value within their organizations."

Key performance indicators. The survey notes that there are opportunities to better analyze payroll performance by using key performance indicators (KPIs), which allows payroll teams to make assessments of their strengths and weaknesses. The survey explains that not using these metrics allows for more risk in organizations that includes inefficiencies, compliance issues and employee dissatisfaction.

However, nearly one-third of respondents said their organization does not have any KPIs in place. A little more than half (52%) of those surveyed said that their organization is measuring payroll accuracy and just 37% have on-time delivery of payroll as a KPI. Another survey question showed that only 33% of respondents are tracking the time to process and commit payroll.

Weckman noted that a primary reason for the lack of KPIs is employers getting "access to data for which to build those KPIs on," in addition to it not being "top of mind for every organization" to measure the success of a business's payroll process. 

Improving employee experience. The survey points to "employee-centric payroll methods" as an important part of talent acquisition and employee retention. Of the organizations that responded, 61% said that they are focused on understanding and resolving pay equity issues and 49% have pay transparency initiatives.

"Things like pay equity are top of mind for employers and when they socialize that to their employees it creates this level of comfort knowing that their organization cares about them," Weckman explained, adding that such engagement could be around opportunities or pay, among other things.

The survey points to the importance of "fair-pay initiatives" for employee retention and talent acquisition since more than half (55%) of respondents to Ceridian's "2022 Pulse of Talent: Competing for Talent Takes More Than Pay" survey noted that pay is what employees value most at a job.

On-demand pay. On-demand pay has been a topic that has been creating some buzz around the payroll industry in recent years. It is also referred to as earned or early wage access (EWA). In July 2022, a national research study found that 79% of those surveyed want to be able to have their wages paid the same day that they work. This 79% number was 30% higher than when the same research study was conducted in 2018.

"With today's economic conditions, giving employees access to their earned wages when they need it has proven to increase engagement." Weckman began. "And it helps to attract top talent, retain that top talent, and inherently increase that engagement of your top talent."

But, the Ceridian survey found that there is a divide between what employees want and what employers are planning to provide when it comes to EWA. Some 71% of respondents said that their organizations do not have plans to implement on-demand pay. However, a separate Ceridian/Harris poll conducted in the summer of 2021 showed that 78% of the workers surveyed said EWA would make them more loyal to their employers.

The "Future of Payroll" survey adds that only 27% of respondents planning to offer EWA are doing so to increase employee satisfaction and engagement. The survey suggests there is a disconnect between employer and employee on EWA's importance for employee engagement, which can cost a business money. According to Gallup’s State of the Workplace: 2022 Report, low engagement from employees at the workplace costs the global economy $7.8 trillion.

Quiet quitting and firing. There can be noticeable effects on an organization's workforce if the employer and its employees are not on the same page. According to a September 6, 2022 post on Gallup, the global analytics and advice firm, “quiet quitters make up at least 50% of the U.S. workforce – probably more.” Quiet quitting is where  an employee merely meets the very basics of his or her job description at work.

A recent LinkedIn poll also shows that quiet firing can be a problem too with more than 80% of respondents admitting that they have either faced it personally or have seen it before in their workplace.

The workforce is changing regarding how they feel about what their company does and how the business goes about doing it, especially since the COVID-19 pandemic. Some employers are reacting by embracing ESG (environmental, social, and governance) and DEI (diversity, equity, and inclusion). Weckman believes that employers should treat DEI "as a key element to their culture" that results in "higher engagement."

This may mean more employee benefit options for mental and financial wellness, among other choices related to payroll.

"One thing that is also starting to gain some traction is this concept of wellness days," Weckman said regarding other trending employee benefit options. "You come back more rejuvenated and thus more productive," she noted regarding the mutual benefit for both employers and employees.

Increasing employee satisfaction. “Gone are the days when basic health insurance, paid time off, and retirement plans were enough to attract workers," explains Seth Ros, the General Manager of Dayforce Wallet at Ceridian. "The market is demanding that employers step up and offer modern benefits like on-demand pay to meet employees’ needs,” he added.

The survey believes that the payroll professional of the future will play a more strategic role in developing an understanding of how pay impacts a business, which includes the employee experience. 

Weckman said that technology is a key factor in increasing employee satisfaction. "How do you reach these individuals?" she asked, explaining that smartphones and web applications can be used on a regular basis to engage and share with employees. "Fresh innovative tools can also be very engaging," she added and provided a personal example where a family member recently needed access to a benefit card and was able to access it via her mobile device.

Succession planning. A basic definition of succession planning would be the process of developing action plans for individuals to assume critical positions within an organization. Ceridian's survey cited U.S. data compiled from Zippia showing that the average age of a payroll administrator is 48 and that "organizations may be challenged to find the payroll professionals needed to replace these individuals if they leave the workforce or when other turnover occurs."

Speakers at a July 2019 American Payroll Association seminar in New York City discussing the gig economy said a work shortfall may be coming (aside from the added issues due to the COVID-19 pandemic) down the road as more workers from the Baby Boomer generation (born around 1946 to 1964) retire. The seminar noted that Generation X (born around 1965 to 1980) is a notably smaller population, which may make for issues in filling available positions in various areas of an organization, including payroll.

Succession planning can be important to keep departments in an organization running when there are changes in the workforce, but 43% of respondents to the "Future of Payroll" survey said their organization does not use succession planning and 21% do not know if such planning is in place. 

Skills training. Another area the survey researched was skills training for employees in payroll departments, where a bit more than half (54%) of respondents said their organization is offering development training and nearly one-quarter (24%) said their organization is not doing anything to prepare for the future. However, 78% of respondents said "if their job duties were to change as payroll technology becomes more sophisticated, they would want to adapt their new job duties and stay in their current role."

Payroll disruption. A disruptor is typically some type of innovation that changes how business is conducted. Two notable examples of market disruptors are personal computers and smartphones, which have led to more innovation. 

Due in part to the COVID-19 pandemic, the payroll world became more digital and virtual from 2020 to 2022. Remote working is more the norm instead of the exception. How do payroll departments manage these new ways of working with more hybrid and flexible work arrangements emerging?

Potential disruptors. Also, employees are providing feedback to employers regarding needs and wants when it comes to payroll, which includes benefits like EWA and financial and mental well-being tools. The U.S. Treasury Department's "General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals" includes a proposal to clarify the tax treatment of on-demand pay arrangements.

The proposal cautions employers about constructive receipt of wages, suggests businesses offering EWA to maintain either a daily or miscellaneous payroll period, and encourages withholding and paying employment taxes on EWA wages on a daily basis. This will require some innovation in payroll departments and from third-party payroll providers.

Gig work innovation. Another disruptor may be the use of gig workers in an organization. Gig workers may not be considered employees. They may work part-time or seasonal. Since the last financial crisis in 2008 and 2009, this type of task-based labor has become more popular –especially with the younger generations. Gig work evolved more during the COVID-19 pandemic. There are laws and lawsuits over specific types of gig workers that can directly affect payroll, which includes app-based drivers and worker classification.

New worker classification rules. On October 11, 2022, the U.S. Department of Labor (DOL) announced a proposed worker classification rule. The DOL says that the framework is more consistent with longstanding judicial precedent on which employers have relied to classify workers as employees or independent contractors under the FLSA.

The proposed rule comes after a federal district court vacated the DOL's rules to delay and withdraw the current worker classification rule in effect, which was put into place under the prior Presidential Administration and utilizes an "economic realities" test to determine employee or independent contractor status.

According to a recent Reuters News article the DOL's rule could affect the gig worker economy, particularly ride-sharing businesses like Lyft and Uber, and other task-based delivery companies like DoorDash. The article cites analysts' figures that suggest these businesses' costs could increase by 20% to 30% if their worker classification status changes to an employee.

Addressing the future of payroll. Payroll professionals are increasingly asked to do more than just process payroll. As the complexities of the industry continue to increase, so will the complexities of the role of a payroll professional. The "Future of Payroll" survey makes a number of suggestions for organizations to help overcome obstacles in payroll that include replacing legacy systems and investing in technology that can help to simplify multi-jurisdictional and global payroll. 

The survey also emphasizes that payroll teams have the data necessary to deliver strategic business insights, provide the necessary tools to analyze data that supports business objectives, and set and track KPIs to understand performance and continued improvement. 

