Employment tax compliance across the states in 2018

Employment tax
compliance across the
states in 2018
June 5, 2018
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Disclaimer
► This presentation is provided solely for the purpose of enhancing knowledge
on tax matters. It does not provide tax advice to any taxpayer because it does
not take into account any specific taxpayer’s facts and circumstances.
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should not be relied upon, as accounting advice.
► The views expressed by the presenters are not necessarily those of
Ernst & Young LLP.
► This presentation is © 2018 Ernst & Young LLP. All Rights Reserved.
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Employment tax compliance across the states in 2018

Employment tax compliance
across the states in 2018
Multistate compliance survey
State income tax and Forms W-4
New York voluntary payroll expense tax
State response to tax reform
Table of contents
State payroll tax trends
Unemployment insurance
Health care
Paid family and medical leave insurance
State payroll tax trends, cont’d
Mandatory retirement savings plans
Other revenue generators
State information reporting and withholding
Next steps
Resources
Stay connected
Webcast polling results

Today’s panel
Host
Ken Hausser
Ernst & Young LLP
Executive Director
Employment Tax
Advisory Services
Kenneth.Hausser@ey.comErnst & Young LLP speakers
Co-host
Michael Baer
Bloomberg Tax
Managing Editor
Payroll Library
MBaer@bna.com
Debby Salam
Ernst & Young LLP
Employment Tax
Advisory Services
debera.salam@ey.com
Ray Grove
Ernst & Young LLP
Indirect Tax
Services
Raymond.Grove@ey.com
Pete Berard
Ernst & Young LLP
Employment Tax
Advisory Services
Peter.berard@ey.com

Webcast polling results
No
1,828 respondents
Yes, or considering it
61%
39%
Do you provide communications to employees
notifying them of state or local income tax
withholding changes (e.g., revised withholding
rates, Form W-4 changes)?
Yes
1,101 respondents
No
85%
15%
Are you considering electing into the New York
Employer Compensation Expense Tax?
Yes or
discussing it
1,439 respondents
No
71%
29%
Have you reduced or eliminated transportation
fringe benefits in light of the Tax Cuts and Jobs
Act?

l
2017 multistate
compliance
survey results

2017 Multistate Payroll Tax Compliance Survey
Who was surveyed?
Participant demographics
Number of work
states
59%
26 to 50
41%
1 to 25 1 to 25
42%
26 to 50
58%
468
Businesses
surveyed
72%
1,000 or more
employees
Fewer than 1,000
employees
28%
Industry representationNumber of states
registered for income tax
withholding
Nonprofit, public sector
17%
Manufacturing
19%
Non-manufacturing
63%
The 2017 Bloomberg Tax and Ernst & Young LLP Multistate Payroll Compliance Survey was conducted from May 17,
2017 to August 7, 2017. Several steps were taken to ensure participants’ confidentiality. Overall, survey results are
representative of several areas of employer interest such as risk sensitivity and geographic exposure. Note that we
have excluded percentages for no response, therefore, percentages may sometimes not equate to 100.

How are payroll systems performing?
The requirements for calculating income tax withholding for
employees who work in multiple jurisdictions is variable by
jurisdiction and consequently, complex. Businesses generally
rely on their payroll systems to deal correctly with these
calculations based on the most current jurisdictional
requirements. Inadequate payroll systems can present risk
to businesses and increase processing costs.
Adequate 71%
Not adequate 21%
Don’t know 8%
State
Does the payroll system adequately
accommodate income tax withholding
calculations in multiple work states?
Adequate 64%
Inadequate 24%
Don’t know 11%
Respondents
indicated that payroll
systems were less
adequate pursuant to
local taxing
jurisdictions.
Local
jurisdictions
Local
Manufacturing 63%
Non-manufacturers 71%
Public, nonprofit 79%
Whether respondents
thought payroll
systems were
adequate for state
income tax withholding
varied by industry.
Industry
variables
Industry
Payroll system is adequateLocal tax support is adequate

How do you keep abreast of requirements and changes?
When and how third-party assistance is used
1,000 or more
employees
46%
Fewer than 1,000
employees
Relies on third-party tax
advisor to assist with
multistate payroll tax
compliance
Resources used to keep
track of state rule changes
Third-party
tax advisor
Payroll
organization
Nothing
Professional
publisher42%
59%
75%
3%
54%

