Millions of U.S. jobs to be lost for years, IRS projections show
It's estimated that there will be about 37.2 million fewer employee-classified jobs in the next year, than there has been in previous years. Read this blog post to learn more.
The Internal Revenue Service projects that lower levels of employment in the U.S. could persist for years, showcasing the economic fallout of the coronavirus pandemic.
The IRS forecasts there will be about 229.4 million employee-classified jobs in 2021 — about 37.2 million fewer than it had estimated last year, before the virus hit, according to updated data released Thursday. The statistics are an estimate of how many of the W-2 tax forms that are used to track employee wages and withholding the agency will receive.
Lower rates of W-2 filings are seen persisting through at least 2027, with about 15.9 million fewer forms filed that year compared with prior estimates. That’s the last year for which the agency has published figures comparing assumptions prior to the pandemic and incorporating the virus’s effects.
W-2s are an imperfect measure for employment, because they don’t track the actual number of people employed. A single worker with several jobs would be required to fill out a form for each position. Still, the data suggest that it could take years for the U.S. economy to make up for the contraction suffered because of COVID-19.
The revised projections also show fewer filings of 1099-INT forms through 2027. That’s the paperwork used to report interest income — and serves as a sign that low interest rates could persist.
There’s one category that is expected to rise: The IRS sees about 1.6 million more tax forms for gig workers next year compared with pre-pandemic estimates.
That boost “likely reflects assumptions with the shift to ‘work from home,’ which may be gig workers, or may just be that businesses are more willing to outsource work — or have the status of their workers be independent contractors — now that they work from home,” Mike Englund, the chief economist for Action Economics said.
SOURCE: Davison, L.; Tanzi, A. (20 August 2020) "Millions of U.S. jobs to be lost for years, IRS projections show" (Web Blog Post). Retrieved from https://www.employeebenefitadviser.com/articles/millions-of-u-s-jobs-to-be-lost-for-years-irs-projections-show
Actions on Payroll Taxes and Unemployment Benefits Promise Relief, Raise Questions
Due to the amount of job losses caused by the coronavirus, President Trump has signed a series of executive orders to provide financial relief. Read this blog post to learn more.
On Aug. 8, President Donald Trump signed a series of executive orders and memorandums intended to provide financial relief to employees and those who have lost their jobs due to the COVID-19 pandemic.
These declarations included a Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, which directed the Treasury Department to defer collection of the employee portion of Social Security FICA taxes—part of required payroll tax withholding—from Sept. 1 through the end of 2020. The deferred taxes may have to be subsequently repaid unless Congress enacts legislation stating otherwise.
Trump cited his authority to postpone certain tax deadlines by reason of a presidentially declared disaster. Democrats, however, are expected to challenge that claim in court. Nevertheless, it is prudent for employers and payroll managers to stay aware of developments and prepare to move quickly if the directive and upcoming guidance are not blocked or superseded by enactment of a comprehensive relief bill.
Payroll tax relief, as outlined in the president's directive, would require employers to take steps to ensure compliance, including working with their payroll administrators to adjust their systems by Sept. 1. Employers would also need to explain to employees that while their take-home pay may go up in the short term, they may be required to repay these deferred taxes at a future date.
Details on employer requirements, however, would depend on Treasury Department guidance, expected to be issued shortly.
The other presidential actions authorized a weekly supplemental federal unemployment benefit of up to $400, reduced from the $600 weekly supplement that expired July 31; continued student loan payment relief; and called for measures to prevent residential evictions and foreclosures resulting from financial hardships due to COVID-19.
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Reduced Unemployment Insurance Supplement Republicans in Congress argued that the initial $600 federal supplemental payment disincentivized recipients from seeking jobs, since many were collecting more money unemployed than employed. Some wanted the program reduced to $200 per week, while Democrats argued the program should be renewed at the original $600 per week. Questions were raised about funding for the $400 unemployment insurance boost, which would pull from FEMA's Disaster Relief Fund to pay for a portion of the supplemental benefits while asking states to fund the remainder. Because states may not use the unemployment program to pay benefits unless they are authorized by Congress, they may have to set up a new system to pay their portion of the supplement. Unemployment experts were also unsure about how funds will be distributed, who will qualify for benefits and how long the benefits will last, pending regulatory guidance. |
FICA Taxes
Social Security and Medicare payroll taxes are collected together as the Federal Insurance Contributions Act (FICA) tax. FICA tax rates are statutorily set and are not adjusted for inflation.
