Preparing for payroll year end and 2020 12-5-2019

Preparing for payroll
year-end and 2020
December 5, 2019
Watch the webcast replay once available ►

Preparing for payroll year-end and 2020
Disclaimer
► This presentation is provided solely for the purposes of enhancing knowledge
on tax matters; it does not take into account any specific taxpayer’s facts and
circumstances. It is not intended, and should not be relied upon, as
accounting, tax or legal advice. Ernst & Young LLP expressly disclaims any
liability in connection with the use of this presentation or its contents by any
third party.
► Neither EY nor any member firm thereof shall bear any responsibility
whatsoever for the content, accuracy, or security of any third-party websites
that are linked (by way of hyperlink or otherwise) in this presentation.
► The views expressed by the presenters are not necessarily those of Ernst &
Young LLP or other associated company or organization.

Meet the webcast panel
Moderator
Kristie Lowery
Ernst & Young LLP
National Director
Employment Tax Advisory Services
Kristie.Lowery@ey.com
Today’s panelists
Debby Salam
Ernst & Young LLP
Employment Tax
Advisory Services
debera.salam@ey.com
Peter Berard
Ernst & Young LLP
Employment Tax
Advisory Services
peter.berard@ey.com
Tom DiLorenzo
Ernst & Young LLP
Private Client
Services
thomas.dilorenzo@ey.com
Niko Arhos
Ernst & Young LLP
Employment Tax
Advisory Services
nikolaos.arhos@ey.com
Janel Razook
Ernst & Young LLP
Employment Tax
Advisory Services
janel.razook@ey.com

Table of contents

Other state and local developments 

Connect with us
Federal update
2019 payroll year-end checklist
2019 year-end resources

State paid family and medical leave
insurance


2020 Form W-4
Download the
2019 year-end checklist
__
icon to navigateClick on the
back to this table of contents
Federal, state and local taxability: myths,
facts and leading practices


Federal update

Federal employment tax rates and limits
Calendar years 2019 vs. 2020
Category Measure 2019
limit
2020
limit
Compared to
2019
Social Security wage base Year $132,900 $137,700
Salary reduction to qualified retirement
plan (e.g., 401(k))
Year $19,000 $19,500
Qualified parking Month $265 $270
Commuter highway vehicle/transit
pass
Month $265 $270
Adoption assistance Per
adoption
$14,080 $14,300
Health flexible spending account
(FSA) employee pretax
Year $2,700 $2,750
Business cents per mile Mile $0.580 Pending Pending
Federal unemployment insurance
wage base
Year $7,000 $7,000
See our 2019 rates and limits report here.

Health savings accounts (HSA) annual limits
Limit type 2019 2020
Contribution *
Self $ 3,500 $ 3,550
Family $ 7,000 $ 7,100
Out-of-pocket
Self $ 6,750 $ 6,900
Family $13,500 $13,800
High-deductible health plan (HDHP)
Self $ 1,350 $ 1,400
Family $ 2,700 $ 2,800
Keep in mind
Annual employer contributions plus
employee pretax contributions must be
reported on Form W-2, box 12, code W.
Errors in box 12, code W create tax
return filing issues for employees.
*Additional contribution of $1,000 is permitted for individuals age 55 and older.
Those enrolled in Medicare are not eligible to participate.

Taxation and reporting of moving expenses
Provision Effective date Prior law TCJA
Moving expenses
Tax Cuts and Jobs
Act (TCJA) §11048
January 1, 2018
through December 31,
2025
IRC §132(g) excludes from wages
for FIT, FITW, FICA and FUTA
purposes moving expenses under
IRC §217 reimbursed or paid
directly for the cost of moving
household goods and personal
effects from the former residence
to the new, the first 30 days of
storage for a domestic move, and
lodging and mileage expenses
incurred in travel from the old
residence to the new.
The current exclusion from
wages subject to FIT, FITW,
FICA and FUTA for moving
expenses is suspended. An
exception applies to
members of the Armed
Forces on active duty moving
pursuant to a military order.
 The IRS announced that if the moving expense was incurred in 2017 but
paid or reimbursed in 2018 or later years, the rules prior to enactment of the
TCJA apply. (Notice 2018-75)
 Even if an expense was incurred prior to January 1, 2018, but reimbursed in
later years, box 12, code P is not used except for members of the US
Armed forces on active duty.
 Not all states adopted this federal change. For example, New York treats
the amount as reported in Box 16 but not subject to state income tax
withholding (a deduction is allowed on the New York income tax return).
ImplicationsImplicationsImplicationsImplicationsImplications
ImplicationsImplications
Action steps
FIT= federal income tax
FITW = federal income tax
withholding
FICA = Social Security and
Medicare
FUTA = federal
unemployment insurance