What was the payroll audit activity by size and industry?
Payroll tax audit experience by size and industry
49% v. 34%
26% v. 18%
33% v. 23%
Large employers reported more audit
activity than small employers in
all categories
State
income tax
Local
income tax
Unemployment
insurance
Nonprofit,
public sector
Manufacturing
Non-manufacturing
Non-manufacturing employers reported a higher instance
of income tax withholding audits than employers in other
industries, but the manufacturing industry reported the
highest unemployment insurance activity.
State
income
tax
Local
income
tax
Unemployment
insurance
tax
27% 18% 44%
26% 22% 49%
33% 27% 44%

What was the audit experience?
Payroll tax audit experience
Unemployment insurance
The 2017 Bloomberg Tax and Ernst & Young LLP Multistate Payroll Compliance Survey shows a continuing trend of
increased audit activity by payroll taxing jurisdictions over the last five years. The 2017 survey results provide anecdotal
evidence that employers could be more likely to face an unemployment insurance audit as compared to a state or local
income tax withholding audit and a state income tax withholding audit is more likely than a local income tax withholding
audit.
State income tax
2 to 3
years ago
In last
year
Subject to an audit?
31%
Yes 4 to 5
years ago
More than 5
years ago
13% 12% 3% 3%
Local income tax
2 to 3
years ago
In last
year
24%
Yes 4 to 5
years ago
More than 5
years ago
10% 9% 3% 3%
45%Yes
In last
year
2 to 3
years ago
4 to 5
years ago
More than 5
years ago
22%
15%
4%
5%

Which jurisdictions are conducting state income tax audits?
New York 53%
California 31%
Pennsylvania 24%
Ohio 16%
Illinois 13%
Georgia 12%
New Jersey 11%
High: 53% to 10%
Connecticut 8%
Indiana 8%
Maryland 8%
Massachusetts 8%
Virginia 8%
Arizona 7%
Louisiana 7%
Minnesota 7%
North Carolina 7%
Colorado 6%
Kentucky 6%
Michigan 6%
Missouri 6%
Medium high: 9% to 6% Delaware 5%
Iowa 5%
New Mexico 5%
Oregon 5%
Utah 5%
Vermont
5%
Wisconsin 5%
Puerto Rico 4%
Alabama 4%
Hawaii 4%
Kansas 4%
Mississippi 4%
Montana, Nebraska, West
Virginia 4%
Medium: 5% to 4%
Arkansas 3%
Idaho 3%
Oklahoma 3%
Virgin Islands 2%
Maine 2%
North Dakota 2%
Rhode Island 2%
South Carolina 2%
Low: less than 5%
State income tax withholding
audits
We asked survey respondents to tell us the states for
which they have responded to a state income tax
withholding audit. New York was listed as a state where
audits occurred by 53% (47% in 2016) of respondents,
far ahead of the rest of the states identified by
respondents. Nonresident income tax withholding
shortages, unreported wages and worker
misclassification are generally the focus of income tax
withholding audits.
New
York
53%

Which states conduct unemployment insurance audits?
California 22%
New York 22%
Florida 19%
Ohio 14%
New Jersey 12%
Texas 12%
Pennsylvania 11%
Washington 11%
High: 22% to 10%
Colorado 9%
Georgia 9%
Michigan 8%
North Carolina 8%
Indiana 7%
Massachusetts 7%
Missouri 7%
Medium high: 9% to 6%
Medium: 5% to 4%
State unemployment
insurance audits
All states and territories were identified as
having conducted audits in the last year. California
and New York took the lead as most often identified
as audit states by our respondents. Worker
misclassification and unreported wages are
generally the focus of unemployment insurance
audits.
Alabama 5%
Connecticut 5%
Kansas 5%
Louisiana 5%
Maryland 5%
New Mexico 5%
Oregon 5%
Rhode Island 5%
Wisconsin 5%
Arizona 4%
Montana 4%
Tennessee 4%
Vermont 4%
California
22%
New
York
22%
Utah 7%
Virginia 7%
Illinois 6%
Kentucky 6%
Minnesota 6%
Nevada 6%