In addition, the survey suggests prioritizing financial wellness with EWA and implementing a meaningful succession plan. The present is a great time to plan for the future of payroll with forward-thinking methods that include embracing changing technologies and empowering employees.

DHS Extends Form I-9 Requirement Flexibility

The Department of Homeland Security (DHS) and U.S. Immigration and Customs Enforcement (ICE) have issued an announcement regarding an extension of the flexibility previously provided in complying with requirements related to Form I-9, Employment Eligibility Verification. The extension has been granted due to continuing issues with COVID-19 [DHS Extends Form I-9 Requirement Flexibility (effective November 1, 2022), 10/19/2022].

The extension was originally set to expire October 31, 2022. However, the DHS has extended the Form I-9 flexibility until July 31, 2023.

The original ICE news release from March 20, 2020, has information on how to obtain, remotely inspect, and retain copies of the identity and employment eligibility documents to complete Section 2 of Form I-9. Employers should also consult ICE's guidance for clarification on this provision.

Employers should begin the in-person verification of identity and employment eligibility documentation for employees who were hired on or after March 20, 2020, and who presented such documents for remote inspection in reliance on the flexibilities first announced in March 2020.

Employers must monitor further announcements on DHS' and ICE's Workforce Enforcement announcements about when the extensions end and normal operations resume.

E-Verify participants who meet the criteria and choose the remote inspection option should continue to follow current guidance and create cases for their new hires within three business days from the date of hire. 

DOL Hands Sour Grapes to Farm That Favored H-2A Visa Holders

An investigation by the U.S. Department of Labor's (DOL) Wage and Hour Division (WHD), the DOL resulted in the recovery of $54,935 in lost wages for farmworkers after an investigation found that a grape grower gave workers employed under the H-2A agricultural worker program more hours and better wages than those provided to U.S. workers, in violation of federal law. The WHD investigation found that Vino Farms gave preferential treatment to the H-2A workers provided by Premium Employment Services of Salinas, and failed to offer equal pay and work hours to 14 U.S.-based workers supplied by a second contractor, Perez Farming Services of Lodi. In addition to paying lost wages, Vino Farms was assessed $21,257 in civil money penalties.

WHD District Director Susana Blanco commented that: "The H-2A program provides agricultural employers the ability to hire foreign farm workers after attempts to hire U.S.-based workers are unsuccessful. The agricultural community must understand that the wages and hours afforded to migrant workers in the H-2A program cannot shortchange U.S. workers."

The release notes In fiscal years 2020 and 2021, the WHD investigated 735 cases with H-2A violations and recovered more than $9 million in back wages for more than 13,000 workers. It also assessed $9.5 million in civil penalties to employers for violations of federal labor laws [Wage and Hour Division, News Release No. 22-2028-SAN, 10/18/2022].

IRS Says Watch Out for ERC Scams, E-File Your 3rd Quarter Returns and Tax Records Available to Disaster Victims

On October 19, the IRS issued news releases and a Tax Tip of interest to employers and payroll practitioners. 

Employee Retention Credit Scam Alert. In IR 2022-183, the IRS is warning employers to watch out for third parties advising them to claim the Employee Retention Credit (ERC), when they may not actually qualify for the credit by disregarding the taxpayer's eligibility or proper calculation of the credit. These bad actors will ask for a large up-front fee based on the amount of a refund without explaining that wage deductions claimed on the business' federal income tax return must be reduced by the amount of the credit.

Employers should file an amended return to correct overstated wage deductions if qualified wages were deducted before an employment tax return was filed claiming the credit. 

Businesses should be on guard and not fall prey to advertised schemes and direct solicitations. Employers remain liable for the reporting and payment of employment tax regardless if a third-party should administer the taxes on their behalf. Erroneous claiming of the ERC will lead to not only repaying the credit but will include penalties and interest.

For further information on how to claim the ERC..

IRS Urges Electronic filing of Third Quarter Payroll Returns. In IR 2022-184, the IRS is urging employers to file the third quarter payroll tax return, due October 31, electronically. The IRS points out that electronic filing is a time-saving method as well as a secure way to file returns. With e-filing, forms and schedules are auto-populated and step-by-step calculations are performed. A receipt is generated for e-filed returns within 24 hours.

Payroll tax returns can be filed by purchasing IRS-approved software or by hiring a tax professional to file returns. 

Tax record retrieval after a disaster. The IRS has issued Tax Tip 2022-160 to advise businesses that rebuilding records should be a priority after a disaster. The IRS is reminding businesses that free tax return transcripts can be obtained through Get Transcript on irs.gov or by calling the IRS at (800) 908-9946. 

A Reminder of Employer Obligations for the Upcoming Election Day

Election Day is coming up on November 8, and employees in many states must be allowed sufficient time off to vote. For 2022, every seat in the U.S. House of Representatives is being voted on, as well as 34 seats in the U.S. Senate. There will also be contests at the state level for a number of governors and mayors. Local elections are also being held, as well as 140 state ballot items, including the most abortion related measures on record. 

There are no federal laws requiring employers to give their employees time off to vote, but several states have laws that allow such time to employees in one form or another.

An employer is not required to give employees additional time off under most state voting laws if employees have enough time during their off hours to vote (usually two to three hours during non-working time when the polls are open). Several states have laws that discuss: (1) how much leave is required; (2) what notice employees must provide to their employer; (3) whether the employer may specify the hours that employees may vote; and (4) whether time off to vote is paid or unpaid. 

Note: There is a Quick Reference Chart called "Time off to vote," that discusses each state's parameters for paid time off for employees to vote.

In some states, employers risk fines or possible jail time for not giving employees the required time off.

States that allow employees to take paid time off to vote. The following states allow employees to take paid time off to vote unless the employee has a certain amount of time before or after work to vote or subject to other conditions: Alaska, Arizona, California, Colorado, District of Columbia, Illinois, Iowa, Kansas, Maryland, Minnesota, Missouri, Nebraska, Nevada, New York, Oklahoma, Puerto Rico, South Dakota, Tennessee, Texas, Utah, West Virginia, and Wyoming. Three specify that employers may not subject an employee to a penalty for taking time off to vote: Kentucky, New Mexico, and Wisconsin.

Employees in California are allowed up to two hours of paid time off to vote unless they have sufficient non-working time to vote. Wyoming allows employees one hour off to vote. The hour must be other than a meal period. Employers may specify the time off that it will give to an employee. Wage deductions are prohibited.

Minnesota allows employees to take paid time off to vote for as long as it reasonably takes to vote. States that allow employees to take unpaid time off to vote. The following states allow employees to take unpaid time off to vote unless the employee has a certain amount of time to vote before or after work: Alabama, Arkansas, Georgia, Illinois, Kentucky (employer may specify the hours employee can take off), Massachusetts (only employees in certain industries), and Wisconsin (employer may specify the hours employee can take off).

New York employers must permit employees to take up to two hours of paid time off to vote. The employee is required to provide at least two days notice prior to election.

States with no specific time off to vote laws. The following states have no specific time off to vote laws: Delaware, Florida, Idaho, Indiana, Louisiana, Maine, Michigan, Mississippi, Montana, New Hampshire, New Jersey, North Carolina, Oregon, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and Washington.  

Proposed federal legislation. On April 11, 2022, H.R. 7489, the Time Off to Vote Act, was introduced. The bill would require an employer, upon an employee's request, to provide at least two consecutive hours of paid leave to vote in a federal election. The employer would be permitted to designate the hours off, but exclude any breaks. The bill has been referred to the House Committee on Education and Labor. 

IRS Announces 2023 Inflation Adjustments for Several Key Tax Figures

The IRS has announced the cost-of-living adjustments (COLA) for the items below for the 2023 tax year [Rev Proc 2022-38, IR 2022-182].

Qualified transportation fringe benefits. For 2023, an employee will be able to exclude up to $300 a month for qualified parking expenses, and up to $300 per month or the combined value of transit passes and transportation in a commuter highway vehicle ($280 per month in 2022).

Long-term care premiums. Amounts paid for insurance that covers qualified long-term care services are treated as medical expenses up to specified dollar limits that vary with the age of the taxpayer as of the close of the tax year. For a taxpayer age 40 or younger, the 2023 limit increases to $480 ($450 in 2022); older than 40 but not more than 50, $890 ($850 in 2022); older than 50 but not more than 60, $1,790 ($1,690 in 2022); older than 60 but not more than 70, $4,770 ($4,510 in 2022); and older than 70, $5,960 ($5,640 in 2022).

