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On April 5, representatives from the Pennsylvania Child Support Program (PCSP) answered questions during an APA Government Relations Task Force (GRTF) Child Support and Other Garnishments subcommittee phone conference regarding the change to a one-time $50 administrative fee. Previously, employers could withhold up to 2% of the amount paid under the order. Federal and regional representatives from the Office of Child Support Enforcement (OCSE) also participated.
Answers, Clarification Provided
The following are some of the answers and clarification provided by the PCSP:
- The one-time $50 administrative fee, which took effect August 30, 2016, applies per employee, rather than per order.
- Employers are allowed to take the full, one-time $50 fee, even for orders already in place prior to the change from the 2% fee per order.
- If the employee is transferred to a different employer identification number (EIN) within a company, the employer can take the $50 fee again after the transfer. This applies as long as the EINs are not already linked within the PCSP system.
The APA’s GRTF subcommittee will organize educational materials and lobbying efforts in the future. The material will be aimed at informing state legislators about employer withholding costs in time and money and about the limitations of payroll systems. The OCSE plans to publish guidelines advising that employer fees may be deducted prior to withholding.
Read more in PayState Update and check with Pay News Now for more payroll news.
Vermont state legislators have introduced legislation in both the House of Representatives and the Senate that would create, if enacted, the most generous paid family leave (PFL) program in the country (H.B. 196, S.B. 82). The proposals include a payroll tax – the employee portion would be paid through a payroll deduction. Employers would also pay a portion of the contribution.
Program Funded Through Employer, Employee Contributions
Beginning on July 1, 2018, contributions to PFL equal to 0.75% (0.93% in the House bill) of an employee’s wages would be paid by the employer. One-half of this would be deducted from the employee’s wages and one-half would be an employer contribution. Thereafter, the Commissioner of Labor would determine the rate of the employer and employee contribution (not to exceed 1%) on a biannual basis.
Although the bills vary, in both plans the PFL program would require employers to allow employees to take up to 12 weeks of paid leave to care for a new child or for the employee’s own, or a family member’s, serious illness. Employees would become eligible for the program after working for an employer for six months. Beginning January 1, 2019, an eligible employee who earns an average weekly wage less than or equal to Vermont’s weekly livable wage would receive 90% of his or her average weekly wage.
States With Paid Family Leave Programs
Three states – California, New Jersey, and Rhode Island – and one city – San Francisco – have existing PFL programs (see The Payroll Source®, p. 7-43). New York enacted a PFL program last year that will take effect January 1, 2018.
Check back with Pay News Now as we continue to monitor the progress of the proposed legislation.
A Massachusetts bill (S.B. 1008) would place restrictions on paycard use similar to those included in the New York regulations that did not take effect on March 7, 2017. The Massachusetts bill was filed on January 19.
NY Rules Exceeded NYSDOL’s Authority
In February, the New York Industrial Board of Appeals ruled that the burdensome New York regulations regarding payment of wages by paycard and direct deposit, scheduled to take effect on March 7, 2017, were invalid and were revoked. The Board ruled that the regulations were invalid because they exceeded the New York State Department of Labor's (NYSDOL's) rulemaking authority by regulating banking services.
MA Legislature Is Not Exceeding Its Authority
The Massachusetts legislature is not overstepping its authority by proposing this legislation, but the American Payroll Association’s (APA) opposition to the proposed bill is consistent with its position on the New York regulations.
MA Bill Would Place Restrictions on Paycard Use
Massachusetts S.B. 1008 would impose a seven day cooling-off period between the time an employee requests or agrees to be paid by paycard and the time the employer takes action to issue a payment to that card. Notice and consent forms would need to be issued in multiple languages as well as free banking services would need to be provided to the paycard holders. Identical provisions in the New York regulations caused some employers to stop using paycards in New York, while card providers considered whether to cease offering their services in New York.