The multistate payroll tax
compliance challenge is
complicated by the lack of effective
internal processes for many
employers, according to results
gleaned from our 2017 survey.
Following are the areas where
payroll and human resources (HR)
may need more focus.
Read more of our insights about
collaboration pitfalls in this article published
by BBNA Weekly State Tax Report.
Do you obtain Form 8233
before implementing an
income tax treaty
exemption for nonresident
alien employees?
Corrected Forms W-2 are frequently required when the correct
work or resident state is not available by the close of the
calendar year.
Yes
80%
How could payroll and HR benefit from better collaboration?
Survey results show
need for improved
collaboration
Does the payroll department
receive timely notification of
employee work states?
Yes 63%
Why do you not source
trailing compensation to the
work states earned?
Lack of
historical work
state data
47%
No 37%
Failure to receive timely notification of an
employee’s work or resident state can
result in improper employment tax
payments, income tax withholdings, late
deposits and reporting errors.
Corrected Forms W-2 are frequently
required when the correct work or resident
state is not updated by the close of the
calendar year.
Do multistate reporting issues
result in the need to correct
the Form W-2, Wage and Tax
Statement?
The collection and integration of tax onboarding forms into
the payroll system is one important collaboration point
between human resources and payroll.
No
22%

What are your employee policies for income tax withholding?
What is your annual
de minimis day
threshold for
disregarding
nonresident
income tax
requirements?
Do you provide
income tax return
preparation
services for
international
assignees?
For which of the following groups
are you compliant with the
nonresident income tax withholding
requirements?
All employees
Executives, highly paid
Frequent travelers
Employees in select
states
55%
19%
13%
22%
100% compliant 48%
6 to 10 days
15 to 20 days
More than 20 days
10%
5%
32%11 to 14 days
7%
0 to 5 days
15%
GPS 1%
Time sheets
22%
31%
2%
Employee or
calendar
Expense reports
What methods are
used for tracking
employee movement
over jurisdictional
boundaries?
None of the above 28%
Travel providers 10%

Courtesy withholding
Deducting income tax when not required to
► Some employers withhold resident income
tax even in the absence of nexus
► If you do courtesy withhold, you are
responsible for making timely deposits with
the taxing authorities and are liable for
underpayments and subject to penalty for
late payments
► Courtesy withholding helps employees
avoid large, unexpected tax balances
when they file their income tax returns
► Employees take for granted that income tax
is withheld from their wages, so if you will
not courtesy withhold be sure to notify
employees in writing at the time of hire or
relocation
2017 Multistate Payroll Tax
Compliance Survey
Courtesy withholding
Do you provide state courtesy
withholding for your employees?
Yes 46%
No 33%
For some 21%
Overall results were generally matched
by employers large and small in all
industries
The Multistate Payroll Tax Compliance
Survey is hosted by Ernst & Young LLP
and Bloomberg Tax and is conducted
annually. To access all of the 2017
survey results click here.

l
State response
to federal tax
reform

State income tax
and Forms W-4

Colorado
 The Colorado Department of Revenue released revised 2018 income tax withholding
tables in response to the federal Tax Cuts and Jobs Act (TCJA).
 There is no need to make withholding tax changes retroactive to April 1, 2018.
(Publication DR 1098, Colorado Income Tax Withholding Tables For Employers.)
 Despite the adjustment in its 2018 income tax withholding tables, the Department
states that federal tax changes may increase taxpayers’ 2018 federal taxable
income, which may, in turn, increase their Colorado state income tax liability.
 The state personal income tax rate, used for regular and supplemental wages,
remains at 4.63%.
 Colorado withholding tables are typically updated for odd-numbered years and the
Department will return to this schedule effective January 2019.
New income tax withholding tables effective
April 1, 2018