Social Security is financed by a 12.4 percent payroll tax on wages up to employees' taxable earnings cap—$137,700 for 2020—with half (6.2 percent) paid by workers and the other half paid by employers. There is no earnings cap on the Medicare portion of FICA, for which employers and employees separately pay a 1.45 percent wage tax.
The COVID-19-related payroll tax relief only applies to the Social Security portion of FICA.
The Payroll Tax Directive
Section 2302 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March and implemented through IRS Notice 2020-22 and a series of IRS FAQs, allows eligible employers to defer the deposit and payment of the employer's share of Social Security FICA taxes for the period beginning March 27, 2020, through Dec. 31, 2020. The deferral also applies to 50 percent of the equivalent taxes incurred by self-employed persons. The deferred payments must subsequently be paid to the Treasury Department, with half due by Dec. 31, 2021, and the other half by Dec. 31, 2022.
The CARES Act provision and related guidance did not apply to employees' share of the Social Security tax.
Under the new presidential directive:
- The secretary of the treasury is authorized to defer the withholding, deposit and payment to the Treasury of employees' portion of Social Security payroll taxes on applicable wages or compensation paid from Sept. 1, 2020, through Dec. 31, 2020. This provision does not apply to the Medicare portion of FICA taxes.
- The deferral is to be made available to employees whose earnings during any biweekly pay period is generally less than $4,000, calculated on a pretax basis, which would cover salaried employees earning $104,000 or less per year.
- Social Security taxes for these employees will be deferred without any penalties, interest, additional amount or addition to the tax.
- The secretary of the treasury is directed to issue guidance to implement the president's memorandum and to explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred under the implementation of the memorandum.
Josh Blackman, a constitutional law professor at the South Texas College of Law Houston, blogged that HR lawyers will have until Sept. 1 "to figure out the details." Because the policy terminates on Dec. 31, 2020, "President Trump, or President Biden, will be forced to decide whether to continue this program," he wrote.
A Controversial Move
"By providing this tax relief, American families will have more cash on hand during these critical next few months," according to a White House statement.
White House economic advisor Larry Kudlow said that "we will take any steps possible to forgive this deferral," so employees will not be required to pay back the amounts deferred through Dec. 31, The Hill reported. However, doing so would require new legislation by Congress.
Presumptive Democratic presidential nominee Joe Biden charged that Trump would try to make the cuts permanent if re-elected and said doing so would "undermine the entire financial footing of Social Security."
Prepare to Adjust Systems and Notify Employees
For now, HR payroll managers should:
- Discuss with their payroll administrators steps to adjust their payroll systems to exclude employees' share of FICA Social Security taxes beginning Sept. 1, pending the issuance of Treasury guidance.
- Prepare to notify employees that possibly less of their pay will be subject to payroll withholding, although the reduction in payroll taxes may have to be paid back in the future.
- Expect questions from employees who may be confused about current and future paycheck adjustments.
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Employers' Questions Await Guidance The president's executive memorandum "leaves open a number of questions and issues, some of which will likely be addressed by guidance from Treasury," according to a legal alert by Adam Cohen, Mary Monahan and Robert Neis, partners at law firm Eversheds Sutherland in Washington, D.C. Issues to be addressed, they said, include:
A Wait and See Approach Melissa Ostrower and Robert Perry, principals in the New York City office of law firm Jackson Lewis, "recommend that employers continue to monitor applicable guidance, but not make any changes to their payroll withholding processes at this time." They added, "We realize that changes to payroll systems require lead time, but given the uncertainty surrounding how the deferral will be implemented and whether it actually will become effective, we think this is the most prudent course at this time." SOURCE: Miller, S. (10 August 2020) "Actions on Payroll Taxes and Unemployment Benefits Promise Relief, Raise Questions" (Web Blog Post). Retrieved from https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/actions-on-payroll-taxes-and-unemployment-benefits-promise-relief-raise-questions.aspx |
It’s time to consider a wage and hour audit
A record $322 million of unpaid wages were recovered for the 2019 fiscal year, according to the Department of Labor (DOL). With the new salary threshold taking effect January 1, it may be a good time to consider conducting a wage and hour audit. Read the following blog post from Employee Benefit News to learn more.
