Misclassification of workers as independent contractors instead of employees is a nationwide problem facing not only the IRS but all 50 states. A recent audit by the nonpartisan National Employment Law Project (NELP) looked at agency audits in 25 states and found that 10 to 30 percent of employers misclassify their employees as independent contractors. And it could actually be higher than that. That equates to several million workers nationally being misclassified. This results in billions of lost tax revenue and millions of workers without wage and hour or other protections. So now the states are starting to take the matter seriously. In my October 16th blog I wrote about Alabama beginning to crack down. Now it is Rhode Island’s turn in the ring. As part of a six-agency task force the Rhode Island Division of Taxation has set up an anonymous telephone tip line to receive allegations of worker misclassification. The chairman of the Joint Task Force on the Underground Economy and Employee Misclassification is the Department of Labor and Training Director, Charles J. Fogarty. The tax fraud tip line is staffed by the Division of Taxation. The tip number is 401.574.TIPS or 401.574.8477.
The House of Representatives passed the Tax Increase Prevention Act of 2014, HR 5771. This bill has a direct effect on payroll. In 2013 we lost the parity of transit passes and parking limits because Congress didn’t get it done. Now they are trying to make up for lost time by putting the parity back into this bill for at least 2014. Unfortunately for payroll Congress still doesn’t understand that April 15th and December 31st are not interchangeable. Every time they try to correct things and retro back tax breaks they think they just have to do it by April 15th and all is okay. This bill has only just passed the house and it calls for the parity to be retroactive back to January 1, 2014. We still have to have the Senate pass the same bill, have it go through the House and Senate Conference committee to iron out any differences, re-vote on the bill and then, if passed, get it to the President to sign. Will they get it done by December 20th so most of use will have at least one payroll to process? They didn’t in 2012. In 2012 a similar bill was passed on January 1, 2013 (the legislative day was actually December 30, 2012) and signed by President Obama on January 2, 2013. Just two days short for payroll. Fortunately the IRS came to the rescue for most employers (and their own staff) with guidance for handling the situation by issuing Notice 2013-8. This guidance helped avoid a massive amount of Forms W-2c for most employers. If the same thing occurs again for 2014, it appears the IRS will issue the same guidance. We just have to wait and see. But this is a heads up that you need to prepare for this as it looks like the Senate may pass the same bill as well. We will keep you posted.
Today is Round-Up day for all the news that has crossed my desk since our last round-up at the end of November.
- California: The Employment Development Department has announced the 2015 unemployment insurance contribution, employment training tax (ETT) and state disability insurance (SDI) withholding tables and rates. The UI table in effect for 2015 is Schedule F+. The UI and ETT wage base remains $7,000. The ETT rate is 0.1%. The SDI withholding rate is 0.9% and the taxable wage base is $104,378. The maximum to withhold for each employee for SDI is $939.40.
- Chicago, Illinois: The City Council has passed an ordinance that will raise the minimum wage for all Chicago workers to $13 per hour by 2019. July 1, 2015 it will increase to $10 per hour. To $10.50 on July 1, 2016. It will increase to $11 on July 1, 2016. Then on each July 1 it will increase $1 per hour until it reaches $13 per hour on July 1, 2019
- Kansas: The 2015 income tax withholding tables have been released. They apply to wages paid on or after January 1, 2015.
- Maine: The Maine Revenue Services has released the 2015 Maine employer withholding guide.
- Maryland: The state’s 2015 SUI rates will show an increase from 2014. Table B will be used with rates ranging from 0.6% to 9.0%. The SUI wage base will remain $8,500 for 2015.
- Nebraska: The unemployment tax rates will range from 0.0% to 5.4% for 2015. The wage base will remain $9,000.
- New Mexico: The state unemployment insurance rates for 2015 will be computed based on a new benefit ratio system and will increase to a range of a minimum of 0.33% to a maximum of 6.4%. The taxable wage base will remain $23,400 for 2015.
- New York: New York has issued the New York State and Yonkers withholding tables for wages paid on or after January 1, 2015.
- South Dakota: The 2015 Unemployment Insurance rates are based on a new lower rate schedule and will range from 0.0% to 9.5%. The SUI taxable wage base will increase to $15,000. This is up from $14,000 for 2014.
- Washington: The Department of Labor & Industries has announced the final workers’ compensation insurance premiums will increase by an average of 0.8% for 2015. This is lower than the proposed 1.8% increase that was made in September of this year.
The IRS has released the Notice 1036 which gives us the early release of the percentage method tables plus the nonresident alien adjustment tables for 2015. No real massive changes just updated for the new tax year. No change to supplemental withholding either. The Notice 1036 can be found out on the IRS website.
Better late than never it seems for this year. The IRS has released the 2014 Form 940, its instructions and the Schedule A. All are available on the IRS’ website. There are no changes to the form from 2013. The seven states announced earlier in November that will have a FUTA credit reduction are indeed listed on the Schedule A. They are:
In addition, the territory of the Virgin Islands’ rate is 1.2%.
Here is our Friday round-up:
IRS: The IRS has issued clarification to the instructions for correcting taxable wages and tips subject to Additional Medicare Tax Withholding on line 11 of the Form 941-X.
Federal Child Support: Recently signed legislation requires that all states offer the option of receiving the child support withholding order electronically. The deadline to have the service set up is October 15, 2015. Currently over 30 states already offer this feature. See our blog of 11-18-14 for more details.
California: The DLSE has released the minimum wage rates that computer software employees and physicians and surgeons must receive to be considered exempt for 2015. The computer software employee’s minimum hourly rate of pay will be $41.27. This is up from $40.38 for 2014. The monthly salary will be $7,165.12 and the annual salary will be $85,981.40. The physician and surgeon’s minimum hourly rate will be $75.19 per hour. This is up from the rate of $73.57 per hour effective in 2014.