Georgia
State income tax
 Under HB 918 and effective January 1, 2019, the corporate income tax rate and the highest
individual income tax rate, both currently 6%, decrease to 5.75%. For tax years beginning on or
after January 1, 2020, the corporate and the highest individual income tax rates further decrease
to 5.5%, if the legislature approves, and the governor signs, a joint resolution ratifying this
additional rate reduction. On January 1, 2026, the corporate and the highest individual income
tax rates will revert back to the 6% rate — the rate in effect on the day before the law was
enacted.
 Effective January 1, 2018, and through December 31, 2025, the individual standard deduction is
increased.
 Effective for taxpayer years beginning on or after January 1, 2017, the law updates Georgia’s
IRC conformity date to February 9, 2018, with some corporate income tax exceptions.
 Employers should keep a watch for updated 2018 state income tax withholding tables that reflect
the increase in the standard deduction. State income tax withholding tables will likely also be
revised for tax year 2019 to reflect the reduction in the state’s income tax rates.
Georgia law lowers personal income tax rates

Idaho
 The Idaho State Tax Commission released
to its website revised A Guide to Idaho
Income Tax Withholding (rev. 4-27-2018),
containing updated 2018 state income tax
withholding tables adjusted for inflation
and reflecting a reduction in the income
tax rates.
 The supplemental withholding rate is
reduced to 6.925% (down from 7.4%).
 The withholding tax changes need not be
applied retroactively to January 1, 2018.
 The Commission recommends
all employees update their
federal Forms W-4 for state
withholding purposes.
 Idaho now uses an Idaho
allowance count on the federal
Form W-4, line 5 (see the
example on pages 19 of the
revised withholding tax guide) to
calculate withholding. The Idaho
withholding allowances are
based on the number of
children who qualify for the
Idaho Child Tax Credit.
Revised income tax
withholding tables
Withholding
allowances

Kentucky
 The Kentucky Department of Revenue
(DOR) released revised 2018 withholding
tables and computer formula in response
to recently enacted legislation that
replaced the graduated personal and
corporate income tax tables with a flat
income tax rate of 5%.
 Employers are not required to retroactively
adjust withholding, but were instructed to
begin using the revised withholding tables
by June 1, 2018. (Telephone conversation,
May 9, 2018.)
 Also effective with tax years
beginning on and after January 1,
2018, there are no longer any
withholding tax exemptions
allowed and Form K-4, Kentucky
Department of Revenue
Employee’s Withholding
Exemption certificate will no
longer apply. (HB 366.)
Revised income tax
withholding tables
Withholding
allowances

 The Oklahoma State Tax Commission (OTC) published a new state withholding allowance
certificate, Form OK-W-4, Employee’s Withholding Allowance Certificate, in response to federal
changes under the TCJA.
 The new form should be used by new employees and any employee that wishes to make
changes to their Oklahoma state income tax withholding. Use of the federal Form W-4 for
Oklahoma state income tax withholding purposes is no longer allowed. (Informational notice,
April 4, 2018.)
 Revised state regulations require that new employers hired after February 28, 2018 must
provide the new Form OK-W-4 to their employer. Also, current employees making changes to
their state withholding after February 28, 2018, must use this new Oklahoma form. Employees
that submitted federal Form W-4 to their employer prior to March 1, 2018, are not required to
submit the new Form OK-W-4 unless changes are made.
 Historically, the OTC used the federal Form W-4 for state income tax withholding purposes;
however, with the implementation of the TCJA, the agency determined a state-specific form
would best suit Oklahoma taxpayer needs.
New Form OK-W-4 for claiming withholding allowances
Oklahoma
Withholding allowance certificate

 HB 293 reduces the state income tax rate from 5% to
4.95%, retroactively effective to January 1, 2018. The
bill also reduces the corporate income tax rate from 5%
to 4.95%.
 The Utah State Tax Commission released revised
withholding tables that apply to wages paid on and after
May 1, 2018. See Revised Publication 14, Employer
Withholding Tax Guide.
 The revised tables reflect recently enacted Utah
legislation and the changes provided for under the
federal TCJA. If taxpayers are interested in learning how
their Utah income tax liability will change in 2018, the
Commission has created a state income tax estimator
on its website.
 Employers are not required to retroactively adjust
withholding, but should begin using the revised
withholding tables as of May 1, 2018.
Income tax reportingRevised income tax
tables
 Employers are now required to file quarterly
income tax withholding returns electronically
using the Utah State Tax Commission’s
Taxpayer Access Point (TAP). (2017 SB
249.)
 Starting with the 2018 tax year, employers
will not file a separate annual reconciliation
return with Forms W-2. Instead, the
reconciliation will be combined with
employers’ fourth quarter return (for
quarterly filers) or the annual return (annual
filers). The new electronic form is Form TC-
941E, due each year with Forms W-2 on
January 31. See the Form TC-941E
template instructions.
Utah