Payments received under qualified long-term care insurance. Amounts received under a qualified long-term care insurance contract are generally excludable from income as amounts received for personal injuries and sickness, subject to a per diem limitation, which will be $420 in 2023 ($390 in 2022). For further information on long-term care insurance.

Archer MSAs. For Archer MSA purposes, in 2023, a “high deductible health plan” will be a health plan that: (1) in the case of self-only coverage, the annual deductible is at least $2,650 and not more than $3,950  (up from $2,450 and $3,700 in 2022); in the case of family coverage, the annual deductible is at least $5,300 and not more than $7,900 (up from $4,950 and $7,400 in 2022); and (2) the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $5,300 for self-only coverage (up from $4,950 in 2022), and $9,650 for family coverage (up from $9,050 in 2022). For further information on Archer MSAs.

Limit on health FSA salary reduction contributions under a cafeteria plan. For purposes of determining whether a health flexible spending account (health FSA) benefit will be a “qualified benefit” under the 2023 plan year, the cafeteria plan must provide that an employee may not elect to have salary reduction contributions in excess of $3,050 made to the health FSA ($2,850 in 2022). The maximum carryover amount for a cafeteria plan that permits carryover is $610 ($570 in 2022). 

Small employer health insurance credit. An eligible small employer may claim, subject to a phaseout, a credit equal to 50% of nonelective contributions for health insurance for its employees. The credit is reduced under certain circumstances, including if the average annual full-time equivalent wages per employee are more than $30,700 for 2023 ($28,700 in 2022). 

Qualified small employer HRA. For 2023, a qualified small employer HRA is an arrangement which, among other requirements, makes payments and reimbursements for qualifying medical care expenses of an eligible employee that do not exceed $5,850 (up from $5,450 for 2022), or $11,800 in the case of an arrangement that also provides for payments or reimbursements for family members of the employee (up from $11,050 for 2022).

Adoption exclusion. Employer-provided adoption assistance may be excluded from an eligible employee's income for purposes of FIT and FITW if the benefits are provided as part of a qualified adoption assistance program. The adoption exclusion per child (whether or not he or she has special needs) will be limited to $15,950 in 2023 (up from $14,890 in 2022). The adoption exclusion will begin to phase out for taxpayers in 2023 with adjusted gross income (AGI) of over $239,230, and will be fully eliminated when AGI reaches $279,230. These figures were $223,410 and $263,410, respectively, in the 2022 tax year.

Wage levy. The weekly amount of an individual’s salary, wages, etc. exempt from levy for 2023 is $4,700 multiplied by the number of the taxpayer’s dependents for the tax year of the levy ($4,400 in 2022), plus the taxpayer’s standard deduction, divided by 52.

Property exempt from levy. The value of property exempt from levy under (fuel, provisions, furniture, and other household personal effects, as well as arms for personal use, livestock, and poultry) may not exceed $10,810 for levies in 2023 (up from $10,090 in 2022). The value of property exempt from levy under (books and tools necessary for the trade, business, or profession of the taxpayer) may not exceed $5,400 for levies issued in 2023 (up from $5,050 in 2022). For further information on tax levies.

Deemed substantiation for reimbursement of employee expenses. Under an optional deemed substantiation rule, eligible employers in the pipeline construction industry can provide reimbursements that will be treated as made under an accountable plan to employees who furnish welding rigs or mechanics rigs. For calendar year 2023, an eligible employer may pay up to $20 per hour ($19 per hour in 2022) for rig-related expenses. If the employer provides fuel or otherwise reimburses fuel expenses, an eligible employer may pay up to $13 per hour ($12 per hour in 2022).

Foreign earned income exclusion. Individuals who have a tax home in a foreign country, and who satisfy either a bona fide foreign residence test or a foreign physical presence test, may elect to exclude a certain amount of their foreign earned income from gross income in a tax year. The foreign earned income exclusion amount will increase from $112,000 to $120,000 in 2023. 

IRS Releases Affordable Care Act Forms for 2022

The IRS has released the 2022 versions of the following Affordable Care Act (ACA) information returns: (1) Form 1094-B (Transmittal of Health Coverage Information Returns), (2) (Health Coverage), (3) Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns), and (4) Form 1095 -C (Employer-Provided Health Insurance Offer and Coverage).

Background. The "B" forms are used to report certain information to the IRS and taxpayers about individuals who had minimum essential coverage (MEC). Employers with 50 or more full-time employees (including full-time equivalent employees) in the previous year (also known as applicable large employers or ALEs) file the "C" forms to provide information to the IRS about their employees with respect to offers and enrollment in health coverage. 

"B" forms. There are no substantive changes to Form 1094-B and Form 1095-B. The attached "Instructions for Recipient" of Form 1095-B removes references to individual shared responsibility payment that applied for tax years prior to 2019. 

"C" forms. There are no substantive changes to Forms 1094-C and 1095-C. References to the individual responsibility payment have been removed.

Deadline. For forms filed in 2023 reporting coverage provided in calendar year 2022, Forms 1094-B, 1095-B, 1094-C, and 1095-C are required to be filed by February 28, 2023, or March 31, 2023, if filing electronically.

Draft instructions. The IRS has released draft versions of the 2022 Instructions for Forms 1094-B and 1095-B and 2022 Instructions for Forms 1094-C and 1095-C.

The 2022 draft instructions for Forms 1094-B and 1095-B and Forms 1094-C and 1095-C reflect increased penalties for the failure to furnish and file ACA forms and statements. The draft instructions for Forms 1094-C and 1095-C also reflect the 4980H affordability percentage for 2022 of 9.83%. There are no further substantive changes to both 2022 draft instructions.

The draft instructions note that electronic filing is required if the filer has 250 or more information returns to file. However, the electronic threshold pertains to a single type of information return. For example, if you have 500 Forms 1095-B and 100 Forms 1095-C to file, only Form 1095-B is required to be filed electronically. Forms 1095-C may be filed on paper.

Note: A provision of the Taxpayer First Act of 2019 authorized the reduction of the 250 form threshold for 2022 tax year returns. However, until final regulations are issued, and only if they are effective for the 2022 tax year for the 2023 filing year, the threshold will remain 250 information returns. 

IRS Announces Maximum Information Reporting Penalty Amounts on Late Filed 2023 Returns

The IRS has announced the penalty amounts for failure to file correct 2023 information returns, and failure to furnish correct 2023 payee statements in 2024.

Code Sec. 6721 imposes a penalty on a taxpayer for failing to file a correct information return.

Code Sec. 6722 imposes a penalty for failure to furnish a payee statement (employee's copy of Form W-2, recipient's Form 1099) on time, failure to include all information required to be shown on the statement, or including incorrect information.

The maximum penalty is lower if the taxpayer is a small business. A small business is a taxpayer with average annual gross receipts for the most recent three tax years of $5 million or less.

The amount of the penalty depends on when the return or statement is corrected.

  • The penalty on 2023 information returns required to be filed in 2024, and 2023 payee statements required to be furnished in 2024, that are corrected within 30 days, is $60 per return/statement (currently, $50), up to a maximum penalty of $630,500 ($220,500 for small businesses). The maximum penalty is $588,500 on 2022 information returns and payee statements ($206,000 for small businesses).
  • The penalty on 2023 information returns required to be filed in 2024, and 2023 payee statements required to be furnished in 2024, that are corrected later than 30 days after the due date but before August 1st, is $120 per return/statement (currently, $110), up to a maximum penalty of $1,891,500 ($630,500 for small businesses). The maximum penalty is $1,766,000 on 2022 information returns and payee statements ($588,500 for small businesses).
  • The penalty on 2023 information returns required to be filed in 2024, and 2023 payee statements required to be furnished in 2024, that are not corrected by August 1 (or if no return or statement is filed at all), is $310 per return/statement ($290 for 2022 information returns), up to a maximum penalty of $3,783,000 ($1,891,500 for small businesses). The maximum penalty is $3,532,500 on 2022 information returns and payee statements ($1,177,500 for small businesses).