APA Will Comment
Currently, Massachusetts statutes and regulations on paycards only apply to employment, placement, or staffing agencies. If the legislature amends its law to regulate paycards for all employers, the APA will encourage measures that provide consumer protections for employees without threatening the viability of the payment method.
Check back with Pay News Now as we will continue to monitor the bill’s progress.
On March 24, the American Health Care Act (AHCA), which would have repealed and replaced many provisions of the Affordable Care Act (ACA), was removed from consideration by the Republican leadership in the House of Representatives. It is unclear whether Congress will attempt further changes to the ACA.
Prior to being pulled from consideration, the legislation was amended, including a Manager’s Amendment, which was added on March 20. The amendment would have accelerated the effective dates of several payroll-related provisions. Payroll-related provisions of the AHCA would have included:
• Eliminated the Employer and Individual Mandates
By eliminating the penalties associated with the employer and individual mandates, the legislation would effectively eliminate the requirements for employers to offer ACA-compliant insurance and for individuals to maintain health care coverage. This provision would be effective for months beginning after December 31, 2015.
• Revised Employer Reporting
Under the AHCA, employers would still be required to report certain health care information. The AHCA creates a new refundable tax credit for the cost of health care coverage. To track who qualifies for the tax credit, the IRS would need to know when employees were eligible for employer-sponsored insurance. Employers would be required to report, on a monthly basis, whether an employee was eligible for the employer-sponsored group health plan. The bill specifically requires this reporting on Forms W-2 beginning in months after December 31, 2019.
• Required Insurer Reporting
Under the AHCA, insurers (most likely including self-insured employers) would be required to report the health insurance coverage provided to individuals. If the insurer received an advanced premium health care tax credit on behalf of the individual, the insurer must report the coverage on a monthly basis. Insurers would also be required to furnish a statement to individuals on or before January 31 of the year following the calendar year to which such statement relates.
• Repealed the Additional Medicare Tax
The provision that would have repealed the 0.9% Additional Medicare Tax on wages in excess of $200,000 ($250,000 for joint returns) underwent several changes. The original proposal would have been effective in 2018. The Manager’s Amendment accelerated the date so that it was retroactive to the beginning of 2017 (with transition relief for employers that had already withheld the tax in 2017). An amendment on March 27 would have delayed the repeal until 2023.
• Allowed Reimbursement for Over-the-Counter Medication
The ACA excluded over-the-counter medications from the definition of qualified expenses that may be reimbursed through a health savings account (HSA), Archer medical savings account (MSA), a health flexible spending arrangement (FSA), or a health reimbursement arrangement (HRA). The AHCA would repeal that limitation in tax years beginning after December 31, 2016.
• Eliminated FSA Contribution Limits
Currently, pre-tax health FSA contributions are limited ($2,600 for 2017). The AHCA would repeal the limitation beginning in 2017.
• Increased HSA Contribution Limits
For 2017, the annual HSA contribution limit is $3,400 ($6,750 for a family). Under the AHCA, the limit would increase to the combined maximum amount of the deductible and out-of-pocket costs permitted under a high deductible health plan ($6,550 for self-only coverage and $13,100 for family coverage in 2017). This provision would be effective beginning in 2018. Also, spouses would be allowed to make catch-up contributions to the same HSA.
• Reduced Penalties for HSA and MSA Distributions
Distributions from HSAs and MSAs not used for qualified medical expenses are includible in gross income and are generally subject to an additional tax of 20% of the distributed amount. Beginning in 2017, the tax rate would be reduced to 10% of the distributions for nonqualified medical expenses from HSAs and 15% of the distributions for nonqualified medical expenses from MSAs.
• Delayed the “Cadillac tax”
The AHCA delays the effective date of the ACA’s excise tax on high cost employer-sponsored coverage (also known as the “Cadillac tax”) from 2020 until 2026.
The bill, amendments, and the original version of the bill are available online. Pay News Now will continue to track any proposed changes to the Affordable Care Act and the American Health Care Act.