When is a separate state Form W-4 required?
HI
FL
ME
RI
VT
NH
MANY
CTPA
NJ
DC
DE
WV
NC
SC
GA
IL
OH
IN
MIWI
KY*
TN
ALMS
AR
LATX
OK*
MOKS
IA
MN
ND
SD
NE
NMAZ
CO
UT
WY
MT
WA
OR
ID
NV
CA
VA
MD
MD
Federal Form
W-4 not allowed
No income tax
withholding
WA
AK
State income tax
withholding
AK
* New for 2018
Exemptions
do not apply

New York
voluntary payroll
expense tax

New York
Employer compensation expense tax
The New York 2018-2019 Fiscal Year
Revenue Article VII Legislation
(S7509-C/A9509-C) includes a
provision allowing employers to opt
into a new Employer Compensation
Expense Tax (ECET) that aims to
protect New York individual taxpayers
from increased federal income taxes
resulting from the $10,000 cap placed
on state and local tax deductions
under the TCJA.
If a New York employer opts to
pay the ECET for covered
employees, those covered
employees receive a tax credit
against their New York personal
income tax liability. The ECET
paid by the employer and the tax
credit received by employees is
not dollar for dollar.
Overview How it works

Payroll
expense
“Payroll expense” means wages
and compensation as defined in
IRC §§ 3121 and 3231, paid to
all covered employees (i.e.,
Medicare wages).
The annual election must be made as follows:
(1) if the employer is not a corporation, by any
member, owner, or other individual with
authority to bind the entity or sign returns
required pursuant to N.Y. Tax Law § 653; or (2)
if the employer is a for-profit or not-for-profit
corporation, by any officer or manager of the
employer who is authorized under the law of
the state where the corporation is incorporated
or under the employer’s organizational
documents to make the election and who
represents to having such authorization under
penalty of perjury.
.
How employers
opt in
No deduction
allowed
An employer is not allowed to
deduct from wages or
compensation of an employee
any amount that represents all
or any portion of the ECET.
New York

The ECET is imposed on the payroll
expense paid by the electing employers to
covered employees at a rate of 1.5% of the
payroll expense paid during each calendar
quarter for 2019, 3% of the payroll expense
paid during each calendar quarter for 2020,
and 5% of the payroll expense paid during
each calendar quarter for 2021 and
thereafter.
The electing employer is only subject to tax
on the payroll expense paid to any covered
employee during the calendar year in
excess of $40,000.
Payment of
the ECET
ECET
tax rate
The ECET is required to be paid at the
same time the electing employer is
required to remit payments under N.Y.
Tax Law § 674 (withholdings on payroll),
with certain exceptions.
The Commissioner may require that all
filings of ECET forms or returns be filed
electronically and all payments of the
ECET be paid electronically. The
Commissioner may also prescribe the
methods of quarterly filings by electing
employers, including, but not limited to,
the inclusion of specific employee-level
detail.
New York

ECET employee
tax calculations
New York
Formula
► Income Tax Credit = (covered employee’s
wages and compensation subject to New
York personal income tax in excess of
$40,000) x (ECET tax rate) x (1-[ New York
personal income tax of employee before
credits/ New York taxable Income of
employee]).
Example
► Mike, a covered employee, is paid
$5,000,000 in New York wages in 2019
and has no other New York taxable
income. Mike’s New York personal income
tax before credits is $475,000.
► Mike’s tax credit = ($5,000,000- $40,000)
X 1.5% X
(1-[$475,000/$5,000,000]) = $67,332
Formula
► ECET Due = Payroll expense in
excess of $40,000 per covered
employee x ECET tax rate
Example
► Mike’s employer paid him
$5,000,000 in Medicare wages
during calendar year 2019
ECET Due = ($5,000,000-
$40,000) X 1.5% = $74,000
ECET employer
tax calculations