Intentional disregard penalty. The intentional disregard penalty for 2023 information returns required to be filed in 2024, and 2023 payee statements required to be furnished in 2024, is $630 per return/statement, or if greater, 10% of the amount required to be shown on the return/statement (without any limit on the maximum penalty in a calendar year). The intentional disregard penalty for 2022 information returns required to be filed in 2023, and 2022 payee statements required to be furnished in 2023, is $580 per return/statement, or if greater, 10% of the amount required to be shown on the return/statement (without any limit on the maximum penalty in a calendar year).

Code Sec. 6651(a) imposes a penalty for failure to file a tax return, e.g. Form 941 or Form 940. For tax returns filed in 2023, the minimum penalty for failure to file a tax return within 60 days of the due date is $485 ($450 for tax returns filed in 2022).

Proposed Independent Contractor Rule Faces Opposition

On October 13, 2022, the U.S. Department of Labor's Wage and Hour Division release proposed rules rescinding a Trump-era final rule (the 2021 final rule) on worker classification and opting for worker classification factors as established in prior court rulings. 

The Timeline 

If this all seems familiar, it's because it is. In a curious case of déja vu, due to a changing of administration, the DOL reversed its position on worker classification based on decades of court rulings and then did an about-face, reinstating its prior stance.

  • Before the 2021 final rule. Prior to the Trump-era final rule, a Supreme Court ruling was relied upon for worker classification cases. The U.S. Supreme Court established five factors for economic dependence in United States v. Silk, 331 U.S. 704, 717-19 (1947). Those five factors were: (1) the nature and degree of the potential employer's control; (2) the permanency of the worker's relationship with the potential employer; (3) the amount of the worker's investment in facilities, equipment, or helpers; (4) the amount of skill, initiative, judgment, or foresight required for the worker's services; and (5) the worker's opportunities for profit or loss. These five factors have been commonly referred to as the Silk factors. Many courts also considered a sixth factor,  whether the worker's services are integral to the company's business. Historically, the DOL has interpreted and enforced the Fair Labor Standards Act (FLSA) based on these factors. 
  • The 2021 final rule. In January 2021, the DOL, under the Trump administration, released final rules on worker classification. The final rules used two core factors of the economic reality test. Those two core factors are weighed more than other factors. The two core factors are: (1) the nature and degree of control over the work, and (2) the worker’s opportunity for profit or loss based on initiative and/or investment. Under the 2021 final rule, three other factors may be considered should the two core factors not point to the same classification. Those three factors are: (1) the amount of skill required for the work; (2) the degree of permanence of the working relationship between the worker and the potential employer; and (3) whether the work is part of an integrated unit of production. The 2021 final rule is effective March 8, 2021. When the 2021 final rule was proposed, it received nearly 2,000 comments. Groups such as the Women's Law Project, the Employee Rights Group, and the Legal Aid Society voiced their concern for the rule, noting that the rule significantly narrowed the definition of "employee," and noted the deviation from prior DOL guidance such as Administrator's Interpretation No. 2015-1 that stated many factors must be considered in worker classification. The interpretation was subsequently withdrawn in 2017 under the Trump administration. 
  • Attempt to delay and rescind the 2021 final rule. In February 2021, the DOL, under the Biden administration, announced that it would delay the implementation of the independent contractor rule that was set to take effect in March 2021. The 2021 final rule had a delayed effective date of May 7, 2021. Business groups, such as the Coalition for Workforce Innovation, Associated Builders and Contractors of Southeast Texas, and Associated Builders and Contractors Inc, immediately challenged the postponed implementation date. Next, on May 5, 2021, the DOL announced it was withdrawing the 2021 final rule. Finally, in March 2022, a federal district court ruled in favor of implementing the 2021 final rule, retroactively placing it into effect as of March 8, 2021, the original effective date. Also, it should be noted that a WHD Opinion Letter, FLSA2019-6 which found that service providers (gig workers) working for a virtual marketplace company (VMC) are independent contractors under the Fair Labor Standards Act (FLSA) was withdrawn by the WHD.
  • Proposed rules released. On October 13, 2021, the DOL released the proposed rules that rescind the 2021 final rule and would require a multi-factor and "totality of the circumstances" approach towards worker classification. 

Opposition to the Proposed Rule

A number of business groups have already come out against the proposed rules and have expressed their thoughts as well as made suggestions of their own. 

Complexity of the modern workforce. The National Retail Federation (NRF) is concerned that the proposed rules do not acknowledge the complexity of the modern workplace and the "wide range of business relationships with independent contractors, including billing, facility maintenance, data analysis, delivery, marketing and other critical services." Further the NRF argues that the proposed rules would lead to "endless litigation, reduced innovation and fewer opportunities for employees and independent contractors alike." 

Extended comment period requested. In its letter, the National Association of Home Builders (NAHB) requests a 60-day extension to the 45-day comment period, citing that current comment period is insufficient for the residential construction industry to analyze and compile the information that the WHD has requested. Further. NAHB believes that the DOL has "severely underestimated the time needed to review the rule and ignores additional costs for the purposes of compliance assistance (i.e. businesses using legal counsel to review the proposal, adequate training for human resources and/or compliance officers, etc.)."

Lack of clarity in proposed rules. Chair, Evan Armstrong of the Coalition of Workforce Innovation issued the following statement expressing its concern with the proposed regulation: "CWI is disappointed the Department is proposing to repeal the updated modern independent contractor test when it has already shown benefits in terms of clarity and certainty. Returning to the older and more confusing standard does not reflect the current economy and could disrupt the livelihoods of millions of innovative, independent professionals who work in nearly every industry."

The "independent" in independent contractor. Fight for Freelancers, a coalition of self-employed professionals, says in its press release, that the proposed rule runs counter to the desire of the wants of independent contractors. 70-85% of independent contractors are satisfied with their work arrangements and prefer to "be their own bosses." Also, co-founder Debbie Abrams Kaplan warned that “If implemented, this proposed Labor Department rule will make women like me less healthy, less happy, and less financially stable...It’s frustrating because they are ignoring what we’re telling them: Hands off our businesses.” The group argues that while the DOL believes it will protect freelancers, they believe the rule will make it more difficult to be classified as a legitimate freelancer. 

Reclassification of workers and layoffs. Members of the National Court Reporters Association (NCRA) have flooded www.regulations.gov with comments on the rule with a form letter that warns that court reporters may be faced with layoffs if the rule were to be finalized. The letter explains that court reporters have the option to be treated as employees or independent contractors in the federal or state courthouses and corporations by which they are employed. The rule would remove their choice. The letter states that the final rule would lead to the reclassification of current workers, increase the costs of court reporting, and eliminate worker flexibility.

Worker Flexibility and Choice Act (HR 8442)

Perhaps Congress will be the one providing clarity on this issue.

On July 20, 2022,  Rep. Cuellar Henry (D-TX-28) introduced H.R. 8442, Worker Flexibility and Choice Act. The bipartisan bill seeks to address worker protections while simultaneously providing workers the flexibility of choosing their work arrangements. Specifically, the bill would provide certain workplace protections against discrimination, retaliation and harassment as well rights to leave under the Family and Medical Leave Act (FMLA) and also permit workers to accept or reject work offers, giving them control when and how often they work. The bill would also address withholding tax. Currently, the IRS and DOL have separate worker classification standards. HR8442 would clarify that under a "worker flexibility agreement" the worker would not be treated as an employee for both federal tax and FLSA purposes. The bill has been referred to the Committee on Education and Labor, and the Committee on Ways and Means.

Comment Period.

Currently, interested parties must submit comments on the proposed rule by November 28, 2022 at www.regulations.gov using WHD-2022-0003.

NLRB Extends Time for Submitting Comments on Proposed Joint-Employer Rule

The National Labor Relations Board (NLRB) has issued a news release announcing that it is extending the time to reply to its proposed joint-employer rule. Initially, comments from interested parties were due November 7. They are now due no later than Wednesday, December 7, 2022.

Additionally, comments replying to the comments submitted during the initial comment period must be received by the Board on or before Wednesday, December 21, 2022. Absent extraordinary circumstances, no further extensions of the comment deadline will be granted.

The Federal Register is expected to announce and publish this extension of time later this week.

Under the proposed rule announced September 6, 2022, two or more employers would be considered joint employers if they "share or codetermine those matters governing employees' essential terms and conditions of employment," such as wages, benefits and other compensation, work and scheduling, hiring and discharge, discipline, workplace health and safety, supervision, assignment, and work rules. The Board proposes to consider both direct evidence of control and evidence of reserved and indirect control over these essential terms and conditions of employment.

