Last Week in Payroll: Summertime Tax Tips

Summertime Tax Tips

On June 3, 2021, White House Coronavirus Response Coordinator Jeffery Zients noted that some 63% of adult Americans have received at least one coronavirus (COVID-19) vaccine and 52% of the nation’s adults are fully vaccinated.  Also, 12 U.S. states have 70% of adults with at least one vaccine and 28 states and the District of Columbia have fully vaccinated 50% or more of their adult population. As a result, a number of COVID-19 restrictions have been lifted just in time for summer.

This is welcoming news for many businesses looking to make up for lost ground since last summer – in particular hotels, restaurants, bars, and other service-related businesses. In addition, the spring college semester has ended and summer break is starting for grade school students, which means readily available seasonal workers and interns.

Let’s go over a few summertime tax tips for payroll professionals this season:

1) Interns. The U.S. Department of Labor applies a “primary beneficiary test” to determine if an intern for a “for-profit” employer is an employee for Fair Labor Standards Act (FLSA) purposes. This test includes seven factors and was updated in January 2018. Prior to that there were six factors.

2) Seasonal employment. The FLSA has different when it comes to seasonal employees in certain industries. For example, employees of an “amusement or recreational establishment, organized camp, or religious or non-profit educational conference center” are exempt from the law’s requirements as long as the employer: (1) does not operate for more than seven months in a calendar year and (2) during the previous year, the employer’s average receipts for any six months were not more than 33% of its average receipts for the other six months. Amusement or recreational establishment may include: beaches, golf courses, swimming pools, stadiums, summer camps, and zoos.

3) Youth employment: In general, the FLSA sets 14 years old as the minimum age for employment and limits the number of hours worked by minors under the age of 16. Typically, work declared hazardous by the U.S. Secretary of Labor is prohibited for minors. States also have their own laws relating to employment.  If the state law and FLSA overlap, the law that is more protective to the minor apply.

Federal News

Biden Administration budget includes paid leave and backup withholding. President Biden has released his administration’s budget proposals for fiscal year (FY) 2022 (Oct. 1, 2021 to Sept. 30, 2022). The proposals include: (1) a national paid family and medical leave program, (2) improved information reporting for backup withholding, (3) unemployment insurance modernization, and (4) increased U.S. Department of Labor enforcement.

Biden Administration issues tax proposals “Green Book.” The Department of the Treasury has issued detailed information about the Biden Administration’s tax proposals for fiscal year 2022 in its “Green Book.” Among the book’s provisions include: (1) increasing the employer provided childcare tax credit for businesses, (2) creating a new general business credit equal to 10% of the eligible expenses paid or incurred in connection with onshoring a U.S. trade or business, (3) increasing the top marginal income tax rate for high earners from 37% to 39.6%, and (4) changing self-employment taxes so that limited partners, LLC members and shareholders of S corporations who “materially participate” in their partnership, LLC or trade or business would be subject to Self-Employment Contributions Act (SECA).

Form I-9 requirement flexibility further extended.  The Department of Homeland Security (DHS) and U.S. Immigration and Customs Enforcement (ICE) have announced a further extension of the flexibility in complying with requirements related to Form I-9, Employment Eligibility Verification, due to the coronavirus (COVID-19) pandemic. This temporary guidance was set to expire May 31, 2021. Because of ongoing precautions related to COVID-19, the DHS has extended the flexibilities until August 31, 2021. The flexibilities have to do with the remote inspection of the identity and employment eligibility documents to complete section 2 of Form I-9.

Paycheck Protection Program closes. On June 1, 2021, Small Business Administrator Isabella Casillas Guzman announced the closure of the Paycheck Protection Program (PPP). Since the PPP was first introduced through the  “Coronavirus Aid, Relief, and Economic Security Act” (the CARES Act, P.L. 116-136), it has dispersed $798 billion in loans to small businesses and nonprofit organizations.