 How will the IRS address the ECET?
 For New York-based employees residing in other states, will such states
allow taxpayers to include the ECET credit funded by the employer as a
credit for taxes paid to other states on their resident individual income tax
returns?
 Connecticut is considering a tax credit for Connecticut wage earners
in New York with possible establishment of “reciprocal convenience of
the employer test” so that residents working in any states with a
similar payroll tax system would benefit.
Open issues
New York

 How will the employers fund the employer-paid taxes?
 New York has hinted that the ECET can be taken from employee’s
future compensation increases (although not specifically written into
the law). In fact, the law specifically states that it cannot be deducted
from employees’ pay.
 Could there by an argument that withholding future compensation
increases to fund the employer-paid ECET would be considered
deducting from employee’s pay?
 Could this raise potential employment/labor law questions?
Open issues, cont’d
New York

 Part-year employment within New York
 For employees who periodically work in New York, the employer
would fund this tax on all compensation above $40,000 but the
individual would not have a significant income tax liability within New
York limiting the corresponding employee ECET credit on his/her New
York return. The law also does not address the allocation of income
subject to ECET. The result is a much greater ECET payment than the
employee credit.
New York

 What is the effect on professional employer organizations (PEOs)? Does
PEO elect in or the individual employers?
 Is it possible to restructure such that the business can create two
entities for employees who will be covered and those who will not?
 What is the ECET credit carry forward and potential accounting needed
where one spouse works for an electing employer and the other spouse
does not and they are claiming married and joint on the New York
personal income tax return?
 Consider human resources complexities such as New York employees
receiving an employer-funded tax credit while employees outside of New
York do not receive this same benefit.
New York

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State payroll tax
trends

2018 FUTA credit reduction states
November 10 is key
The final determination of FUTA credit reductions is made after November 10 of each calendar year and the final
outcome depends on if the state has an outstanding federal loan balance on that day.
FUTA refers to the Federal Unemployment Tax Act. BCR refers to the Benefit Cost Rate.
Jurisdiction First year
of loan
2017
FUTA
credit
reduction
Net 2017
FUTA rate
2018
FUTA credit
reduction
2018 BCR
add-on
Projected
2018 net
FUTA rate
Comments
California 2009 2.1% 2.7% 2.4% 0.0% 3.0% Loan balance
repaid in 2018.
No FUTA credit
reduction if loan
balance is $0 on
November 10
Virgin Islands 2009 2.1% 2.7% 2.4% 1.1% 4.1% Waiver of the
BCR is
anticipated

State payroll taxes for health care
Current and proposed*
Legislation
introduced to
implement universal
or single-payer
health care system
with potential funding
from payroll taxes
FL
ME
VT
NH
NY
PA
WV
NC
SC
GA
IL
OH
IN
MIWI
KY
TN
ALMS
AR
LATX
OK
MOKS
IA
MN
ND
SD
NE
NMAZ
CO
UT
WY
MT
OR
ID
NV
CA
VA
CT
RI
DE
MD
NJ
MA
WAWA
DC
AK
HI State currently
requires employer
tax for health care
funding
* Click on the dark gray states to see the proposed legislation

Effective January 1, 2018, a second tier tax is created
requiring applicable employers to pay an additional
5% (up to $750) Employer Medical Assistance
Contribution (EMAC) tax per nondisabled employee if
the employee is signed up for a public health care
plan rather than the employer’s plan.
The first-tier EMAC, applicable to employers with six
or more employees, is increased to 0.51%, up from
the current 0.34% for fully-subject employers, raising
the cost per employee from $51 to $77.
The law also provides for a two-year rate increase
(2018-2019) in the current EMAC, offset by a two-year
unemployment insurance (UI) rate decrease.
Employer EMAC taxes will increase by $200 million
per year while the UI rate decrease is expected to
save employers $335 million over the two-year period.
(HB 3822; See our alert.)
Massachusetts health care tax

States requiring paid family and medical
insurance (May 2018)
WA
(Starts in
2019)
Legislation enacted
Proposed legislation
defeated
Download our special report on
paid family and medical leave
insurance here.

States that mandate retirement savings
plans (May 2018)
Legislation enacted
A recent trend backed by historically progressive states is to mandate
that businesses without qualified retirement plans provide a payroll-
deduction option for those employees who enroll in the state-
sponsored retirement plan.
Download our special
report on state-
mandated retirement
savings plans here.