Public comments are invited on all aspects of the proposed rule and should be submitted either electronically to regulations.gov, or by mail or hand-delivery to Roxanne Rothschild, Executive Secretary, National Labor Relations Board, 1015 Half Street S.E., Washington, D.C. 20570-0001.

Restaurants Order to Pay $210K in Back Wages

Subsequent to an investigation by the U.S. Department of Labor's (DOL) Wage and Hour Division (WHD), a federal court has ordered two Boston restaurants to pay $195,680 in back wages and liquidated damages. The DOL investigation determined that the employers willfully failed to pay some employees the minimum wage and overtime compensation the law requires. The DOL also levied a $14,980 civil money penalty [Wage and Hour Division, News Release No. 22-1943-BOS, 10/12/2022].

The DOL found that violated the Fair Labor Standards Act by:

  • Failing to compensate some employees at the federally required minimum wage of $7.25 per hour.
  • Not paying some employees overtime when earned.
  • Failing to maintain proper records of employees' work hours, payments made to employees, and employee contact information.

WHD District Director Carlos Matos added that: "Too often, we find violations like these in the food service industry. Industry employers must understand that failing to pay minimum wage and overtime as federal law requires makes it harder for workers and their families to make ends meet and may have costly consequences for business owners."

In addition to the recovery of $97,840 in back wages and an equal amount in liquidated damages, the consent judgment enjoins the restaurant and its owners permanently from violating the FLSA's minimum wage, overtime and recordkeeping requirements. They also required to cooperate with any future investigations, prohibits them from discharging or discriminating against any employee because that employee engaged in FLSA-protected activity.

The release also notes that in fiscal year 2021, the division recovered more than $34.7 million in back wages for 29,209 food service industry workers. The Bureau of Labor Statistics projects there were 1.2 million job openings in the accommodations and food service industry in August 2022, while 1,022,000 accommodations and food service industry workers separated from their jobs.

The consent judgment and order is available  here.

Nanny Tax and Election Worker FICA Thresholds Increasing for 2023

The Social Security Administration (SSA) has announced that the "nanny tax " threshold will increase by $200 in 2023, as will the election worker threshold [SSA website, Employment Coverage Thresholds, Coverage thresholds for domestic employees and election officials/workers].

Nanny tax. Cash remuneration paid by an employer for domestic service in the employer's private home are not FICA wages in the 2023 tax year if the amount paid during the year is less than $2,600 ($2,400 in 2022). 

Election workers. Income earned by election workers will not be subject to FICA tax in either the 2022 tax year if less than $2,200 ($2,000 in 2022). 

The SSA website has an historical listing of the nanny tax and election worker FICA tax thresholds in effect from 1994 through 2023.

DOL Investigation Nets $157K in Back Wages for Restaurant Workers

An investigation by the U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) determined that Mugen Inc. kept a percentage of their employees' tips, a minimum wage violation of the Fair Labor Standards Act. By doing so, the employer lost their right to claim a tip credit and owed the workers the difference between their paid cash wage and the federal minimum wage. Investigators also found Mugen Inc. failed to keep an accurate record of hours worked, provide the dates of birth for employees under the age of 19 and keep addresses for several employees, all FLSA recordkeeping violations.

The investigation resulted in the recovery of $157,287 in back wages for 65 workers.

Investigators also found that Mugen Inc. allowed three 15-year-old employees to work outside of permitted hours while school is in session, a violation of federal child labor laws. The employees worked more than 3 hours on a school day, more than 18 hours in a school week and past 7 p.m. while school was in session. The WHD assessed a $1,915 civil money penalty to address this violation.

WHD District Director Richard Blaylock commented that: "Tipped workers in the food services industry rely on their hard-earned tips to make ends meet. Tips are the property of the worker and, under no circumstances, may employers keep any part of their employees' tips. Blaylock added that "Our investigation also found Mugen Inc. employed minor-aged workers illegally. The Wage and Hour Division assessed more than $1 million in penalties and identified child labor violations in nearly 200 food service industry investigations in the last two fiscal years  We are determined to ensure the well-being and safety of young workers is not compromised, and that employers understand there can be costly consequences for failing to comply with federal child labor laws."

In fiscal year 2021, the Wage and Hour Division recovered more than $34.7 million for more than 29,000 workers in the food service industry. In 2022, the Bureau of Labor Statistics reports near record numbers of job openings and workers in the accommodations and food services industry quitting their jobs.

Blaylock warned that: "Employers who do not respect their workers' rights will likely struggle to retain and recruit the people they need to remain competitive, as workers look for opportunities with employers that do" [Wage and Hour Division. Release No. 22-1696-ATL, 10/11/2022]. 

IRS Issues Revised Paid Preparer Tax Identification Number (PTIN) Form and Related Instructions

The IRS has issued a revised Form W-12 (IRS Paid Preparer Tax Identification Number (PTIN) Application and Renewal), and the accompanying instructions to complete the form. The form is used to apply for, or renew, a PTIN.

All tax return preparers who are compensated for preparing, or assisting in the preparation of, all, or substantially all, of a U.S. federal tax return or claim for refund, must now register with the IRS to obtain a PTIN. All enrolled agents must also have a PTIN. 

To be eligible to receive a PTIN, a tax return preparer must either be an attorney, certified public accountant, enrolled agent, or registered tax return preparer. The IRS notes that employees who prepare their employer's returns are not required to sign the return as a paid preparer. Accordingly, unless they prepare other federal tax returns for compensation, they are not required to register and obtain a PTIN. There are frequently asked questions (FAQs) on these rules on the IRS website. 

PTIN Fees. In the updated instructions and new form, the IRS notes the fees required to apply for or renew a PTIN. When applying for a PTIN to prepare federal tax returns beginning calendar year 2023, the registration/renewal fee is $30.75. For registering or renewing a PTIN for 2021 or 2022, the PTIN fee is $35.95 for each year. There is no registration/renewal fee for registering or renewing a PTIN for 2020 or any other prior year. Full payment must be included with an application or the application will be rejected.

Mailing address for application. The new form and instructions also reflect a new U.S. mail service address for those submitting paper copies of the application. The completed form should now be mailed to IRS Tax Professional PTIN Processing Center, PO Box 380638, San Antonio, TX 78268.

State Payroll Tax News

Alabama—Civil Penalties Assessed Against Two Businesses Regarding Child Labor Violations

The Alabama Department of Labor has issued and collected more than $35,000 in civil monetary penalties for violations of the state's child labor laws after two businesses were issued fines of $17,800 each for multiple violations of the law. Both companies were cited for the following: three violations of employing a minor under the age of 16 in a manufacturing facility; two violations of employing a minors aged 14 or 15 in a prohibited environment; two violations of working minors under the age of 16 outside of permissible hours; one violation of failing to obtain the proper Class 1 Child Labor Certificate permit; one violation of failing to obtain the proper Class 2 Child Labor Certificate permit; and five violations of failing to obtain proper identification documents. The investigation determined that one business had employed three minors, aged 13, 15, and 15 in a prohibited manufacturing environment. All three minors were provided by a temporary employment agency. The minors were operating plastic bonding machines in a prohibited occupation and location. Two other 16-year-old employees were working without appropriate record keeping on premises. Neither business obtained any required Child Labor Certificates for any age group. The minors were not cleared by E-Verify.

Arizona—State Unemployment Tax Guide Updated

The Arizona Department of Economic Security (DES) has updated its Unemployment Insurance Tax System Welcome Guide. The guide notes that beginning January 1, 2023, employers must pay unemployment taxes on the first $8,000 in gross wages paid to employees. Other topics discussed in the Guide include successor employer liability, wages and the unemployment tax rates, reporting wages, submitting unemployment tax and wage reports, penalties, unemployment benefit claims, and more.

Arizona—Legislation Adds Workers' Compensation Notice Requirements

Arizona Senate Bill 1403, effective September 24, 2022, amends the state's workers' compensation statute that applies when an insurance company and/or a self-insuring employer receives a written notification of an injury from an injured employee who intends to file a workers' compensation claim. The written notification must be forwarded to the Industrial Commission of Arizona (ICA) within seven business days. The employer is required to inform the employee of the requirement to file a claim with the commission. The new form for the insurance company and/or a self-insuring employer to file such a written notification should be available on the ICA website. A failure to report by the insurance company and/or the self-insuring employer may result in relieving the injured workers of their requirement to file the claim within one year [L. 2022, S1403].