Those who believed the Trump administration would scale back the Obama-era Department of Labor’s aggressive enforcement of wage and hour laws may be surprised to learn that the DOL recently announced that it recovered a record $322 million in unpaid wages for fiscal year 2019. This is $18 million more than that recovered in the last fiscal year, which was the previous record.
The agency has set records in back wages collected every year since 2015, according to data released by the DOL. This year, the average wages DOL recovered per employee were $1,025. The agency’s office of federal contractor compliance also announced that it had recovered a record $41 million in settlements over discrimination actions involving federal contractors, an increase of 150% over the last fiscal year.
Effective Jan. 1, the new salary threshold that most salaried employees must earn to be exempt from overtime pay will be $35,568, or $684 per week, under the final rule issued by the DOL in September.
With the new salary threshold taking effect soon, and the DOL continuing to aggressively enforce wage and hour laws, it is a good time to consider conducting a wage and hour audit to ensure that employees are properly classified as exempt or nonexempt and that other pay practices comply with the law.
Employers who did this in 2016, only to find out later that the Obama administration’s proposed hike in the salary threshold would not take effect, may have a strong feeling of déjà vu. But this time, there does not appear to be any viable legal challenge that would delay or block the salary threshold change, so employers must be prepared to either increase salaries of “white-collar” exempt employees (who earn less than $35,568) or reclassify them as hourly employees by January.
Among other things, a wage and hour audit should include the following:
- Review all individuals classified as independent contractors;
- Review all employees classified as exempt from overtime under one or more “white-collar” exemptions (administrative, executive, and professional), who must earn at least the $35,568 salary threshold beginning January 1, 2020;
- Review all other employees classified as exempt from overtime, including computer and sales employees; and
- Review all individuals classified as interns, trainees, volunteers, and the like.
In addition to ensuring whether employees are properly classified as exempt or nonexempt, a thorough wage and hour audit should look at a number of other issues, including timekeeping and rounding of hours worked, meal and rest breaks, whether bonuses and other special payments need to be included in employees’ regular rate of pay for calculating overtime, and payments besides regular wages, such as paid leave and reimbursement of expenses.
SOURCE: Allen, S. (8 November 2019) "It’s time to consider a wage and hour audit" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/employers-should-consider-a-wage-and-hour-audit
IRS Seeks Comments on Form W-4 Overhaul for 2020
A draft of the 2020 Form W-4 was released on May 31, by the IRS. This new version includes included major revisions that were designed to make accurate income-tax withholding easier for employees. Continue reading this blog post to learn more.
On May 31, the IRS released a draft 2020 Form W-4 with major revisions designed to make accurate income-tax withholding easier for employees, starting next year. The IRS also posted FAQs about the new form and asked for comments on the changes by July 1.
The form is not for immediate use, the IRS emphasized, and employers should continue to use the current Form W-4 for 2019.
"The primary goals of the new design are to provide simplicity, accuracy and privacy for employees, while minimizing burden for employers and payroll processors," IRS Commissioner Charles Rettig said.
The new form reflects changes made by the Tax Cuts and Jobs Act, which took effect last year. For instance, the revised form eliminates the use of withholding allowances, which were tied to the personal exemption amount—$4,050 for 2017, now suspended. It also replaces complicated worksheets with more straightforward questions.
