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October 2019 Compliance Updates
APS reports on relevant, impactful compliance updates each month to help keep you at the top of your compliance game. Updates this month include the release of minimum wage changes and state unemployment wage bases, as well as updates regarding social security number truncation. Here are your October compliance updates:
Final 2019 Employer Tip Reporting Form Released
On October 1, 2019, the IRS released the final version of Form 8027 for 2019, along with instructions on how to complete it. This form is used for employers for large food or beverage businesses to report receipts and tips, as well as determining the allocation of tips for tipped employees. Form 8027-T, which is used when filing more than one paper form, was also released on the same day. The form is to be paper-filed no later than March 2, 2020, and electronically filed no later than March 31, 2020.
IRS W-2 Verification Code Pilot Program Ends
The Form W-2 verification code pilot program, which was started in 2016, has been discontinued for the 2019 tax year. The IRS cited the reason for its cancellation is that early reporting deadlines improved the processes for wage certification and tax information. The new January 31st deadline for filing Forms W-2 allowed the agency to compare the accuracies between Forms W-2 and data on Form 1040 much quicker. The original W-2 filing deadline was March 31, 2020. The IRS released a statement on September 20, 2019, saying the earlier reporting date helped them fight fraud and identity theft. Box 9 of the 2019 Form W-2 will no longer be reserved for the 16-character verification code.
IRS Releases Draft Instructions for 2020 Misc. Income, New Form 1099-NEC
Draft instructions for reporting miscellaneous income and compensation for nonemployees were released by the IRS on September 30, 2019. The document explained in detail how the creation of the Draft 2020 Form 1099-NEC, which was released on October 15, 2019, for nonemployee compensation, has led to a redesign of the Draft 2020 Form 1099-MISC for Miscellaneous Income.
The changes will include:
- Box 7: Payer’s direct sales of at least $5,000
- Box 12: Deferrals under IRS Code Section 409A
- Box 14: Nonqualified deferred compensation income
- Box 15: State taxes withheld
- Box 17: Income earned in the state
Form 1099-NEC was last used in the tax year 1982 when it was used to report fees and commissions, as well as other compensation. The new Form 1099-NEC would greatly reduce the need for multiple reporting dates on Form 1099-MISC. A draft of the 2020 Form 1099-MISC reflecting the change has not yet been released. Forms 1099-NEC are to be filed electronically or on paper no later than February 1, 2021, per the instructions. Form 1099-MISC needs to be filed on paper by March 1, 2021, and electronically by March 31, 2021.
IRS Releases Final Version of 2019 Form 8922
The IRS released the final version of the Form 8922, which is used for reporting third-party sick pay for the 2019 tax year, was released on October 1, 2019. This form is to be filed by the third-party payer, as well as the employer, if applicable. It should include the total amounts paid in a year to employees whose sick-pay wages must be reported. The deadline to file the new form is March 2, 2020.
IRS To Release Final 2020 Withholding Methods in December
Shortly after the upcoming release of the finalized 2020 Form W-4 withholding form, instructions for calculating federal income tax withholding will be finalized, and released as Publication 15-T. The form and instructions are being revised to reflect the elimination of personal exemptions under the tax code overhaul.
Further instructions for nonresident alien employees will be issued along with the finalized 2020 Form W-4. Employees will be required to indicate nonresident alien status by writing “NRA” under the form’s Step 4c. The final version of the 2020 Form W-4 is expected to be released sometime in November. Drafts of Form W-4 and Publication 15-T that may be used to program payroll systems were released in August.
IRS Releases 2020 Electronic Filing Guidelines
On October 9, 2019, the IRS released a guide to electronic filing for the 2020 tax-processing year. The guide, which is known officially as Publication 4164, outlines procedural communication, formatting for transmissions, rules of business, and steps for validating electronically-filed returns through the modernized e-file system. This publication also includes updated sections regarding employment taxes and reporting agents. More detailed information about the program can be found on the official IRS website.
IRS Regulations For Shortening Social Security Numbers
The IRS announced that regulations allowing employers to shorten Social Security numbers on employee copies of Forms W-2 first apply to forms that are required to be furnished after Dec. 31, 2020. The truncation rules (T.D. 9861) would not apply in situations such as when an employer goes out of business in 2020 or when an employee terminated in 2020 requests their Form W-2. Employers would not be able to shorten Social Security numbers in those cases because the forms would not meet the requirement that the forms be furnished after Dec. 31, 2020.