California Part 2: The state has released its 2015 meals and lodging rates.
Colorado: The minimum wage effective 1-1-15 will be $8.23 per hour. Tipped employees must receive $5.21 per hour. Wage Order Number 31 must be posted.
Maine: The SUI taxable wage base will remain $12,000 for 2015.
New Hampshire: The state is the latest that has signed a Memorandum of Understanding (MOU) with the federal Department of Labor to share and coordinate enforcement efforts in the area of misclassifying workers as independent contractors. So far 17 states have signed MOUs and agreed to work with the federal DOL to curb misclassification of employees.
New Jersey: Form W-2 and 1099 reporting guidelines for 2014 are now available.
New Jersey Part 2:
The Department of Labor and Workforce Development has released the calendar year 2015 employee TDI/FLI and SUI withholding rates. The wage base for 2015 is $32,000. The other taxes are as follows:
- Temporary Disability Insurance (TDI): employee rate will decrease to 0.25%. The maximum employee contribution will be $80.00
- Family Leave Insurance (FLI): the employee rate will decrease to 0.09%. The maximum employee contribution will be $28.80
- State Unemployment Insurance (SUI): The employee rate will remain 0.425%. This includes the Workforce Development/Supplemental Workforce Funds surcharges. The maximum employee contribution will be $136.00.
Ohio: the employer and school district withholding tax filing and payment requirements have changed, effective January 1, 2015. The change occurred on November 13, 2014. Employers are now required to file and remit payment for state and school district income tax withholding returns electronically using the Ohio Business Gateway. This requirement applies to all withholding tax returns that are filed and paid on or after January 1, 2015.
That’s our round-up for this week. We will have another round-up next Friday. To receive the news items as they happen follow us on Twitter, Facebook or LinkedIn.
Child support is going digital. President Obama has signed into law legislation that now requires all states to provide the option to receive the child support withholding orders (IWO) electronically. The deadline for the states is October 1, 2015. The electronic version of the IWO, known as the e-IWO, has been available for a couple of years through the Federal Office of Child Support Enforcement (OCSE). According to the OCSE’s website currently 32 states offer this option. These include AL, AZ, AR, CA, CO, CT, DE, DC, FL, HI, ID, IL, IN, ME, MA, MI, MO, NC, ND, NE, NJ, NY, OH, OK, OR, PA, SD, TN, TX, VA, WA, and WV. Two more states, KY, and MD are currently implementing the process.
This process allows the employer to receive the IWO (as a PDF file) through a portal directly into the employer’s computer. This is not done through email but rather through either a Secure File
Transfer Protocol (SFTP) or a File Transfer Protocol Secure (FTPS). This process allows the employer to accept or reject the IWOs electronically as well as process terminations. Large employers can implement a fully automated system. However, smaller employers can use the no programming option that is easy to implement with limited technical resources.
The OCSE is pushing for employers to sign up now to use this electronic service. For more information check out the OCSE’s webpage on Electronic Income Withholding Orders or contact William.firstname.lastname@example.org.
Once again, Friday is Round-Up Day. Here are all the various news releases from the IRS, DOL and the states that have come across my desk this week:
IRS: The IRS has corrected and re-issued Pub 509 for 2015. There were errors in the deposit schedule on page 11. You should download the new version as soon as possible.
DOL: the Department of Labor and the New Hampshire Department of Labor have signed an MOU with the goal of preventing the misclassification of workers to anything other than employees, such as independent contractor. Could audits be on the horizon?
California: The state has released the Method A and Method B withholding tables for 2015.
Kentucky: Updated wage-bracket withholding tables and the computer formula for 2015 have been released and are posted to the department’s website.
- 2015 withholding tables have been issued and are now available.
- SUI: The rates will be nudging up slightly for 2015 under Rate Schedule D but the wage base will remain $15,000. Tax rates will range from 0.74% to 6.86% and employers will continue to pay the additional 0.06% Competitive Skills Scholarship Fund surcharge for each quarter.
Maryland: The Comptroller’s Office has released the 2015 income tax withholding percentage and regular methods tables.
Michigan: Effective with the first quarter of 2015 all Michigan employers must file their quarterly contribution and wage reports electronically over the Michigan Unemployment Insurance Agency’s (UIA) Michigan Web Account Manager.
Minnesota: The SUI taxable wage base will increase to $30,000 for 2015. This is up from $29,000 for 2014.
Missouri: The state’s minimum wage will increase to $7.65 per hour effective January 1, 2015.
Montana: the state has announced its SUI taxable wage base for 2015. The taxable wage base will be $29,500. This is an increase of $500 from the 2014 wage base amount of $29,000.
New Mexico: The SUI taxable wage base will remain $23,400 for 2015.
Ohio: Looks like the SUI rates will be increasing in 2015. The taxable wage base will stay the same for 2015 at $9,000. However the legislature is looking at either raising the rates higher or increasing the taxable wage base above $9,000. So stay tuned for this one.
Rhode Island: My sources are telling me that the state has announced its SUI, SDI and JDF wages bases and rates for 2015. They are:
- SUI Wage base: $21,200 for 2015. Up from $20,600 for 2014. For those that have an experience rating of 9.79% or more the wage base is $22,700.
- SUI Tax rates: will continue on Rate Schedule I.
Wisconsin: Publication 117 Guide to Wisconsin Wage and Information Returns has been updated and posted to the department’s website.
That’s it for this edition of Round-Up Day. Join us again next Friday!