Flurry of Payroll Proposals in Early Federal, State Legislation

From Payroll

January 22, 2019

By Christine Pulfrey, Jamie Rathjen, Michael Trimarchi, and Jazlyn Williams

Congress returned to Capitol Hill in the first week of January and state legislatures also are getting back to work as 2019 shapes up to be a year that may bring changes to minimum wages, unemployment policies, income taxes, and other payroll-related requirements.

Federal Activity

Bills to increase the federal hourly minimum wage to $15 were introduced by congressional Democrats. One measure, the Raise the Wage Act, would gradually increase the minimum wage to $15 by 2024, phase out the lower minimum wage for tipped workers, and gradually end the subminimum wage that is paid to those with disabilities and to workers younger than 20.

Another measure would base a new national minimum wage on the federal poverty threshold for a family of four, which was $25,750 in 2019. The new national minimum would be more than $15 an hour, or about $32,300 a year.

The federal minimum wage has been $7.25 an hour since July 2009, when it rose from $6.55 an hour.

Separately, several proposals call for an increase to tax-free contributions to health savings accounts. A Senate version would increase the limits on HSA contributions to match the sum of the annual deductible and out-of-pocket expenses allowed under a high-deductible health plan.

A Senate bill (S. 137) was introduced that would raise the annual amount of tax-free employer-provided dependent-care assistance to $7,500, starting Jan. 1, 2019, from $5,000 a year. The same legislation also calls for increasing the credit for employers establishing workplace child care facilities.

Another piece of legislation would allow a credit for employers providing student loan payment assistance for employees, and a Senate bill would reduce the Puerto Rico required minimum wage and would divert Social Security payroll taxes to help employers subsidize wage payments in Puerto Rico.

Legislation to eliminate the federal income tax and replace it with a national sales tax, a proposal that is re-introduced each congressional session, also has been proposed in the 116th Congress.

Another perennial piece of legislation, the Mobile Workforce State Income Tax Simplification Act, or a version of this legislation, has yet to be introduced. The proposal, promoted for several years by a consortium of employer and employee groups, would standardize state taxation and withholding requirements for nonresident workers across states. Employers should look for a new version of this legislation to be proposed in the 116th Congress.

State Income Tax

New York’s fiscal 2020 budget proposal is to continue to implement annual tax rate decreases, but would extend the state’s highest tax rate, which was to expire in 2019, until 2024. New income tax brackets were proposed for high earners in New Mexico and Delaware, while two competing Colorado bills would reduce the state’s flat income tax rate to either 4.49 or 4.25 percent from 4.63 percent.

On the flat income tax rate bandwagon are legislators in Maryland and North Dakota, who have introduced bills to convert their states’ progressive income tax schedules to a flat rate. Another Maryland bill would increase the minimum and maximum standard deduction for single individuals. Maryland split from the federal government in retaining personal exemptions in May 2018. Michigan and Nebraska have similarly split and are retaining personal exemptions in their tax schemes.

An Alaska bill proposes a constitutional amendment to require any law reintroducing a state income tax to be approved by voters. The amendment would be voted upon at the next general election. Alaska’s income tax was repealed in 1980.

A Mississippi bill would exclude overtime pay from the state’s definition of gross income for state tax purposes.

States introducing Internal Revenue Code conformity date changes include Idaho, to Jan. 1, 2019; Minnesota, to March 31, 2018; Oregon, to Dec. 31, 2018; and Virginia, to Dec. 31, 2018.

Minnesota’s bill would preserve the deduction for qualified moving expenses, because most moving-expense reimbursements are taxable under federal law, while Oregon’s bill would remove the state’s automatic conformity to the definition of taxable income. Virginia did not previously conform to the provisions of the tax code overhaul (Pub. L. 115-97).

Additionally, a North Dakota bill would require employers filing at least 10 Forms W-2, Wage and Tax Statement, to file electronically, down from 250.

State Unemployment Insurance

Indiana, Maine, Minnesota, Montana, and Oklahoma introduced bills implementing paid family medical leave programs that determine some aspects of the program, such as covered employers and wages or benefit amounts, using definitions from state unemployment insurance law. It is possible reporting and remittance requirements for these programs, should the legislation be passed into law, would be administered in conjunction with unemployment tax reporting and remittance requirements.

A South Dakota bill would decrease unemployment tax rates under Schedule B, the lower of two tax rate schedules that the state may use to determine rates, effective starting Jan. 1, 2020. If the measure is implemented, an employer with unemployment experience that did not change from 2019 to 2020 may be assessed a lower tax rate if Schedule B remains in effect.

A New York bill would require employers that relocate outside the state to remain liable to pay unemployment tax for two quarters when workers become unemployed and receive benefits as a result of the relocation. The state would be the first to implement a measure extending an employer’s unemployment tax liability beyond when it leaves a jurisdiction.

Missouri and Virginia legislatures introduced bills that would expand electronic unemployment tax filing requirements, following the trend of several other states in recent years.

Missouri requires employers with at least 250 employees to file reports electronically. The bill would lower the filing threshold to those with at least 50 employees.

Virginia would require all employers to file electronically, eliminating the electronic filing threshold of 100 employees now in place.

In Nebraska, a proposed rule would provide employers with a positive unemployment experience rating the option to pay unemployment taxes on an annual basis rather than quarterly.

State Minimum Wage, Paid Leave

Across the country, 29 states and the District of Columbia already exceed the federal minimum wage and 16 states equal the minimum wage. Five states have no required minimum wage: Alabama, Louisiana, Mississippi, South Carolina, and Tennessee.

Legislatures in all but six states (Alabama, Florida, Louisiana, Oklahoma, Nevada, and Utah) were in session as of Jan. 22. Legislators in at least 15 states have indicated their intent to pursue minimum wage and paid leave proposals.

Paid-leave measures are being considered this year in California, Connecticut, Maine, Nebraska, New Hampshire, New York, Vermont, Virginia, and the District of Columbia. Colorado has proposals that would create tax benefits for providing leave.

Minimum wage activity has not tailed off among states so far in 2019. Colorado is debating whether to allow localities to set hourly minimum wage rates, and Hawaii, Illinois, Maryland, New Jersey, and Virginia all have proposals being considered to raise the state minimums to $15 an hour.

New Jersey Gov. Phil Murphy (D) and state lawmakers agreed Jan. 17 on a bill to raise the hourly minimum wage to $15 by 2024 for most workers.

New York and New York City have proposals submitted concerning minimum wage, call-in pay, and paid leave.

To contact the reporters on this story: Christine Pulfrey, Jamie Rathjen, Michael Trimarchi, and Jazlyn Williams in Washington. To contact the editor on this story: Michael Baer at mbaer@bloombergtax.com.

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