DOL Proposes New Rules Allowing More Workers In Tip Pools
On October 8, 2019, the Department of Labor (DOL) proposed new rules that would allow non-tipped workers to participate in tip pools. Per the new proposal; employers, managers, and supervisors would be barred from keeping tips that employees receive. Civil penalties of up to $1,100 would be imposed on employers that unlawfully keep tips. You can review the proposed rule in full and submit a formal comment on the Federal Register’s website. The comment period on the proposed rules will be from October 8, 2019, to December 9, 2019.
EEOC Reporting Portal for Pay Data Will Continue Temporarily
According to the Equal Employment Opportunity Commission (EEOC), they will continue its collection of employee pay data until a court-determined response date is reached. Data collection started on July 15, 2019, for businesses with 100 employees or more, and was originally scheduled to end on September 30, 2019. Per their official statement regarding its continuance, until it reaches what the court has determined to be the target response rate, the EEOC will continue to accept Component 2 data for 2017 and 2018.
EEO-1 eligible employers should continue to submit and certify their Component 2 EEO-1 reports for 2017 and 2018 as soon as possible. The collection of wage data is not likely to last long, as the EEOC stated on September 11, 2019, it would not renew the requirement as part of its annual workplace diversity report.
The U.S. Equal Employment Opportunity Commission did not file an October status report on its efforts to collect pay data from employers. The agency instead asked a federal judge for permission to end the collection. While collecting the data, the agency is in the process of appealing the judge’s decision in the U.S. Court of Appeals for the District of Columbia Circuit, saying the decision overreached by dictating how and when the information has to be collected, and arguing that the plaintiffs weren’t actually harmed by the Trump administration’s decision to not collect the information.
The EEOC said it will keep the online pay data portal for employers data open through Nov. 11, six weeks after Sept. 30, but additional costs of $150,000 per week will be incurred after the six-week period if the collection continues.
Social Security Wage Base To Increase For 2020
The Social Security Administration (SSA) announced that the Social Security wage base is to increase from $132,900 to $137,700 for 2020. An employee who earns $137,700 will be subject to a total FICA tax of $10,534.05 ($8,537.40 + $1,996.65).
Thresholds For Domestic, Election Workers Rising in 2020
According to the SSA, coverage thresholds for domestic employees in 2020 will increase from $2,100 to $2,200; for election workers, $1,900 from $1,800. A coverage threshold is the amount of earnings that prompt coverage under the Social Security program. Earnings that are less than the threshold are not taxable under the program and do not count toward future benefits.
2019-2020 STATE TAX UNDERPAYMENT INFORMATION
Arizona’s interest rate on tax underpayments is 5% for the fourth quarter of 2019, unchanged from the third quarter.
Iowa’s interest rate on tax underpayments is 7% for 2020, unchanged from 2019.
Ohio’s interest rate for tax underpayments is 5% for 2020, unchanged from 2019.
Vermont’s interest rate on tax underpayments is to be 7.5% in 2020, up from 6.75% in 2019.
2019-2020 STATE UNEMPLOYMENT TAX RATES
California’s 2020 Unemployment Tax Rates
- Effective for 2020, just as it was in 2019, unemployment tax rates for experienced employers are to be determined with Schedule F+.
- Tax rates for experienced employers are to range from 1.5% to 6.2%, and the tax rate for new employers is to be 3.4%.
- Positively rated employers and new employers are to be assessed an employment training tax of 0.1% for 2020, also unchanged from 2019.
- Effective Jan. 1, 2020, the taxable wage base for temporary disability insurance is to be $122,909, up from $118,371 for 2019.
- The employee tax rate for coverage by the state temporary disability insurance plan is to be 1% for 2020, unchanged from 2019.
Kansas’ 2020 Unemployment Tax Rates
- Kansas unemployment tax rates are to be unchanged in 2020.
- For 2020, as in 2019, a solvency adjustment is in effect that reduces tax rates by 0.5%.
- Total tax rates are to range from zero to 4.9% for positive-rated employers and from 5.1% to 7.1% for negative-rated employers.
- For 2020, unchanged from 2019, the standard tax rate for new employers is to be 2.7% and the tax rate for new construction employers is to be 6%.
New Hampshire’s 2019 Q4 Unemployment Tax Rates
- New Hampshire’s unemployment tax rates are unchanged for the fourth quarter of 2019.