Arkansas—State Income Tax Consequences Under Federal COVID-19 Legislation

The Arkansas Department of Finance and Administration has released guidance regarding the state income tax consequences of benefits that Arkansas taxpayers may receive under the American Rescue Plan Act of 2021 (ARPA), which created new federal programs and extended and expanded programs created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Department has announced the following for businesses: (1) income that a business receives as a result of loan forgiveness under the Paycheck Protection Program (PPP) is not subject to Arkansas corporate and individual income tax as taxable gain that is included in the taxpayer’s gross income; (2) Emergency SBA Economic Injury Disaster Loan Grants and funds received under additional COVID-19 relief for specific organizations are subject to Arkansas individual or corporate income tax because they constitute net income of the business; and (3) employer tax credits for paid sick and family leave and the employee retention credit are not income that is subject to Arkansas corporate and individual income tax as a taxable gain that is includable in the taxpayer’s gross income. For individual income tax purposes, individual tax rebates (stimulus recovery rebate checks), the child tax credit, the earned income tax credit, the dependent care assistance credit, and the insurance premium tax credit are not subject to Arkansas individual income tax because the ARPA treats them as a credit against the taxpayer’s federal income tax obligations and not as additional taxable wages or income. Emergency rental assistance grants are subject to Arkansas individual or corporate income tax because they constitute net income. The guidance also discusses whether related business expenses under the programs are deductible.

California—Los Altos Minimum Wage Rate Increases to $17.20 Per Hour in 2023

Effective January 1, 2023, the minimum wage rate in the city of Los Altos increases from $16.40 per hour to $17.20 per hour. The 2023 minimum wage flyers will be posted around December 1, 2022. The Los Altos Minimum Wage Ordinance applies to adult and minor employees who work two or more hours per week, tips not included.

California—2023 Overtime Exemption Rates for Physicians and Computer Workers Increases

Effective January 1, 2023, computer software professionals are exempt from overtime if they are paid at least $53.80 per hour (currently, $50.00 per hour), or (1) are paid on a salary basis, (2) earn an annual salary of at least $112,065.20 (currently, $104,149.81), and (3) are paid at least $9,338.78 monthly (currently, $8,679.16). Licensed physicians and surgeons are exempt from overtime, if they are paid at least $97.99 per hour (currently, $91.07 per hour). 

Colorado—State Public Health Emergency Leave Remains in Effect

The Colorado Department of Labor and Employment (CDLE) has announced that the COVID-19 public health emergency (PHE) leave remains in effect. According to the CDLE, this leave requirement continues as long as a federal or a state "emergency" related to COVID-19 remains. Currently, both federal and state emergency declarations remain active. Based on those declarations, the requirement to provide COVID-19-related public health emergency leave will be in effect through at least February 8, 2023. There will be an update when CDLE is aware that the current PHE is ending and when the four-week end period begins.

Colorado—Tax Relief for Victims of Hurricane Ian

The Colorado Department of Revenue has announced that Colorado taxpayers impacted by Hurricane Ian now have until February 15, 2023, to file various individual and business tax returns and make tax payments, which mirrors the relief provided by the IRS at the federal level. However, this is not an automatic tax deadline waiver. Affected taxpayers who reside or have a business located in Florida must call (303) 238-SERV (7378), Monday through Friday from 8:00 a.m. to 4:30 p.m., to request the extended deadline after they receive a bill. Deadlines falling on or after September 23, 2022, and before February 15, 2023 are extended, including those with an automatic extension to October 17, 2022 for their 2021 return. The extension does not relieve taxpayers from penalties and interest for 2021 tax payments due on April 18, 2022 [CDOR to Mirror IRS Relief for Hurricane Ian Victims in Florida, Colo. Dept. Rev., 10/12/2022].

Delaware—Legislation Amends Wage Payment Requirements and Wage Theft Definition

Delaware Governor John Carney has signed two bills into law, effective October 7, 2022, that amend the state's wage payment requirements and the definition of wage theft. Senate Bill 208 clarifies that an employer is liable to an employee for liquidated damages if the employer does not make wages available on the next payday after an employee quits, resigns, is discharged, suspended, or laid off. Senate Bill 35 defines specific violations of wage payment as wage theft and provides specific penalties for these violations, including a new criminal offense of wage theft, with a mechanism for the Delaware Department of Labor to refer completed investigations to the Department of Justice for prosecution.

District of Columbia—Withholding on Lump-Sum Distributions from Retirement Plans

The District of Columbia's Office of Tax and Revenue (OTR) made an announcement about withholding on lump-sum distributions from retirement plans. The Tax Cuts and Jobs Act (TCJA) suspended personal exemptions and many itemized deductions. The OTR says that this impacted the District’s ability to produce withholding tables and encourages taxpayers to use the new 2022 tax rate schedule and the federal allowance amount for tax year 2022. The OTR adds that taxpayers should use the new rates to withhold on lump-sum distributions from retirement accounts or retirement plans. These distributions require withholding at the highest District income tax rate, which is currently 10.75%. However, withholding is not required on the following distributions: (1) any portion of a lump-sum payment that was previously subject to tax; (2) an eligible rollover distribution that is affected as a direct trustee-to-trustee transfer; or (3) rollover from an individual retirement account to a traditional or Roth individual retirement account that is affected as a direct trustee-to-trustee transfer [Dist. of Columbia Revenue Notice No. 2022-08, 10/17/2022].

Georgia—Payroll Filing Tax Relief for Hurricane Ian Victims

The Georgia Department of Revenue is providing payroll filing tax relief for victims of Hurricane Ian until February 15, 2023. This includes the quarterly payroll tax returns normally due on October 31, 2022 and on January 31, 2023. The postponement of time to file and pay does not apply to information returns in the W-2 and 1099 series; or to Forms 1042-S; or to employment tax deposits. However, penalties on deposits due on or after September 23, 2022 and before October 8, 2022, will be abated as long as the tax deposits are made by October 8, 2022 [Hurricane Ian Filing Extension, Ga. Dept. of Rev., 10/13/2022].

Illinois—Equal Pay Registration Certificate Applications to Be Submitted on Request by DOL

The Illinois Department of Labor (IDOL) began requesting Equal Pay Registration Certificates (EPRC) on March 24, 2022. Applications are due on a rolling basis pursuant to the date of notification sent to employers with 100 or more employees. The application requests will be sent to employers with more than 100 employees who are required to file a federal annual EEO-1 report with the Equal Employment Opportunity Commission. These employers are required to certify compliance with the state's Equal Pay Act by obtaining an EPRC from the IDOL by no later than March 24, 2024. For answers on the most frequently asked questions regarding the EPRC requirements, see the DOL's FAQ website.

Iowa—Regulations Amend Evidence Requirements and Representation Appointments

The Iowa Department of Revenue has adopted, effective November 9, 2022, amendments to Iowa Admin. Code § 701—7.6 (Authorized representatives, powers of attorney and representative conditions). Changes include the removal of evidence requirements for officers and employees of corporations and associations, the addition of authority categories for very small estates under Iowa Code § 633.356(2) and trusts. The rule also provides guidelines on how taxpayers could appoint an entity as an authorized representative; clarifications on signature requirements for spouses; and an authorized representative’s duty to maintain an up-to-date address with the Department.

Iowa—Regulations Adopted that Allow Tax Return Extension in Disaster Areas

The Iowa Department of Revenue has adopted, effective November 9, 2022, new Iowa Admin. Code § 701—10.8 (Tax return extension in disaster areas) that allows the Director of the Department, upon declaration of a natural disaster, to extend for a period of up to one year the due date for the filing of any tax return and may suspend any associated penalty or interest that would accrue during that period of time for any affected taxpayer whose principal residence or business is located in the covered area.

Kentucky—Hurricane Ian Tax Relief Announced

The Kentucky Department of Revenue (DOR) has announced a matching tax relief for victims of hurricane Ian as proposed by the IRS. Taxpayers will have until February 15, 2023 to file withholding payments and returns due between October 31, 2022 and January 31, 2023. Late filing and payment penalties will be waived, however, interest will not. Taxpayers are advised to label forms with red lettering detailing "Hurricane Ian" on the top margin [DOR News Release, DOR Announces Tax Relief for Taxpayers Impacted by Hurricane Ian, 10/14/2022].