Under recently enacted legislation and effective January 1,
2019, Connecticut income tax is imposed on nonresidents
who perform their services outside of the state for the
convenience of the employee. The new telecommuter rule
applies only when nonresident employees are residents of a
state imposing a similar rule. (Public Act 18-49, Sec.
20(2)(C).)
This new telecommuter rule will not apply to sources of
income from a business, trade, profession, or occupation
carried on in Connecticut other than compensation for
personal services rendered by a nonresident employee, and
does not apply to sources of income derived by an athlete,
entertainer or performing artist, including, but not limited to, a
member of an athletic team.
The following states impose the convenience of the employer
rule:
Delaware (2017 Delaware Schedule W)
Nebraska (Neb. Admin. R. & Regs. § 003.01C)
New York (Technical Memorandum TSB-M-06(5)I)
Pennsylvania (61 Pa. Code § 109.8)
Connecticut telecommuter income tax

A ballot initiative would establish the Universal Home
Care Program funded by a shared
employer/employee payroll tax on high income
earners (defined as an employee who earns annual
wages of more than the Social Security wage base in
effect for the year) and a tax on nonwage income.
Voters will decide on this initiative on November 6,
2018.
Beginning January 1, 2019, the program would be
funded through a 3.8% payroll tax, shared by the
employer and employees at a rate of 1.9% each, and
would apply to annual employee income exceeding
the Social Security taxable wage base for the year.
The measure would also impose a 3.8% excise tax on
nonwage income for high income individuals (i.e.,
stock dividends and interest).
Legislation was proposed last year (L.D. 1612; L.D.
1618) to establish universal family and child care
programs; however, they failed to be considered.
Maine home care payroll tax ballot initiative

 Oregon employers are required pay and report the new
statewide transit tax on a quarterly basis on new OR-
STT-1 Oregon Quarterly Statewide Transit Tax
Withholding Return, and OR-STT-2, Statewide Transit
Tax Employee Detail Report, submitting payments
electronically through a Revenue Online account or with
Form OR-STT-V, Oregon Statewide Transit Tax
Quarterly Payment Voucher (by check or money order).
 The first statewide transit tax return beginning for the
third quarter 2018 are due by October 31, 2018.
 Annual reconciliation Form OR-STT-A, Oregon Annual
Statewide Transit Tax Withholding Return, must be filed
January 31 each year. (This form will also be used by
agricultural and domestic employers.)
 Agricultural employers will file returns and make
payments for the new transit tax annually, as they do
with their income tax withholding.
Transit tax
withholding
Reporting and
remittance
 2017-enacted legislation creates a new
payroll tax on Oregon residents and
nonresidents to fund state highway
upgrades. (HB 2017.)
 Effective July 1, 2018, employers and
payers must start withholding the new 0.1%
tax from (there is no employer match):
 The wages of Oregon residents
(regardless of where the work is
performed);
 Wages of nonresidents who perform
services in Oregon; and
 Periodic payments made under ORS
316.189, not including retirement income
paid to nonresidents from an Oregon
source.
Oregon
State transit tax and reporting

 Seattle Ordinance 125578 imposes an employer surcharge, called an “Employee Hours Tax,” of
$275 per year ($68.75 per quarter) per full-time equivalent employee to assist the city’s
homeless (some industries are exempt from the tax).
 At the employer’s option, a surcharge of $0.14323 per hour can be paid on the actual hours
worked by all employees in Seattle.
 A full-time employee is defined as an employee who works at least 480 hours in a quarter of a
calendar year.
 The tax will apply to businesses with employees working in the city, regardless of whether the
place of business is located within or outside of Seattle.
 The tax is imposed on Seattle businesses with $20 million or more in taxable gross income.
 Washington State Senator Mark Schoesler has introduced a bill that would ban localities from
enacting employee hours or head taxes, like Seattle’s Employee Hours Tax:
“A city or town may not impose a tax measured by employee wages, employee hours, or the
number of employment positions, which is initially enacted on or after January 1, 2018.”
Employee Hours Tax effective 2019 through 2023 (note this was
repealed by Seattle City Counsel after this webcast)
Washington
Seattle employer head tax