State and Local News

Back to work incentive program launched. Connecticut Governor Ned Lamont has announced the Back to Work CT Program. The program provides an incentive for long-term unemployed people in Connecticut to return to the workforce. The program is administered by the Connecticut Department of Revenue Services (DRS) with the Connecticut Department of Labor (DOL).

COVID-19 guidance updated regarding 2022 unemployment rates. The Connecticut Department of Labor (DOL) has updated its COVID-19 FAQs for taxable employers to reflect recent legislation removes coronavirus (COVID-19) pandemic layoffs from the calculation for determining unemployment tax rates. The FAQs explain that for taxable years beginning on or after January 1, 2022, benefits charged and taxable wages reported between July 1, 2019, and June 30, 2021, will not be utilized in an employer’s experience rate calculation. Further, the new employer rate calculation will not include benefits paid to claimants and taxable wages reported for calendar years 2020 and 2021.

Increase in wage theft penalties. An amendment to Illinois’ Wage Payment and Collection Act was approved by both houses of the state’s General Assembly on May 25, 2021 that would require employers who violate the Act to pay damages of 5% of the amount of any underpayment of wages, compensation, or wage supplements for each month following the date of payment during which the amount(s) owed remain unpaid. House bill 118 will immediately take effect after Illinois Governor Pritzker signs it into law.

New legislation raises wages for transportation workers. The Secure Maryland Wage Act, signed into law by Maryland Governor Hogan on May 30, 2021 and effective October 1, 2021, establishes a minimum wage for “certain employees working at a heightened security interest location,” defined as Baltimore-Washington International Thurgood Marshall Airport or Pennsylvania Station in Baltimore. Under the Act, all non-retail, non-food service, or non-car rental employees must be paid at least $13.50 per hour starting in 2022, $14.25 in 2023, $15.00 in 2024, $16.00 in 2025, and a base rate of $16.00 plus a supplemental benefit rate of at least $1.00 toward health or other benefits including paid leave starting in 2026.

Legislation adds paid sick leave obligations for employers. Massachusetts legislation establishes a COVID-19 Emergency Paid Sick Leave Fund to reimburse employers for providing employees with coronavirus (COVID-19) emergency paid sick leave. The reimbursements must be applied for between June 7, 2021 and September 30, 2021, and the remaining balance of the Fund will revert to the General Fund on November 1, 2021.

Information on special payment methods. The New Mexico Taxation and Revenue Department (TRD) has issued an informational publication on the special payment methods required by the largest taxpayers. Employers must use one of the special payment methods if their average tax liability was $25,000 or more per month during the previous calendar year for business taxes, which includes withholding tax (wage withholding tax and non-wage withholding tax). The TRD recommends that taxpayers use one of the special payment methods even if their tax liability was less than $25,000 per month but use of these payment methods is not required for those taxpayers.

Proposed legislation delays paid family and medical leave program. Legislation has been proposed that would postpone the implementation of Oregon’s Paid Family and Medical Leave Insurance program (PFMLI). The legislation proposes that contributions begin on January 1, 2023 and benefits to begin to be paid in September 2023.

Remote worker guidance. The Vermont Department of Taxes has updated its guidance for remote workers. Anyone who is a non-resident but temporarily living and working in Vermont, has an obligation to pay Vermont income taxes on the income earned while living and performing work in Vermont. This is true even if the person was in Vermont due to the coronavirus (COVID-19) pandemic, and regardless of whether the person’s employer is located inside or outside of Vermont. Individuals are subject to Vermont income tax under two circumstances: they are residents of Vermont, either by domicile or presence in the state for more than 183 days; or they earn Vermont income. Those persons who have been residing in Vermont for more than two weeks, but generally live and work in another state, are required to pay income tax on the money that is earned while in Vermont. This applies even if the person is paid by an out-of-state employer. However, for persons who live out of state, but previously commuted to Vermont and now live and work outside of Vermont, the income earned while at home is not Vermont income (even though the employer is still located in Vermont), and is not subject to Vermont income tax.

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