Maryland—Hurricanes Fiona and Ian Tax Relief Announced

Maryland Comptroller Peter Franchot has announced that his office is following Internal Revenue Service (IRS) guidelines to extend filing and payment deadlines for various Maryland non-resident business tax returns until February 15, 2023, due to Hurricanes Fiona and Ian. The filing extension applies to residential and commercial victims of either hurricane located in the Federal Emergency Management Agency (FEMA) declared emergency zones in Florida, North Carolina, South Carolina, and Puerto Rico. Taxpayers requesting Maryland tax relief from any interest or penalty for non-resident late filing can email the Maryland Comptroller’s Office for instructions. According to the IRS guidelines, tax filing and payment deadlines falling on or after September 23, 2022, and before February 15, 2023, are postponed through February 15, 2023 [News Release, Maryland Comptroller’s Office, 10/13/2022].

Michigan—State Tax Relief for Available to Hurricane Ian Victims

The Michigan Department of Treasury (DOT) is providing tax relief for individuals and households affected by Hurricane Ian that reside or have a business anywhere in the states of Florida, North Carolina and South Carolina can request additional time to file state of Michigan tax returns and pay state of Michigan tax bills, with penalties and interest waived. The IRS recently announced tax relief for Hurricane Ian disaster survivors. Businesses unable to meet filing or payment deadlines due to this emergency should contact DOT at (517) 636-6925. In addition, affected taxpayers may write to DOT to request emergency-related tax relief. When writing, the following must be included in the correspondence: (1) the name and account number of the business taxpayer; (2) the reason for the relief request; and (3) the taxpayer address within one emergency area or the address of the tax preparer located in the emergency area. Taxpayers should send the completed correspondence to the following address: Michigan Department of Treasury, Attn: Disaster Tax Relief, Lansing, Michigan 48922. Some taxpayers may receive a preliminary assessment notice before a tax relief request is formally received by DOT. Taxpayers within the emergency area who receive these notices should contact DOT by phone to resolve [DOT, Tax Relief for Disaster Survivors of Hurricane Ian in Florida, North Carolina and South Carolina, 10/13/2022].

Nebraska—Updated Regulations Clarify Short-Term Compensation Program and Appeals Procedure

Two new updated regulations take effect Oct. 16, 2022. The first affects the state's short-term compensation (STC) program. The amendments to Neb. Admin. R. & Regs. § 19-003 update procedures for the program, and provide that the Commissioner of Labor must approve or deny an STC plan within 30 days of receiving a completed application, and must notify the STC employer of the effective date of the STC plan. Additionally, an STC plan must provide that all members of the affected unit will have their usual weekly hours worked reduced by the same percentage, which must be between 10%-60%. Amendments to Neb. Admin. R. & Regs. § 1-010 expands the hearing file for unemployment benefit appeals hearing before the Nebraska Appeal Tribunal to include relevant records from the Nebraska Department of Labor initial adjudication process. 

Nebraska—DOR Issues Publication EN for 2023; Includes Withholding Tables for 2023

The Nebraska Department of Revenue (DOR) has released the 2023 version of Circular EN, Nebraska Income Tax Withholding on Wages, Pensions and Annuities, and Gambling Winnings Paid on or after January 1, 2023. The 2023 version replaces the 2022 version. For 2023, the state annual withholding allowance is $2,140 (currently, $2,080). Withholding tax amounts in the wage bracket tables have a slight decrease from current amounts. The supplemental wage withholding rate remains 5%. Payments for income tax withholding must be made electronically if the total payments made in any prior year exceeded $5,000. Additionally, employers with 50 wage and tax statements (W-2s/1099s) are required to file those statements electronically. Employers with 25 or more employees must withhold at least 1.5% of each employee's taxable wages. A lesser amount may be withheld if the employee provides documentation such as verification of children/dependents, marital status, and/or amount of itemized deductions. The publication notes that a nonresident military spouse making the election to claim the non-Nebraska military service member's state of legal residence for tax purposes, must complete Form 9N (Nebraska Nonresident Employee Certificate) so that their employer does not withhold Nebraska income tax on the wages. Employees who complete a federal Form W-4P (Withholding Certificate for Pension or Annuity Payments) on or after January 1, 2023, must complete Form W-4N (Nebraska Employee's Nebraska Withholding Allowance Certificate) for state withholding purposes. 

Nevada—Proposed Regulation Seeks to Reduce the 2023 Unemployment Contribution Rate Schedule

The Nevada Employment Security Division (ESD) has issued a Notice of Small Business Workshop and Intent to Act Upon a Regulation to receive comments on a revised unemployment tax rate schedule for 2023. The proposed regulations seek to adopt an average unemployment contribution rate of 1.65% in 2023, as recommended by the Employment Security Council. Absent the regulation, the standard contribution rate for 2023 would be 2.95% with a 0.05% CEP assessment for an average contribution rate of 3.0%.  For all new employers – those who have less than 3 full years of experience in the Nevada UI system – the contribution rate remains fixed by statute at 2.95%, and is unaffected by the proposed regulation. A public meeting is scheduled for November 18, 2022 at 9:30 a.m. via Zoom (Webinar/Meeting ID: 854 9973 8175; Tel: (669) 900-6833). Written comments must be received by ESD on or before November 15, 2022, at the following address: Attn: Stewart Terry/MASS, Department of Employment, Training and Rehabilitation, Employment Security Division, 500 E. Third Street, Carson City, NV 89713.

New Hampshire—Fourth Quarter Unemployment Insurance Rate Information Released

Unemployment tax rates for New Hampshire employers remained unchanged for the fourth quarter of 2022. This means that unemployment tax rates for experienced employers continue to range from 0.1% to 2.7% for positive-rated employers and from 4.3% to 8.5% for negative-rated employers. The new employer tax rate remains at 2.7%. Fund balance reductions and surcharges may affect tax rates for employers in New Hampshire on a quarterly basis. For the fourth quarter of 2022, the Trust Fund has met the minimum threshold and a rate reduction of 0.5% has been implemented for employers in good standing. The Inverse Minimum Rate has also been reduced from 1.5% to 1.0% additional rate on negative rated employers paying pursuant to Schedules II and III. The reduction and inverse minimum rate are effective for the fourth quarter and are reflected in the total tax rate listed on employer’s accounts when logged into the Webtax System.

New Jersey—Specifications for Reporting W-2 Information Electronically Have Been Released

The New Jersey Division of Taxation (DOT) issued the updated specifications for electronically reporting W-2 information. The DOT provides requirements for filing Form W-2 information through e-file and reporting annual federal Form W-2 information. Generally, the state's requirements for electronic filing of W-2 information conform to specifications defined by the Social Security administration and published in their booklet Specifications for filing forms W-2 electronically" (EFW2). The specifications explain the procedure to properly file Form W-2 using Secure File Transfer Protocol (SFTP). The filing deadline is Feb. 15, 2023. [DOT, Specifications for Reporting W-2 Information Via Electronic Filing, 10/01/22]

New Mexico—Albuquerque 2023 Minimum Wage Announced

The City of Albuquerque has announced its 2023 minimum wage rates. Effective January 1, 2023, the minimum wage will be $12.50 per hour if the employee’s employer provides healthcare and/or childcare benefits to the employee during any pay period and the employer pays an amount for these benefits equal to or in excess of an annualized cost of $2,500.00. For all other employers, the 2023 minimum wage rate is also $12.50 per hour. Starting January 1, 2023, the minimum wage for tipped employees will be $7.50 per hour.

Ohio—Court Rules Administrative Remedies Required in Double Taxation Claim

The Ohio Supreme Court has ruled on a suit where two workers filed a complaint against the State of Ohio claiming double taxation by the Ohio Department of Taxation's (DOT) systemic failure to credit their individual taxpayer accounts for income taxes withheld by their employers and paid in trust to the state. The taxpayers were unable to provide a W-2 for their state tax returns for a number of reasons, including the fact their employer failed to furnish a W-2 to the employee or when the W-2 was lost or destroyed. When a taxpayer fails to provide a W-2, the DOT has the taxpayer enter zero as the amount of Ohio state withholding regardless if the employer withheld taxes and remitted the funds to the state. DOT then processes the taxpayer's state income tax return as though no state taxes were paid and assesses the amount owed. That amount is then withheld from the taxpayer's state tax refund. Ohio Tax Commissioner Jeff McClain filed a motion to dismiss the case which the Ohio State Supreme Court granted. The Tax Commissioner argued that the taxpayers failed to use the Board of Tax Appeals in their tax dispute as is the legislature's intent. The taxpayers did not exhaust administrative remedies prior to filing the suit. The taxpayer's complaint did not allege they had filed a petition for a reassessment of taxes assessed or that they pursued a refund. The taxpayers cannot assume they would fail using these remedies and skip ahead to litigation. Finally, the court agreed with the Tax Commissioner's assertion that Ohio Rev. Code Ann. § 5703.058, the statute the taxpayers rely upon in their complaint, pertains to the adoption of policies and procedures that govern payments related to state entities and not individual taxpayers [Palm v. McClain , Ohio Sup. Ct., Dkt. No. 2021-0960, 10/19/22].