l
State
information
reporting and
withholding

Connecticut
Pension and annuity withholding
 Effective January 1, 2018, Connecticut
businesses are required to withhold state
income tax from pension and annuity
distributions and other deferred
compensation paid to Connecticut
residents. The withholding requirement
applies to businesses that maintain an office
or transact business in Connecticut.
 Form CT-W4P, Withholding Certificate for
Pension and Annuity Payments is revised
effective January 1, 2018, to reflect this new
requirement. (AN 2017(11).)
Income tax withholding
now required
 Employer pension or annuity
 Profit sharing plan payments
 Stock bonus
 Deferred compensation
 Individual retirement arrangement
or endowment
 Life insurance contact
.
Covered
payments

Other state information and reporting
developments
Alabama
Act 2017-294 installs
a requirement for
payment settlement
entities (PSEs) to file
Form 1099-K for all
payees with an
Alabama address.
Iowa
For tax year 2018,
businesses are
required to file Forms
1099 and W-2G with
Iowa Department of
Revenue. Previously
filing of these forms
was not required.
Vermont
Act 73 of 2017 requires third party
settlement organizations (TPSOs)
to report payments that equal or
exceed $600 per person. This
change dramatically lowers the
filing threshold, which previously
followed the federal threshold of
$20,000 and 200 or more
transactions per person.

Other state information reporting and
withholding, cont’d
Pennsylvania
Act 43 of 2017 created new withholding obligations for certain payers of Pennsylvania-
sourced income and lessees of Pennsylvania real estates to nonresidents. Starting
January 1, 2018, anyone making the following payments must withhold at the statutory
rate of 3.07%:
 Payments of Pennsylvania-source non-employee compensation or business income to a
nonresident individual or disregarded entity that has a non-resident member and is reported on a
Form 1099-MISC;
 A lessee of Pennsylvania real estate who makes a lease payment in the course of trade or business
to a non-resident lessor.

What tools
and people
are available
to do the
work?
Withholding Reporting
Are you
able to
track where
services
are
performed?
How do you
track tax
payment
schedules?
What tools
and people
are
available
to do the
work?
Do you
know your
obligations
and how to
track them?
Process
optimization
Do you
have the
resources
to close
the gap?
State information and withholding
Technology and operations considerations

l
Next steps

State payroll tax matters
Important steps employers should take
As a result of the federal Tax Cuts and Jobs Act as well as a progressive push for social reforms, state and local payroll
rules are increasing in number and complexity. Here are some important steps to consider in this current state and local
environment.
1 Consider supplemental
Form W-2 statements
that break down the
wages actually earned in
each work state
(essential for New York
where states wages must
match federal wages in
box 1)
2
Provide employees with an
annual relocation expense
statement that can be used
in states that continue to
allow the moving expense
deduction (e.g., New York;
N.Y. Tax Law Chapter 60 22
§ 612(x)
3 Give employees
notices about changes
in state and local
withholding rules, such
as a notice on the
paystub or a separate
mailing
4
Develop a
monitoring system
for tracking state
and local
statutory/regulatory
payroll and benefits
changes
5 Consider geocoding
software that identifies
employer and employee
payroll tax obligations
based on the employee’s
resident and work
location address
6 Investigate the benefits
of an electronic Form
W-4 system that
provides the latest
state and local
withholding allowance
certificates
7 Review your payroll
system earnings and
deduction code tax
settings against state
and local tax sources
Download our TaxAbility™ brochure Read more about the employer implications of federal tax reform

l
Resources

Download our special reports
Federal and state Form W-
4 compliance for 2018
An employer’s guide to the
Tax Cuts and Jobs Act
US employment tax
rates and limits for 2018
Courtesy withholding Crossing US borders
Paid family leave States move forward with
public retirement plans
Guide to Unemployment
insurance in 2017
Gross-ups Transportation fringe
benefits

Ernst & Young LLP
Putting inform
into information
Stay connected
Payroll year-end
EY Employment Tax
Payroll Perspectives from EY
Bloomberg Tax/EY 2017 Multistate Payroll Survey
EY get on board
EY Unemployment insurance FactFinder
Thank you for your participation!

Employment tax compliance across the states in 2018

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