The New York Industrial Board of Appeals recently ruled that the burdensome New York regulations regarding payment of wages by paycard and direct deposit, which was scheduled to take effect on March 7, 2017, are invalid and were revoked [Global Cash Card, Inc. v. Commissioner of Labor, No. 16-120, 2-16-17].
The payroll industry feared the implementation of the regulations would have severely interfered with the ability to offer paycards in New York. The use of payroll debit cards for New York employees remains generally permissible as long as certain conditions are met (e.g., employee must consent, no fee to access full wages). Employers are no longer expected to use the sample notice and consent templates that the American Payroll Association recently commented on.
The New York State Department of Labor (NYSDOL), the agency that issued the regulations, has 60 days to appeal the Board’s ruling (i.e., until April 16, 2017)
Paycard Provider Challenged Rules
Global Cash Card (GCC), a national provider of payroll debit cards, filed a petition with the Board on October 21, 2016, alleging that the regulations were invalid or unreasonable. GCC claimed the regulations exceeded the DOL’s authority and violated separation of powers between the state legislature and the executive branch of state government, were preempted by federal banking law, and included vague and unreasonable provisions.
NYSDOL Exceeded Authority
The Board agreed with GCC, finding that the regulations are invalid because they exceed the NYSDOL’s rulemaking authority by regulating banking services. The regulations go beyond New York Labor Law §192, which deals with the relationship between employers and employees, by placing restrictions on financial institutions.
Check back with Pay News Now as we continue to monitor this issue.
The Trump Administration and Congressional Republicans have made rolling back many of the rules and regulations issued during the Obama Administration one of their primary goals. Several of the regulations in question are payroll related, including raising the salary threshold for the ”white collar” exemption and Consumer Financial Protection Bureau (CFPB) rules for prepaid accounts. Whether through new legislation, executive order, or, in the case of the white collar regulations, court action, each of these regulations faces an uncertain future.
White Collar Regulations
On November 22, 2016, a federal judge issued an order preventing the increase in the white collar exemption salary levels, which was scheduled to begin on December 1, 2016, from going into effect. The U.S. Department of Justice (DOJ) appealed the injunction to the Fifth Circuit Court of Appeals before President Trump was inaugurated. On February 17, 2017, the DOJ requested an extension from March 2 until May 1 to file its reply brief. The delay was requested “to allow incoming leadership personnel adequate time to consider the issues.” If the request is granted, a decision by the appeals court is not likely until sometime this summer. Even if the court upholds the regulations, the strong political opposition from both the President and Congressional Republicans could result in additional measures to block their implementation.
CFPB Prepaid Account Regulations
On October 4, the CFPB announced it had issued its final rules on prepaid accounts. Generally, the rules are set to take effect on October 1. However, Congress has taken the first step to block these regulations. Three joint resolutions – S.J. Res. 19, H.J. Res. 62, and H.J. Res. 73 – have been introduced indicating that Congress disapproves of the CFPB’s prepaid card rule. Under the Congressional Review Act, Congress has 60 legislative days from the date that agency regulations are finalized to pass a resolution of disapproval. If one of the joint resolutions is passed and then signed by President Trump, the CFPB’s rules would be nullified.
Check back with Pay News Now as we continue to monitor developments with these regulations under the new White House administration.
If we have an employee terminate on 11.15.16 and they begin to receive severance semi-monthly for 6 months starting on 11.16.16, how would you calculate the supplemental tax withholding amount using the aggregate method? The terminated employee has requested to use the aggregate withholding rather than 25%. After the first severance payment, would you assume $0 in regular pay when aggregating with your severance payment since the pay for the pay period directly before was only severance and no regular pay? Or would you use the final regular pay amount in each of the future supplemental payments when aggregating? Also, can you alternate the method of supplemental withholding based on type of supplemental income or even differently for different employees?