Ohio—September 1, 2021 Employer Withholding Tables Remain In Effect for 2023

Withholding tables, effective September 1, 2021, will remain in effect through December 31, 2023. The tables reflect a 3% reduction in income tax rates provided in the fiscal year 2022-23 budget bill. The tax rates range from 0.501% to 5.009%.

Oklahoma—Unemployment Wage Base Increases to $25,700 in 2023

A spokesperson from the Oklahoma Employment Security Commission (OESC) has confirmed that the unemployment taxable wage base will increase from $24,800 to $25,700.

Oregon—BOLI Removes Two FAQs on the Employer Tax Credit for Agriculture Worker Overtime Pay

The Oregon Bureau of Labor and Industry (BOLI) has removed two answers from its FAQs on the Employer Tax Credit for Agriculture Worker Overtime Pay. These two questions are: (1) For salaried employees, if an employee has a set number of hours for their salary/contract and they go over these hours, will they be paid overtime? and (2) What employees are exempt from the agriculture overtime pay? BOLI notes the answers have been removed due to the complexity of the issues and employers should contact BOLI regarding the issues.

Pennsylvania—Unclaimed Property Annual Reporting Guide Released for 2022 Reporting Year

The Pennsylvania Treasury has released the Unclaimed Property Annual Reporting Guide for the 2022 reporting year. The booklet is designed to inform the business community of its reporting obligations, and includes mailing instructions, instructions on preparing reports of abandoned and unclaimed property (including information on who must report, dormancy periods, early remittance, reporting methods, negative reporting, and due diligence guidelines), instructions on delivering securities to the state treasurer, and specific instructions on reporting and delivering tangible personal property. There is also a quick reference guide and a section with answers to frequently asked questions. Reports, property, and/or remittances are due by April 15, 2023. The Treasury will accept reports beginning January 1. The dormancy period for wages and commissions (issued by check, payroll card or any other format) is two years. Payroll transactions occurring between January 1, 2020 through December 31, 2020 should appear on the holder report. The property code is MS01 for wages including wages issued by payroll card [Pennsylvania Unclaimed Property Annual Reporting Booklet for 2022].

Pennsylvania—Mayor Signs Philadelphia Employee Commuter Transit Benefit Program Ordinance

Effective December 31, 2022, Philadelphia Ordinance (Bill No. 220337), establishes an Employee Commuter Transit Benefit Program. The ordinance requires employers with 50 or more covered employees to provide mass transit and bicycle commuter benefits program. A covered employee is a worker who performs an average of at least 30 hours of work per week in the city within the previous 12 months. A mass transit expense includes a fare instrument or  transportation in a commuter highway vehicle. Qualified bicycle expenses are expenses incurred by an employee who regularly uses a bicycle for commuting purposes. Expenses include the purchase, maintenance, repair and storage expenses related to bicycle commuting, as allowed under Code Sec. 132(f)(1)(D) and Code Sec. 132(f)(5)(F). Employers are required to make available at least one of the following benefit programs: (1) election of pre-tax payroll deduction for mass transit expense or qualified bicycle expense; (2) employer-provided fare instrument; (3) any combination of (1) or (2). Amounts are at least up to federal limits.

Rhode Island—Health Insurance Mandate Filing Deadline Permanently Extended

The Rhode Island Division of Taxation has announced that the two deadlines related to the Rhode Island health insurance mandate have been permanently extended to align with federal reporting deadlines. The deadline requiring employers to distribute Internal Revenue Service (IRS) Forms 1095-B/C to their employees is permanently extended to March 2 of each year. The next such Rhode Island deadline is March 2, 2023. The deadline for the applicable entity filing of the return required by Rhode Island's health insurance mandate is permanently changed from January 31 to March 31 starting in 2023. This aligns Rhode island's guidance with the IRS's permanent Affordable Care Act (ACA) filing deadline change. The filing can be completed on the Division's Taxpayer Portal [Rhode Island Advisory No. 2022-29, 10/19/2022].

Virginia—Virginia Supreme Court Rules Individuals Are Not Joint Employers for Wage Payment Violations

The Supreme Court of Virginia ruled that joint employer liability in a collective action for unpaid wages cannot be imposed upon individuals who act directly or indirectly in the interest of an employer in relation to an employee. Clinicians filed suit, on behalf of similarly situated employees, against Christian Psychotherapy Services (CPS) for unpaid wages. CPS decided to reduce commissions of clinicians by 1% to avoid insolvency. The clinicians raised no objections at the time. The suit alleges that Jason Benedict, president of CPS' board and Cheryl Ludvik, director of CPS, knowingly failed to pay the clinicians. The plaintiffs argue that Benedict and Ludvik should be considered as employers who were liable, jointly and severally, with CPS, for the unpaid wages. The court ruled that under Va. Code Ann. § 40.1-29(J), the state legislature's intent was to provide a narrower definition of "employer' as compared to the Fair Labor Standards Act and reasoned that that the plain meaning is employed and therefore would omit individuals from joint employer liability such as Benedict and Ludvik [Cornell et al. v. Benedict et al., Va. Sup. Ct, Dkt. No. 210934, 10/13/2022].

Washington—Final Rules Adopted on Unemployment Benefits for Healthcare Workers During a Public Health Emergency

The Washington Employment Security Department has issued final rules regarding certain situations where health care workers are eligible for unemployment benefits during a public health emergency (PHE). The rules are pursuant to legislation passed in 2021 during the height of the COVID-19 pandemic. WAC 192-170-010, effective January 1, 2022, provides that a healthcare worker will be considered available for work when isolating or quarantining due to a PHE. WAC 192-320-075, effective June 28, 2021, provides that 100% of benefits will be charged against a claimant's last employer if: (1) the employer is a base-period employer; (2)  the employer is a contribution-paying employer; (3) the employer is a healthcare facility; (4) the claimant was directly involved in the delivery of health services; and (5) the claimant was terminated from work due to entering quarantine because of exposure to or contracting the disease that is the subject of the declaration of the public health emergency.

Washington—Seattle Announces $3.3 Million UberEats Settlement for Gig Worker Violations

The City of Seattle's Office of Labor Standards (OLS) has announced that it has reached a $3.3 million settlement with Uber Eats that impacts nearly 10,500 gig workers for violations related to the city's Gig Worker Premium Pay Ordinance. The ordinance requires Food Delivery Network Companies (FDNCs) to pay gig workers amounts of premium pay for online orders that have a pick-up or drop-off point in Seattle. FDNCs subject to the ordinance are those with at least 250 or more gig workers worldwide. In addition to setting premium pay rates, the ordinance also requires FDNCs to clarify which orders qualified for premium pay and provide itemization of premium pay. OLS alleged that Uber Eats failed to pay premium pay when workers went to pick-up locations and the locations were closed or the customers had canceled or already picked up their orders, and when workers picked up and delivered items from certain drug stores in Seattle. Also, OLS claimed that Uber Eats paid below the required $2.50 premium pay required in the city for 14 days in 2022. Seattle has been pursuing violations of their various gig worker ordinances. Uber settled for $3.4 million in June 2021 for alleged violations of the city's Gig Worker Paid Sick and Safe Time ordinance. 

Wyoming—Unemployment Wage Base Increases to $29,100 in 2023

A spokesperson for the Wyoming Workforce Services has confirmed that the 2023 unemployment taxable wage base will increase from $27,000 to $29,100. The 2023 contribution rate ranges for experienced employers have not yet been calculated and rate notices will be mailed on December 31, 2022. New employer rates are not publicly shared due to SUTA dumping prevention.

 

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