Addressing a key employer concern, the IRS said that employees who have submitted Form W-4 in any year before 2020 will not need to submit a new form because of the redesign. Employers can compute withholding based on information from employees' most recently submitted Form W-4, if employees choose not to adjust their withholding using the revised form.
Easier for Employees, More Complex for Employers
"Generally, the new Form W-4 is an improvement for employees," said Pete Isberg, vice president of government relations at payroll and HR services firm ADP. It shifts the burden of several calculations from employees to the employer, he noted. "For example, previously. employees would complete a difficult worksheet to convert expected deductions to a number of withholding allowances. With the new form, they'll just enter their full-year expected deductions over the standard deduction amount."
Because existing employees won't have to complete a new Form W-4, "employers must still observe their current Form W-4 withholding allowances," Isberg said. "However, for employees hired after 2019—and anyone that wants to adjust their withholding after 2019—the 2020 version will be the only valid Form W-4."
Not requiring employees to submit the new W-4 will ease HR's burden, but it also means that "payroll systems will need to accommodate the existing withholding allowance calculation, as well as the new method," which could make reprogramming payroll systems more arduous, said Mike Trabold, director of compliance at Paychex, an HR technology services and payroll provider.
In addition to supporting two distinct withholding systems, employers will need to accommodate three sets of withholding calculations, Isberg said:
- The old system based on withholding allowances.
- The 2020 system with a checkbox for optional higher withholding.
- The 2020 system that allows employees to input new data, listed below in the W-4 forms comparison chart.
| 2019 Form W-4 | 2020 Form W-4 (draft) |
| Number of withholding allowances. | Checkbox for multiple jobs or optional higher withholding. |
| Per-payroll additional amount to withhold. | Full-year child and dependent tax credits. |
| Full-year other (non-wage) income. | |
| Full-year deductions (over the standard deduction amount). | |
| Per-payroll additional amount to withhold. |
"One interesting question is how long employers might need to support the old and new systems simultaneously," Isberg said. "It will probably be many years before the last withholding allowances [used by current employees] drop off."
Addressing Privacy Concerns
In June 2018, the IRS issued an earlier revision of Form W-4 and instructions for 2019. But in September 2018, the IRS said it would delay major revisions until 2020 to respond to criticism about the form's release date and complexity.
"We anticipate this version will be better received than the prior draft," Trabold said. The earlier version "asked for much more specific information on other sources of income, such as second jobs, spousal income, non-earned income, etc., which was intended to increase withholding accuracy but which many taxpayers may have felt to be invasive and wouldn't necessarily want to share with their employer."
With the new version of the form, taxpayers can check a box "to indicate their desire to have more tax withheld, without having to share details with their employer," Trabold said. Although this may lead to too much withholding for some taxpayers, "it will help address concerns of those who prefer to get a refund check every year or who may have had to unexpectedly pay tax when filing this year," he explained.
While there will be a worksheet to help taxpayers with the new form, "it will not be provided to the employer, further assuring privacy," Trabold noted.
What's Next
The IRS said it plans to release a "close to final" version of the form in late July, after which employers and payroll administrators can start making programming changes to their systems. A final version, expected in November, will contain only minor adjustments.
The IRS also plans to release instructions for employers in the next few weeks for comment.
In the meantime, the IRS encouraged employees to use its online Paycheck Checkup tool to ensure they're having the right amount of tax withheld. While useful in its current form, the tool will be updated to reflect the new W-4 when it becomes final.
SOURCE: Miller, S. (6 June 2019) "IRS Seeks Comments on Form W-4 Overhaul for 2020" (Web Blog Post). Retrieved from https://www.shrm.org/ResourcesAndTools/hr-topics/compensation/Pages/IRS-seeks-comments-on-Form-W-4-overhaul-for-2020.aspx
5 Things Employers Need to Know About Overtime Rules
Original post benefitsnews.com
With compensation taking up the biggest slice of the benefits pie, employers are paying close attention to the Department of Labor’s proposed changes to the overtime rules – expected to be released as early as this month – under the Fair Labor Standards Act.