- Effective until the end of 2019, unemployment tax rates for positive-rated experienced employers are to range from 0.1% to 1.2%, with a solvency-threshold tax rate reduction of 1.5%.
- Tax rates for negative-rated experienced employers are to range from 2.8% to 7%.
- The tax rate for new employers is to be 1.2%.
Wisconsin’s 2020 Unemployment Tax Rates
- Wisconsin’s unemployment’s tax rates are unchanged for 2020.
- Unemployment tax rates for experienced employers are to be determined with Schedule D, unchanged from 2019, starting on January 1, 2020.
- For experienced employers with a taxable payroll of less than $500,000 over the 12-month period ended June 30, 2019, rates are to range from zero to 12%. This rate is to include a solvency surtax.
- For employers with a taxable payroll of at least $500,000, rates are to range from 0.05% to 12%. This rate is to include a solvency surtax.
- For 2020, the tax rate for new non-construction employers with a taxable payroll of less than $500,000 is to be 3.05%, and the rate for those with taxable payroll of at least $500,000 is to be 3.25%, unchanged from 2019.
- For new construction employers with a taxable payroll of less than $500,000, the unemployment tax rate is to be 3.3% for 2020, down from 3.75% in 2019. For those with taxable payroll of at least $500,000, the tax rate is to be 3.45%, down from 3.9%.
2020 MINIMUM WAGE CHANGES
The following states have minimum wage changes effective in 2019:
- Connecticut - $11, from $10.10; effective October 1st.
- Delaware - $9.25, from $8.75; effective October 1st.
The following states have minimum wage changes effective in 2020:
- Florida - $8.56, from $8.46; for tipped employees - $5.54, from $5.44; effective January 1st.
- Montana - $8.65, from $8.50; effective January 1st. No separate minimum cash wage for tipped workers.
2019-2020 STATE UNEMPLOYMENT WAGE BASES
The following states have new unemployment wage bases for 2020:
- Arkansas - $7,000; down from $10,000 in 2019.
- Kentucky - $10,800; up from $10,500 in 2019.
- Missouri - $11,500; down from $12,000 in 2019.
- New Mexico - $25,800; up from $24,800 in 2019.
- Oklahoma - $18,700; up from $18,100 in 2019.
- Vermont - $16,100; up from $15,600 in 2019.
The following states have unchanged wage bases for 2020:
- Wisconsin - $14,000; unchanged from 2019.
- California - $7,000; unchanged from 2019.
2020 STATE ELECTRONIC FILING RULES
Kentucky’s filing specifications for 2019 Forms W-2 and 1099 were released Oct. 22 by the state revenue department.
Employers filing more than 25 withholding statements must file electronically.
Puerto Rico’s electronic filing specifications for 2019 Forms 499R-2/W-2PR were released on October 3, 2019. All Forms 499R-2/W-2PR are required to be filed electronically using Puerto Rico’s SURI portal. Likewise, Puerto Rico’s electronic filing specifications for 2019 Forms 499R-2c/W-2cPR were released on October 9, 2019, by the territory’s Departamento de Hacienda.
The West Virginia state tax department released filing specifications for 2019 Forms W-2 on October 11, 2019. When compared to the draft, which was released on August 30, 2019, the final version decreases the maximum file size to 30,000 records. Originally, the maximum file size was 32,000 records. It also includes instructions for splitting large files. Employers filing for at least 25 employees, or that use a payroll service provider, are required by law to file electronically.
2020 State Withholding Tables and Methods
The state revenue department has announced that thresholds of amounts withheld determining an employer’s filing and payment frequency for withholding will increase in 2020. Employers are to file and pay quarterly if they withheld up to $4,780 in the look-back period, up from $4,700 in 2019. Employers are to file and pay monthly if they withheld more than $4,780 and up to $26,570, and are to file and pay eighth-monthly if they withheld more than $26,570. The higher threshold increased from $26,140 in 2019.
The state revenue department has released its new withholding formula. The value of the state standard deduction increased to $1,880 annually if an employee claims zero or one allowance on Form IA W-4, or $4,630 if an employee claims at least two allowances. The value of an allowance is to remain at $40 annually. Tax rates within the formula have not been adjusted and will continue to range from 0.33% to 8.33%.
The state revenue department announced on October 18, 2019, that the types of independent contractors that are required to adhere to North Carolina’s 4% contractor withholding requirements will be expanded in 2020. Effective January 1, 2020, the withholding requirement will apply to nonresident independent contractors, contractors who have an Individual Taxpayer Identification Number, contractors who have an expired or applied-for ITIN, and those who do not provide a valid taxpayer identification number.