Severance pay is supplemental wages and it’s up to the employer to choose the method to withhold taxes, not the employee. However, if you choose to withhold using the aggregate method, here’s how it’s calculated. If the termination day and the day when severance begins are within the same pay period, combine the two payments together to determine the taxable amount using the employee’s most recent valid Form W-4. After that, when the former employee is only receiving severance payments, take the total taxable amount of the severance pay for the pay period and calculate the taxes based on the most recent valid Form W-4. If the severance begins in a new pay period, there would be no regular pay to combine. And remember, if in the future, you have other terminated employees receiving severance, you won’t be limited to the aggregate tax withholding method. You can use the aggregate or the optional flat tax method with a current rate of 25%. It’s your choice.
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President Trump has wasted no time in following through on one of his campaign promises - dismantling the Affordable Care Act (ACA). On January 20 (the day of his inauguration), President Trump issued an executive order to “minimize the unwarranted economic and regulatory burdens” of the ACA [Executive Order 13765, 1-20-17]. The order directs federal agencies to use their discretion to waive or defer aspects of the ACA, but it does not alter employers’ health care reporting requirements. The IRS is still reviewing the executive order, but the IRS announced its first step to implement the order: Returns without health care coverage confirmed or denied will continue to be accepted.
Previously, taxpayers were instructed to indicate on their tax returns if they had health insurance. If the taxpayer did not indicate coverage, the IRS would still process the return. This year, the IRS had put a system in place that would reject tax returns if the taxpayer did not provide that information. Pursuant to the executive order’s directive to use its discretion, the IRS decided not to use the new system and will continue to allow electronic and paper returns to be accepted for processing even when a taxpayer does not indicate coverage status. These returns will be processed, and the IRS will contact taxpayers with any follow-up questions after the filing process is complete.
The IRS also reminds taxpayers that the legislative provisions of the ACA law are still in force until changed by Congress, and taxpayers are required to follow the law. Until the IRS announces further guidance, employers should continue to offer coverage and report on that coverage.
Check back with Pay News Now as we continue to monitor developments with the ACA under the new White House administration.
If an employee dies and in the same year, the Payroll Source indicate that the wages should be paid to a deceased employee's estate or legal representative. It also states that the amount of taxable income should be reported on Form 1099-MISC in the name of the beneficiary. How soon do the wages need to be paid since the family may not be able to finalize that information after the death? Is there any guidance if the family is unresponsive and we are unable to get the deceased employee's estate and name of the beneficiary? Thank you!
IRS regulations are quite clear about how deceased employee payments need to be taxed and reported, but they don’t address WHEN those payments must be made. State law often designates the amount and to whom payments can be made, but again, they don’t say WHEN.
Generally, it’s best to contact legal counsel in deceased employee payment situations because determining who has the legal right to get the money may need to be decided by a court. If a payment is made payable to an estate, an attorney will likely be handling those funds. So when are we required to make the payments owed to a deceased employee? When it has been legally determined who is to receive those payments.
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We discovered a payroll check from Dec 2015 that was voided Jan 2016. The W-2 now has a negative Federal Tax and State Tax amount. The Gross Earnings, Fica, Medi, etc. are all correct. The employee has been working part time and made enough to compensate for the negatives in all areas except Federal and State taxes. According to the General Instructions for W-2's and W-2C's you only file a Form W-2C if the Social Security and Medicare Wages need correcting. It says do not correct Federal income tax withheld. I am not sure what the best way to handle this is. Thanking you in advance for any help or guidance you can give.
A payment from a prior year that’s voided in the current year must not adjust the current year’s wages and taxes. The prior year’s adjustments must be made through a correction to the W-2 by a W-2C. You’re correct when you said a W-2C can’t correct a prior year’s federal income tax, but that’s only when the funds were actually received by the employee in the prior year.
The W-2C instructions say when the adjustment is the result of an administrative error, you can adjust the federal wages and taxes withheld. It also says an administrative error occurs only if the amount you entered in box 2 of the incorrect Form W-2 was not the amount you actually withheld. So you can fix your administrative error by filing a W-2C for last year’s incorrect W-2 and by not making any adjustments this year as a result of the voided check.
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