The proposed rules bump the salary threshold for overtime from $23,600/year to $50,440/year. If the final rules stay the same as the proposed rules, employees currently working in salaried positions who make less than $50,440 will now be entitled to overtime pay. That’s a 113% increase, which is “incredibly dramatic,” says Lisa Horn, spokesperson for the Partnership to Protect Workplace Opportunity.
“Not only does it raise it that high, but what many have failed to hone in on is the fact that this is an annual increase,” she adds. “That’s quite impactful on top of that huge initial jump in the salary increase.”
Horn says some research predicts that because of that annual increase, which is tied to the 40th percentile of all full-time salaried workers in the country, the minimum salary threshold for overtime could rise as high as $90,000 within five to seven years.
It’s possible the final rules could include a lower salary threshold – Horn says she’s heard it could be $47,000/year instead of $50,440 – but even if that’s the case, it will still mean a big jump. Employers will have to decide whether to increase workers’ salaries to make them exempt from overtime or reclassify them as non-exempt.
And since many employers have different benefit structures for hourly and salaried workers, if some employees need to be reclassified as non-exempt they could see their benefits affected.
Moreover, in the eyes of employees, being reclassified as non-exempt is “seen as a demotion,” says Horn, who also works as SHRM’s director of Congressional affairs. “Because you’re continually trying to climb most employees from that non-exempt hourly status to the more professional exempt status.”
Here are five things employers need to know about the proposed rules from the PPWO, a group of more than 70 employer organizations and companies created to respond to the overtime rule changes:
1. This proposal represents a 113% immediate increase plus an annual increase. The proposed overtime rule would initially raise the salary threshold defining which employees must be paid overtime by 113%, from $23,600 to $50,440. In addition, the DOL has proposed increasing this minimum salary on an annual basis.
2. The proposal will impact millions of workers and cost billions to businesses.According to the DOL, the rule will affect over 10 million workers – workers who may see their workplace flexibility diminished or a loss in other benefits they rely on, says the PPWO. The National Retail Federation estimates retail and restaurant businesses will see an increase of more than $8.4 billion per year in costs.
3. The implementation window is very short. As proposed, the implementation timeline for this rule is only 60 days, which will place a massive burden on HR departments and organizations scrambling to comply, according to the PPWO. “That 60 days is just completely unworkable from an organization’s standpoint and having to implement these changes in such a short time frame,” says Horn. “These are, for some organizations, really massive changes.”
4. Many employees will need to be demoted. This change could force employers to reclassify professional employees from salaried to hourly – including many managers and those with advanced degrees – resulting in a loss in benefits, bonuses, and flexibility, and a reduction in professional opportunities.
5. This is a blanket increase that disproportionally impacts lower cost areas. A one-size-fits-all approach is inappropriate for the different industries and various regions of the country. While the threshold of $50,440 may be reasonable in New York City, a comparable cost of living in Birmingham, Alabama, for example, is only about $21,000 – making the threshold unattainable and unrealistic for many small businesses in lower cost of living areas, according to the PPWO.
Five payroll tax tips for small businesses
Source: Benefitspro.com
By: Amanda McGrory-Dixon
As small business and their accountants and other advisers are preparing for year-end tax preparation, ADP’s Small Business Services division offers five tips for payroll taxes.
Verify tax IDs
A small-business owner should collaborate with his or her accountant or payroll service provider to ensure each tax ID number on payroll reports are correct and current. Any mistake should be fixed prior to processing the company’s last payroll of 2012.
Confirm W-2 and 1099 information with employees
Before the end of the year, employees should review and confirm their W-2 and 1099 information. Small-business owners are responsible for providing accountants with updated employee W-2 information before the last payroll report in 2012. If a W-2c form must be filed with the IRS to correct information on a W-2, the accountant should be notified immediately.
Know your filing responsibilities
Depending on the situation, the small-business owner or the company's accountant must file the company's taxes, and that responsibility should be confirmed with the accountant or tax advisor.
