Employment Taxes

Last week, the Treasury Department released the “Green Book,” formally known as the General Explanations of the Administration’s Revenue Proposals.  For the second year in a row, the Green Book addresses the treatment of “on-demand” pay arrangements also known as “daily pay” or “earned wage access programs.”  These arrangements permit employees to access a portion of their earned wages in advance of the employee’s normal pay date. 

These programs raise potential tax concerns because, depending upon the program design, the employee could be considered to be in “constructive receipt” of their wages as soon as they earn them.  This creates payroll withholding and depositing obligations for employers regardless of whether the employee actually receives a wage payment.  In addition, the program can cause uncertainty regarding how to properly calculate the required FICA tax and income tax withholdings when the employee elects to receive a payment of earned wages.  For this reason, some programs (which are often app-based) are structured as loans or attempt to avoid the constructive receipt issue by requiring the payment of a small fee when the earned wages are paid.Continue Reading Treasury Reiterates Position on “On-Demand” Pay

Last week, the Treasury Department released the “Green Book,” formally known as the General Explanations of the Administration’s Revenue Proposals.  Among its proposals, the Green Book includes a new proposal that could signal stepped-up enforcement of section 409A, as well as a new tool for the IRS.  Section 409A, adopted almost two decades ago, represented a significant shift in the tax treatment of non-qualified deferred compensation plans.  Prior to its adoption, these plans often relied on traditional concepts of constructive receipt to determine when it was required that a plan participant recognize income.  Section 409A overlaid those principles with significant new rules regarding the time that an election to defer compensation must be made, as well as limitations on the time and form of payment of deferred compensation.
Continue Reading Administration Proposes New Withholding Requirements for 409A Failures

Last week, the Treasury Department released the “Green Book,” formally known as the General Explanations of the Administration’s Revenue Proposals.  Among its proposals, the Green Book addresses the treatment of on-demand pay arrangements.  These arrangements, which have recently grown in popularity, permit employees to access a portion of their earned wages in advance of the employee’s normal pay date.  For this reason, they are often referred to as “earned wage access programs.”

One of the potential tax concerns with these arrangements has been that, depending upon the program design, the employee could be considered to be in “constructive receipt” of their earned wages.  This creates payroll withholding and depositing obligations for employers regardless of whether the employee actually receives a wage payment.  In addition, the program can cause uncertainty regarding how to properly calculate the required FICA tax and income tax withholdings when the employee elects to receive a payment of earned wages.  For this reason, some third-parties designing the programs (which are often app-based) have sought either to structure the programs as loans or to avoid the constructive receipt issue by requiring the payment of a small fee when the earned wages are paid.
Continue Reading Treasury Stakes Out a Position on “On-Demand Pay” Arrangements

Earlier this year, the IRS issued IR-2020-09, in which it announced the launch of a new and improved Tax Withholding Estimator. The Tax Withholding Estimator (the “Estimator”) is designed to help employees adjust their federal income tax withholdings by performing a “Paycheck Checkup.”  The process also helps employees  target the refund they want by adjusting the amount of federal income tax taken out of their pay. The Estimator incorporates changes from the redesigned Form W-4, Employee’s Withholding Certificate that employees can complete and give to their employers this year. To adjust for the amount of refund desired, the Estimator features a customized refund slider that the employee can use to select a refund from a range of amounts available. Based on the refund amount selected, the Estimator will give the employee instructions on how to fill out their Form W-4 or allow the employee to download a pre-filled Form W-4 based on the Estimator’s recommendations.
Continue Reading IRS Launches New Tax Withholding Estimator

In 2017, the District of Columbia passed the Universal Paid Leave Amendment Act of 2016 (the “Act”), which called for the creation of a paid-leave program for private sector employees who work in D.C. Earlier this year, the D.C. Office of Paid Family Leave adopted final regulations to implement this new paid-leave program. One of the most notable requirements implemented by the regulations is the imposition of the Act’s 0.62% payroll tax assessed on employers subject to the Act beginning today, July 1, 2019. Employers subject to the Act will have until July 31, 2019, to file the appropriate return and pay the tax without incurring a penalty.

With this upcoming deadline, employers with employees in D.C. need to determine whether they are subject to this tax, and if they are, timely report and pay the tax to avoid potential penalties.
Continue Reading D.C. Starts Collecting Taxes to Fund New Paid-Leave Program