State Employment Tax Changes

Recap of recent state employment tax laws, developments, and changes taking effect in July

Several states and localities are making employment tax changes that take effect in July. In addition, several new employment tax laws and developments have occurred recently. Here are some of the highlights from the following states:

Alabama
Unemployment. Effective for benefit years beginning after July 5, 2008, a claimant must serve a one-week waiting period prior to receiving unemployment benefits. The maximum weekly benefit will also increase from $235 to $255 [L. 2008, H427].

California
Employment Taxes. A state of emergency was declared on June 12th in the following counties: Sacramento, San Joaquin, Stanislaus, Merced, Madera, Fresno, Kings, Tulare, and Kern, due to the drought. Affected employers may request up to a 60-day extension of time to file their state payroll reports and deposit state payroll taxes with the Employment Development Department (EDD). All requests will be evaluated on a case-by-case basis. For further information, contact the Taxpayer Assistance Center at (888) 745-3886 [EDD Announcement, 6/13/2008].

Wage and Hour. The California Court of Appeal has ruled that an employee who received a premium holiday pay rate for work performed on Labor Day, and who worked 12 hours on Labor Day and 60 hours during the week, was only entitled to overtime based on her regular pay rate. The employer is entitled to credit the time-and-a-half premium pay on holidays against otherwise earned overtime [ Advanced-Tech Security Services, Inc. v. Superior Court, Cal. Ct. App., Second App. Dist., Division Five, Dkt. No. B205186, 6/3/08].

Colorado
Unemployment. The Colorado Department of Labor & Employment (DLE) reminds employers to review adjustments to their account on line 15 of Form UITR-1, Unemployment Insurance Tax Report (Tax Report), before determining their tax payment for the quarter [DLE UI Quarterly News, 2nd Quarter 2008].

Connecticut
Employment Taxes. The state is setting up a joint task force on worker misclassification issues (i.e., employee vs. independent contractor) [L. 2008, H5113].

Unemployment. New registration requirements go into effect for professional employer organizations (PEOs), beginning in 2009 [L. 2008, H5113].

Wage Payment. Effective Oct 1, 2008, wage deductions are permitted for contributions that are attributable to automatic enrollment in IRC §401(k), 403(b), 408, 408A, or 457 retirement plans [L. 2008, S157].

District of Columbia
Time Off. Effective Nov. 13, 2008, all Washington, D.C. employers must provide paid leave for illness and absences associated with domestic violence, sexual abuse, or stalking of employees or their family members [D.C. Register, Vol. 55, No. 21, 005886, 5/23/08; DC Law 17-152, 5/13/08].

Idaho
Wage and Hour. Effective July 1, state employees who do not qualify for the executive exemption under Idaho law, or the administrative or professional exemption under federal law, and state employees not designated as exempt under any other complete exemption in federal law, are eligible for overtime compensation.

Illinois
Wage and Hour. The minimum wage rate will increase from $7.50 per hour to $7.75 per hour on July 1.
Iowa
Wage and Hour. Effective July 1, the following enterprises are exempt from Iowa minimum wage rules, regardless of whether sales are $300,000 or more: (1) enterprises engaged in the business of laundering, cleaning, or repairing clothing or fabrics; (2) enterprises engaged in construction or reconstruction; (3) hospitals and schools; and (4) public agencies.

Indiana
Wage Payment. A federal court has ruled that store managers who were no longer employed by a company were not entitled to unpaid bonuses, since one contingency for receiving the bonuses was continued employment. The bonuses did not qualify as wages under either Indiana wage payment or wage claim statutes because of the contingency [ Harney v. Speedway SuperAmerica, LLC, CA7, Dkt. No. 07-3488, 5/30/2008].

Withholding. Indiana law requires the withholding of adjusted gross income tax and local option income tax from a pension distribution, if the payee requests withholding. The withholding request must be made in writing and should include the payee’s Indiana county of residence [Indiana Information Bulletin IT13, 06/01/2008].

Kansas
Withholding. Effective July 1, employers with an annual total withholding tax liability of over $45,000 (before July 1, over $100,000) may be required to remit taxes by electronic funds transfer [Kan. Stat. Ann. §75-5151, as amended by L. 2007, H2434, §13].

Unemployment. Wage reports, contributions returns, and payments due after June 30, 2008, must be filed electronically by employers with 250 or more employees, and third-party administrators with 250 or more client employees.

Kentucky
Wage and Hour. The minimum wage rate will increase from $5.85 per hour to $6.55 per hour on July 1.
Massachusetts
Wage and Hour. Effective July 13th, treble damages will be awarded for all wage and hour violations, even if there was no “willful misconduct” by the employer.

Maryland
Time Off. The Flexible Leave Act amends the state’s family leave provisions, effective Oct. 1, 2008. The provision will apply to employers with 15 or more employees working in the state. Employers will not only be able to allow employees to take “leave with pay” for the birth or adoption of a child, but also to care for a spouse, child, or parent. “Leave with pay” includes sick leave, vacation time, and compensatory time. In cases where an employee earns more than one type of leave, the employee may elect the type and amount of paid leave to be used [L. 2008, H40].

Minnesota
Withholding. Effective beginning after Dec. 31, 2008, payments to independent contractors are subject to state backup withholding if they are subject to federal backup withholding. Previous legislation that required third-party bulk filers to withhold from independent contractors was deleted before the provision took effect [L. 2007, H3149].

Mississippi
New Hire Reporting. Beginning in July, certain employers, third-party employers, contractors, and subcontractors will be required to register and use the federal Department of Homeland Security E-Verify program for all new hires. Required compliance is phased in through July 2011, based on the number of employees.