Submit payroll adjustments
All employee payroll adjustments, including voided or manually issued employee checks, are to be submitted to the accountant or payroll service provider prior to the final 2012 payroll report. The deadline for this is Dec. 28.
Report all missing wages or miscellaneous income and tax credits
Missing wages and miscellaneous income and tax credits are required to be reported to the accountant or payroll service provider before the final 2012 payroll report. These wages, income and tax credits include fringe benefits, tips, COBRA payments, employee moving expenses and unsubstantiated employee expense reimbursements.
"Small-business owners are responsible for every aspect of their business, including hiring and managing employees, servicing their clients and adhering to complex tax regulations,” says Anish Rajparia, president of ADP's Small Business Services Division. “That's why as we approach year end, it is especially helpful for small-business owners together with their advisors to proactively take steps that help reduce risks to their business.”
Payroll Tax Issues Remain in Limbo with Many Due to Sunset
By Josie Martinez, Senior Partner and Legal Counsel
With 2013 just weeks away, payroll professionals are getting extremely anxious about various favorable payroll tax provisions affecting individuals and businesses that have yet to be determined relating to 2013 withholdings. The provisions mentioned below may expire as of Jan. 1, 2013, unless Congress acts to extend them. Of great concern to many employers/payroll professionals (not to mention the employees that are affected by such provisions) are the following four issues:
1. Transportation/Commuting Benefit. Unless Congress decides differently in the very near future, the mass transit portion of the commuter benefit ($125 a month in 2012) will remain unconnected to the tax-free exclusion for qualified parking expenses of the commuter benefit ($240 a month in 2012). For 2011, Congress had included a provision that kept the mass transit portion of the commuter benefit equal to the parking tax benefit. Unfortunately, because Congress did not again extend the transit benefit before it expired at the end of 2011, the monthly maximum transit amount was reduced to $125 per month on Jan. 1, 2012. The issue of reinstating parity between the parking and transit benefits through the end of 2013 remains unresolved.
2. Social Security. The 2 percent payroll tax cut in effect in 2011 and 2012 temporarily reduced the Social Security withholding tax rate on wages earned by employees from 6.2 percent to 4.2 percent on the first $110,000 of wages. While this decrease is set to expire as of Jan. 1, 2013, an additional 0.9 percent Medicare payroll tax increase will also apply on employee wages in excess of $200,000 (an increase from 1.45 percent to 2.35 percent).
3. Educational Assistance. Through Dec. 31, 2012, employers were permitted to reimburse employees up to $5,250 on a tax-free basis for educational assistance (pursuant to Section 127 of the Internal Revenue Code). This benefit included reimbursement for higher education courses at the associate, undergraduate and graduate levels and for programs that allowed the employee to qualify for a new position. Should the provision -- which Congress has extended repeatedly since its inception in 1978 -- expire, educational reimbursements will be much more limited.
4. Adoption assistance. This year, employees were able to exclude from gross income up to $12,650 (paid or reimbursed by an employer) for qualifying adoption or attempted adoption expenses under the adoption assistance program. Qualified adoption expenses are those expenses that are reasonable and necessary adoption fees, including court costs, attorney fees, traveling expenses and other expenses directly related to the legal adoption of an eligible child. The income tax exclusion for amounts paid by an employer is also scheduled to expire on Dec. 31, 2012.
Given this tax uncertainty, employers must prepare for changing payroll taxes and have contingency plans in place. Keeping in mind that transparency is essential, employers should inform employees -- particularly those directly affected by these benefits -- of the uncertainty behind these provisions and the potential ramifications should these tax provisions not be extended beyond Jan. 1, 2013. As an employer, consider what changes are necessary should the tax status of these benefits change, in particular from a payroll perspective. An employee may still get the same benefit, however, the value may now be taxable. Even if tax extensions for education assistance, adoption assistance and the 2 percent payroll tax increase are adopted in a new tax bill, employers should note that it is highly unlikely that either the new limits on health care flexible spending accounts or the new 0.9 percent payroll tax increase for high-income employees will be altered or eliminated. The paramount question remains: Will Congress act in time?