A blog of some of the prior week’s more important payroll stories. This week’s focus is on: the Ides of March doesn’t have to be so ominous, the latest COVID-19 relief bill gets signed into law, the 2021 Form 941 is issued by the IRS, state and local news, and more.
The Ides of March
Many will remember the famous line from William Shakespeare’s play Julius Caesar where a soothsayer gets Cesar’s attention by telling him to, “Beware the Ides of March.” It was advice Caesar did not take, and probably should have, since he was assassinated on March 15 (44 A.D.).
However, in Roman times, the Ides of March was typically known as a deadline for settling debts. This was the case for most months. The word “ides” comes from a Latin word that means to divide and the date sought to split the month.
In the U.S., March 15 used to be a day some might beware of for tax reasons because from 1918 to 1954 this date was the income tax filing deadline. Initially, it was March 1 after the 16th Amendment to the Constitution was passed in 1913. It was moved to March 15 in 1918 and then to the current April 15 deadline after 1954 by the IRS.
March 15 may be another day to beware of regarding non-qualified deferred compensation plans under Internal Revenue Code (IRC) §409A. This section was added after the American Jobs Creation Act of 2004 was signed into law and covers compensation arrangements, such as salary and bonus deferral arrangements, severance pay arrangements, taxable reimbursement arrangements, and certain in-kind benefits (i.e., club memberships and automobiles). To meet IRC §409A’s “short-term deferral” exemption, such payments must be made by March 15 of the following calendar year.
All that said, mid-March does not have to come with such an ominous feeling. After all, Daylight Savings time just started. The first quarter of 2021 is nearly finished. A new COVID-19 relief bill was just signed into law and Spring is just around the corner.
Now, let’s take a look at this past week in payroll and go over a few of the more interesting stories buzzing about in the industry.
American Rescue Plan Act (ARPA) gets signed into law. On March 11, 2021, President Biden signed his $1.9 trillion COVID-19 relief bill into law. The legislation comes with another stimulus payment and a number of other provisions that are payroll-related. The following are a few payroll bullet-points of note in the 628-page bill:
- Extends the Families First Coronavirus Relief Act (FFCRA) paid sick and family leave tax credits from March 31, 2021 (via the Consolidated Appropriations Act (CAA)) through September 30, 2021.
- Extends the Employee Retention Credit (ERC) from June 30, 2021 (via the CAA) through December 31, 2021.
- Extends unemployment provisions until September 6, 2021 (includes federal pandemic unemployment compensation (FPUC at $300 per week) and other supplemental unemployment provisions, the temporary financing of short-time compensation programs and temporary assistance for states with federal unemployment advances.
- Paycheck Protection Program (PPP) modifications allocating an additional $7.25 billion toward funding but the application period was not extended and continues to be March 31, 2021.
- Restaurant revitalization grants, shuttered venue operator grants and aviation manufacturing job protection.
- Increasing the earned income tax credit percentage and phase-out percentage from 7.65% to 15.3% in 2021.
- Dependent care assistance and an 85% subsidy for COBRA premiums paid during any period of coverage beginning April 1, 2021 through September 30, 2021.
For more details on the payroll-related provisions of ARPA, please see our Thomson Reuters Tax and Accounting blog post.
Labor Department proposing to rescind two rules. On March 11, 2021, the U.S. Department of Labor announced proposals to rescind the following two rules: (1) an independent contractor final rule that adopted the new “economic reality” to determine worker status and (2) a rule regarding joint employer relationships under the Fair Labor Standards Act (FLSA). The DOL said that the courts and DOL have not used the new “economic reality” test and FLSA text or longstanding case law does not support it. The joint employer rule was met with a lawsuit in 2020 from 17 states and the District of Columbia arguing it violated the Administrative Procedure Act. The court vacated the majority of the rule in September 2020 stating the rule was contrary to the FLSA. Public comments on the DOL’s proposed rescinding of these two rules are open until April 12, 2021.
2021 Form 941. The IRS has posted a final version of the 2021 Form 941, Employer’s Quarterly Federal Tax Return and its instructions that take into account the COVID-19 tax credit extensions provided for in the Consolidated Appropriations Act, 2021. These extensions include the paid sick and family leave tax credits (extended through first quarter 2021) and the employee retention tax credit (extended through second quarter 2021). Since ARPA has further extended these credits, the IRS will likely need to revise the 2021 Form 941 again.