Governor Signs Bill Expanding Wage-Theft Enforcement
A California multi-agency team that addresses financial crimes related to the underground economy, known as the Tax Recovery and Underground Economy (TRUE) team, has been made permanent under a bill signed by Governor Gavin Newsom on October 8, 2019. With its passing, the team will expand from Los Angeles and Sacramento to San Diego, the Bay area, and Fresno as well.The purpose of the TRUE program is to develop procedures to improve information-sharing among participating agencies and the Labor Enforcement Task Force, as well as providing investigative leads for felony-level criminal investigations and prosecutions regarding state labor, employment, licensing, insurance, and tax violations. The bill is set to go into effect on January 1, 2020.
Student-Athletes May Earn Pay For Endorsements
Governor Gavin Newsom signed a bill on September 30, 2019, which allows college student-athletes to be compensated for athletic endorsements. The provisions of the measure are set to take effect on January 1, 2023. Student-athletes are not allowed to sign an endorsement contract with provisions that conflict with the athlete’s team agreement.
However, team contracts are not legally allowed to prevent a student-athlete from endorsements when the student is not engaged in official team activities. Athletic scholarships are also not to be revoked for earning compensation or obtaining legal representation. The measure applies to postsecondary educational institutions, except community colleges, and athletic associations, conferences, or other groups or organizations that have authority over intercollegiate athletics.
Novato and Santa Rosa Adopt Minimum Wages
The city of Santa Rosa adopted a minimum-wage ordinance that is to take effect on July 1, 2020. The minimum wage for employers with at least 26 employees will be $15; and $14 for employers with 25 or fewer employees. On Jan. 1, 2021, a $15 minimum wage plus an inflation-adjusted amount is to take effect for all employers and in the following years, the minimum wage will be adjusted annually for inflation.
The ordinance will apply to workers who perform at least two hours of work within the city’s geographic boundaries. Effective January 1, 2020, the city of Novato’s hourly minimum wage will be $13 for employers with at least 26 employees and $12 for employers with fewer than 26 employees.
Denver Discusses Draft Minimum-Wage Proposal
The city of Denver, Colorado has made plans to establish a $13.80 minimum wage after discussing a proposal to heighten the living wage. More information regarding the proposal can be found on the Denver mayor’s website.
Kentucky Occupational Tax Rate Updates
The City of Ludlow, KY
The city of Ludlow, Kentucky, has increased its occupational tax rate due to an ordinance passed on September 12, 2019. The tax rate increased to 2%, up from the previous 1.5%. The change was effective upon the ordinance’s passage.
Daviess County, KY
Daviess County will increase its occupational tax rate in 2020 and in 2021, due to an ordinance passed on June 6, 2019. The tax rate will increase to 0.7% on January 1, 2020, and then to 1% on January 1, 2021.
Nevada Labor Commissioner Issues Paid-Leave Guidance
The state labor commissioner issued an advisory opinion with guidance on paid leave requirements, which are to take effect on January 1, 2020. Nevada’s specific paid leave requirements are the result of a measure signed on June 12, 2019. The measure will require employers to provide employees with paid leave in 2020.
The advisory opinion addresses questions related to the employee threshold for providing leave, the status of part-time employees with regard to paid-leave requirements, as well as leave accrual and carry-over. Also addressed are notice requirements, leave increment, and how the rate of pay for paid leave is to be calculated. The guidance provided in the advisory opinion includes:
- The 50-employee threshold above which leave must be provided includes part-time employees but not out-of-state employees.
- The 50-employee threshold requires that such employees work in Nevada for at least 20 workweeks that need not be consecutive workweeks.
- Employers already providing leave that exceeds the 0.01923 required hours are exempt from the measure’s requirements.
- Temporary, seasonal, and on-call employees are exempt.
- Front-loading of leave is allowed.
- Employees terminated and then rehired within 90 days after separation must have previously unused leave hours available for use reinstated.
Massachusetts Gives Paid Family Leave Reporting Guidance
On September 27, 2019, the Massachusetts Department of Family and Medical Leave released guidelines regarding the reporting of employee contributions to paid family leave on Form W-2. The guidance states that contributions withheld must be reported in Box 14 of Form W-2 and Box 16 of Form 1099-MISC. Employer contributions do not have to be reported, but the family leave and medical leave portions of the employee contribution must be combined into one figure.