Michigan
Wage and Hour. The minimum wage rate will increase from $7.15 per hour to $7.40 per hour on July 1.
Montana
Unemployment. Effective July 1, the administrative fund tax for governmental experience-rated employers is 0.09% of total wages.

Nevada
Employment Taxes. The Nevada Tax Commission has approved a tax amnesty program that calls for waiving interest and penalty on certain tax liabilities, including the modified business tax (on payroll). The program is scheduled to start on July 1, 2008, and end on Sept. 30, 2008. To be eligible for amnesty, a business or taxpayer must be in full compliance with state law and pay the entire tax due by the end of the amnesty period. The Nevada Department of Taxation is in the preliminary stages of developing specific guidelines and requirements for the program [ Nevada Press Release, 6/2/08].

Unemployment. Effective July 1, all unemployment tax payments of $10,000 or more (including interest and penalties) must be remitted electronically.

Wage and Hour. Effective July 1, the state minimum wage will increase to $5.85 per hour for employees who receive qualified health benefits, and to $6.85 per hour for all other employees.

New Jersey
Withholding. Employees are allowed to exclude certain employer-provided commuter transportation benefits from their taxable gross income, up to a maximum amount that is adjusted annually for inflation. The maximum amount for 2008 is $1,440, up from $1,410 for 2007. Amounts in excess of $1,440 must be included in an employee’s gross wages on Form W-2 or other written statement [Div. Tax. Notice of Employee Commuter Transportation Benefit Limits, 06/02/2008].

Oklahoma
Withholding. A federal district court has suspended the enforcement of a statute that required contractors to withhold from workers who could not produce federal documents showing that they were authorized alien labor. The court found the Oklahoma law to be an attempt to regulate behavior, not to impose a new tax. The injunction continues until the merits of the case are finally decided [Chamber of Commerce of the U.S.A. v. Henry, DC OK, Dkt. No. CIV-8-109-C, 6/4/2008].

The governor has signed into law a tax amnesty bill. A taxpayer will be entitled to a waiver of penalty, interest, and other collection fees due on eligible taxes (including withholding taxes), if the taxpayer voluntarily files delinquent tax returns and pays the taxes due during the compliance initiative. The program is scheduled to take place from Sept. 15 until Nov. 14, 2008 [L. 2007, S2034 (c.395), §1].

Oregon
Time Off. The state Supreme Court has ruled that while employers are required to provide minimum rest breaks as per Or. Admin. R. § 839-020-0050(1)(b) , violations do not give rise to a wage claim for additional wages [Gafur v. Legacy Good Samaritan Hosp. & Med. Ctr., Or. Sup. Ct., Dkt. No. SC055175, 5/15/08].

Pennsylvania
Withholding. Effective July 1 through Dec. 31, 2008, Philadelphia tax rates are reduced to 3.98% for residents and 3.5392% for nonresidents. The tax rate that should be used is the rate in effect on the date that the taxable compensation is actually paid to the employee. For example, wage tax on a paycheck dated July 1, 2008, for wages paid for the period from June 16 to June 30, 2008, should be withheld at the rate in effect as of July 1, 2008 [Philadelphia Bill No. 080161, 05/22/2008; Important Notice: Wage Tax Rate Reduction, Philadelphia Dept. of Rev., 06/04/2008].

South Carolina
New Hire Reporting. New legislation requires all employers to verify the employment eligibility of new hires beginning as early as Jan. 1, 2009 [L. 2008, H4400].

Withholding. Effective June 4, 2008, withholding agents must withhold 7% state income tax on compensation paid to an individual that was reported on Form 1099, if the individual: (1) fails to provide a taxpayer identification or Social Security number; (2) fails to provide a correct taxpayer identification or Social Security number; or (3) provides an IRS-issued taxpayer identification number issued for nonresident aliens. There are exceptions to this rule [S.C. Code Ann. §12-8-595, as amended by L. 2008, H4400].

Texas
Unemployment. The state has begun mailing checks to experience-rated employers eligible to receive the surplus tax credit [TWC Tax Department Tip of the Month, June 2008].

Vermont
Withholding. Effective July 1, the state may grant EFT filers up to six additional days for payment (prior to that, four additional days).

Virginia
Withholding. The Virginia Supreme Court has ruled that the requirement in Va. Code Ann. § 58.1-1815 to “truthfully account for and pay over such tax” is violated by one who willfully fails either to “account for” or “pay over” the tax. Therefore, a criminal penalty could be assessed against a person who failed to pay his withholding tax obligation, even though he had truthfully accounted for the obligation [Gibson v. Cmwth. of Virginia, Va. Sup. Ct., Dkt. No. 072023, 6/6/2008 ].

West Virginia
Withholding. A business registration certificate may be revoked for repeated, willful refusal to remit state withholding taxes when due [West Virginia Administrative Decision 08-052 F, 06/08/2008].

Wage and Hour. The minimum wage rate will increase from $6.55 per hour to $7.25 per hour on July 1.
Wisconsin
Withholding. Wisconsin will follow federal rules that require “disregarded entities” to pay their own employment taxes and file their own employment tax reports, beginning with wages paid in 2009. As an “employer,” a disregarded entity must obtain a Wisconsin employer identification number [Wisconsin Dept. Rev. Tax Bulletin 156, 04/01/2008].

The state has issued a tax release that clarifies the circumstances under which “public speaking services” are subject to Wisconsin’s nonresident entertainer prepayment law [Wisconsin Dept. Rev. Tax Bulletin 156, 04/01/2008].

Wyoming
Unemployment. Effective July 1, 2007, employers were required to submit “Wyoming Employee Wage Listings” as part of their quarterly reporting responsibilities. Beginning in 2009, the state may increase an employer’s tax rate by a 2% penalty rate if the employer has failed to submit the wage listing [Wy. Quarterly Connection, 1st Qtr. 2008].