IRS tax tip on repayment of deferred Social Security taxes. The IRS has issued a tax tip for employers regarding the repayment of deferred Social Security taxes for both the employer and employee share of the tax. Prior COVID-19 legislation and a Presidential Memorandum allowed for the deferral of the employer and employee portion of Social Security taxes. According to the IRS, employers can make the deferral payments through the Electronic Federal Tax Payment System (EFTPS) or by credit or debit card, money order or with a check. These payments must be separate from other tax payments to ensure they applied to the deferred payroll tax balance. IRS systems won’t recognize the payment if it is with other tax payments or sent as a deposit. The IRS explains that EFTPS will soon have a new option to select deferral payment. The employer selects deferral payment and then changes the date to the applicable tax period for the payment.
Interest rates for second quarter 2021 remain the same. The IRS announced that interest rates will remain the same in the second quarter of 2021. The rates will be: 3% for overpayments (2% in the case of a corporation); 0.5% for the portion of a corporate overpayment exceeding $10,000; 3% for underpayments; and 5% for large corporate underpayments.
State and Local News
More localities enacting hazard pay ordinances. San Francisco, California is the latest locality to announce a hazard pay ordinance the requires grocery stores and drug stores with 500 or more employees worldwide, including at least 20 employees in San Francisco, and janitorial and security contractors at these stores, to pay employees an additional five dollars per hour (up to $35 per hour) during the public health emergency related to COVID-19. If approved by San Francisco Mayor Breed, the ordinance will become effective three days after her signature. The OLSE anticipates the ordinance effective date to be March 22, 2021.
Unemployment tax rates increase. The New York State Department of Labor has posted the 2021 unemployment tax rates, which are generally higher than in 2020. The taxable wage base increases to $11,800 ($11,600 in 2020). The new employer tax rate is 4.1% (3.2% in 2020). The experienced employer tax rate range is from 2.1% to 9.9%. The re-employment services fund (RSF) continues to be 0.75% and is included in the prior mentioned new and experienced employer rates.
Legislation introduced to keep unemployment tax rate increases. The North Carolina legislature has introduced companion bills (H107 and S114) that would prevent the base unemployment rate from automatically adjusting higher for taxes due from employers in 2021 (the lowest base rate would continue to apply in 2021). The legislation would make other unemployment changes as they relate to COVID-19, including extending the non-charging of unemployment benefits against employers and waiving the waiting week for benefits.
Unemployment and Support payments extended. South Carolina Governor McMaster signed an executive order that extends its policy on COVID-19 Support Payments, which are voluntary payments by an employer to an employee where no work was performed and or no obligation of work is to be performed for the payments. The payments are considered a form of severance pay and therefore will not reduce unemployment benefits. This executive order will remain in effect for the duration of the pandemic.
Telecommuting bill signed by governor. Connecticut Governor Ned Lamont has signed legislation into law that extends the taxes paid to other states’ tax credit to workers telecommuting due to the COVID-19 pandemic for the taxable year commencing January 1, 2020. The bill also prohibits the Connecticut Department of Revenue Services (DRS) from considering the activities of any employees who worked remotely from Connecticut during the 2020 tax year solely due to COVID-19 in determining whether an employer has nexus with Connecticut for any state tax.
Final telecommuting regulations adopted. The Massachusetts Department of Revenue has adopted regulations for the sourcing of wage income for employee services performed from March 10, 2020 through 90 days after the date when the Massachusetts governor gives notice that the Massachusetts COVID-19 state of emergency is no longer in effect. the employer of such employee is not obligated to withhold Massachusetts income tax to the extent the employer remains required to withhold income tax with respect to the employee in such other state.
Hazard pay to direct care workers. New Michigan legislation appropriates federal funding allocated for coronavirus (COVID-19) relief for the continuance and enhancement of direct care worker hazard pay. The bill extends the COVID-19 direct care worker hazard pay adjustment from February 28, 2021 to September 30, 2021, and increases the amount from $2.00 additional dollars per hour to $2.25 per hour.
Filing extension for winter storm victims. The New Mexico Taxation & Revenue Department (TRD) has announced that taxpayers affected by the recent winter storms in Texas will have until June 15, 2021 to file specified returns, including Combined Report System (CRS) taxes (withholding tax). This extension is a postponement of time to file returns, pay taxes, and perform other time-sensitive acts. The extension will result in no penalty being imposed for a late filed return or for a late payment, however, interest will be imposed on late payments made.