New Mexico County Moves Up Effective Date of Paid-Leave Rule
Bernalillo County’s paid-leave ordinance will now take effect on January 1, 2020, instead of its original effective date of July 1, 2020. The ordinance was amended to change the effective date and accrual amounts based on employer size. The three July 1st dates from 2020 to 2022, when paid-leave accrual amounts are to be adjusted, were left unchanged by the commission.
Pennsylvania Seeks Approval for White-Collar Overtime Rule
On October 17, 2019, Pennsylvania’s Department of Labor and Industry announced that their overtime exemption salary threshold for white-collar employees would rise under a final regulation that was submitted for state approval. Under the final ruling, the state threshold for salaried executives, administrative, and professional workers would rise to $875 a week and $45,500 a year from the federal threshold of $455 a week and $23,660 a year.
The updated salary threshold would be phased in over three years, and would rise Jan. 1, 2020 to $684 a week and $35,568 a year; $780 a week and $40,560 a year in 2021; and to $875 and $45,500 a year in 2022. The salary threshold would be adjusted automatically every three years, starting in 2023. The regulation was sent to the state’s Independent Regulatory Review Commission and legislative oversight committees.
Rhode Island Proposes Premium-Pay Exemption for Some Employers
The Rhode Island Department of Labor and Training proposed exemptions from premium-pay rules for 24-hour animal-care facilities and publishers of daily newspapers. This proposal would amend Rhode Island laws to relieve two classes of employers from having to pay employees for overtime at one and one-half their regular rate for work on Sundays and holidays.
A notice of proposed rule-making stated the proposed exemptions would allow such employers to be on an even field without of state employers in the industry, and could result in an increase in employees. The proposal would remove an existing premium-pay exemption for employers in the freshly-prepared foods industry because the exemption is unclear and no employers that this exemption applies to are operating in Rhode Island.
Houston Airport Workers To Be Paid $12 An Hour By 2021
Airport workers in Houston are to be paid at least $12 per hour by 2021, under an executive order signed on October 9, 2019. The new city policy requires a “living wage” for airline and airport workers employed by companies doing business with the city, includes those working for subcontractors to the airlines, and concessionaires at the airports. The minimum wage would rise from the federal minimum wage of $7.25 to $10.39 in 2019, $11.22 in 2020, and $12 in 2021 and 2022 under contracts between the city and airport employers.
IRS Extends Filing, Payment Dates for Texas Storm Victims
The IRS announced that Texas employers who were victims of the storms and flooding that occurred on June 24 and 25 have until October 31, 2019, to file business tax returns and send payments. Additionally, penalties on payroll deposits due from June 25 to July 8 would be suspended as long as the deposits were made by July 9. The extensions were for employers in the counties of Cameron, Hidalgo, and Willacy, respectively.
Revised Sick Leave Mandate Approved By the San Antonio City Council
San Antonio’s revised paid sick leave ordinance will now be applicable across all businesses, regardless of size, thus signaling that all employers should be ready for implementation by December 1, 2019. All businesses will allow workers to accrue one hour of paid sick leave for every 30 hours worked up to 56 hours per year.
The original ordinance separated maximum hours of leave by employer size, giving workers at large businesses 64 hours of leave and workers at small businesses 48 hours of leave. Changes made to the ordinance were based on recommendations from a paid sick leave commission comprised of small-business owners, advocates, business groups, and labor organizations. These revisions will make the ordinance a uniform mandate for businesses of all sizes.
Seattle Mayor Proposes Minimum Wage for Lyft, Uber Drivers
In a recent budget proposal, Uber and Lyft drivers would be paid Seattle’s hourly minimum wage, plus benefits and expenses, starting on July 1, 2020. The “Fare Share” budget proposal includes new legislation to establish new minimum-wage requirements for the ride-share industry’s drivers and to add 51 cents to the cost of every Uber and Lyft ride in the city.
The fee of 51 cents would apply only to companies with at least 1 million rides in a quarter within Seattle. Currently, Uber and Lyft drivers are considered independent contractors not subject to the $16 minimum wage that Seattle’s large employers must pay employees for hours worked and do not receive the benefits that employers must provide to employees.
Seattle To Increase Minimum Wage in 2020
Effective January 1, 2020, the hourly minimum wage will increase to $16.39 for large employers, $15.75 for small employers that pay at least $2.25 toward medical benefits, or $13.50 for small employers that do not pay $2.25 toward medical benefits.
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