Form W-2 verification code pilot discontinued
► The IRS announced it has discontinued the
verification code pilot effective for calendar year
2019 because the earlier Form W-2 deadline of
January 31 is now helping to prevent tax fraud.
(IRS website, rev. 9-21-2019)
► The pilot involved a population of employees whose
Form W-2 were prepared by a third-party service
provider.
► If the verification code appeared on employees’
Form W-2 in box 9 (copy B and C), they were
required to submit the Form W-2 when filing their
Forms 1040 electronically.
► The verification code box could be blank on the
Forms W-2 received by some employees.
► The verification code was 16 digits formatted as
four groups of four alphanumeric characters
(XXXX-XXXX-XXXX-XXXX).
► Puerto Rico already uses a similar authentication
code system for Forms W-2.

IRS to allow truncated SSNs on Form W-2
REG-105004-16; T.D. 9861
Truncation of SSN on Form W-2
► IRS issued final regulations that give employers the option of
truncating the Social Security number (SSN) on those copies
of Forms W-2 and W-2c provided to employees effective with
returns and statements required to be filed and furnished after
December 31, 2020.
► Truncation of the SSN will not be allowed on statements
required to be provided to employers by insurance companies
(due by January 15) detailing the third-party sick payments for
the prior year.
► Many states and localities currently require the full SSN on
state/local copies of Form W-2 and it is uncertain when and if
they will conform to this revised federal rule.

Lower electronic filing for Forms W-2
► On July 1, President Trump signed the IRS reform bill
H.R. 3151, the Taxpayer First Act that, as part of a
modernization of IRS information technology systems,
lowers the threshold for mandating the electronic filing
of information returns and creates an online Form 1099
filing system.
► The threshold for mandatory electronic filing of Forms
W-2 and 1099, currently required when there are 250
or more forms, decreases to 100 forms effective for the
2021 calendar year and to 10 for calendar years after
2021. A waiver from the electronic filing requirement will
apply to areas without internet access.
► For larger employers, the impact of the lower electronic
filing thresholds could affect the way that Forms W-2c
are filed. For instance, currently, up to 250 Forms W-2c
can be filed on paper.

Draft Form 1099-NEC for 2020
► The IRS has issued a new draft Form 1099-NEC for the
reporting of nonemployee compensation.
► Currently, nonemployee compensation is reported
on Form 1099-MISC, box 7.
► New Form 1099-NEC resolves the issue of the differing
filing due dates for Forms W-2 and Forms 1099.
► Currently, Forms 1099-MISC, except for those reporting
nonemployee compensation, are required to be filed
by March 31 (February 28 if filed on paper) while
Forms 1099-MISC reporting nonemployee
compensation must be filed by January 31, the same
due date that applies to Forms W-2.

New overtime rules for salaried-exempt
employees
► The US Department of Labor issued final
regulations that effective January 1, 2020
make the following changes to the overtime
rules governing salaried-exempt employees:
► Increases the minimum salary required for an
employee to qualify for exemption from the
currently enforced level of $455 to $684 per
week (equivalent to $35,568 per year).
► Increases the total annual compensation
requirement for “highly compensated
employees” (HCE) from the currently enforced
level of $100,000 to $107,432 per year.
► Allows employees to use nondiscretionary
bonuses and incentive payments (including
commissions) paid at least annually to satisfy
up to 10% of the standard salary level, in
recognition of evolving pay practices.

Polling question 1
Which of the following was your greatest employment
tax challenge in 2019?
A. Preparing for the changes in the 2020 Form W-4
B. Tracking compliance with state and local paid leave laws
C. Multistate payroll tax compliance for traveling employees
D. Tracking compliance with local payroll taxes
E. Don’t know or does not apply (e.g., EY, faculty, other)

2020 Form W-4: employer considerations

Form W-4 and personal allowances
Provision Effective date Prior law TCJA
Suspension of the
personal exemption
deduction and the
Form W-4
TCJA §11041
January 1, 2018
through December
31, 2025
The 2018 and 2019
income tax withholding
methods and tables are
designed to work with
the existing Form W-4.
Employees may claim personal
allowances for themselves,
their spouse and their children,
which for 2017 was $4,050 per
allowance.
Personal allowances could be
claimed on Form W-4, Line 5
to lower federal income tax
withholding.
The deduction for personal
allowances is suspended
through December 31,
2025.
The law required the IRS
to revise the Form W-4
and income tax
withholding requirements
by tax year 2019, but due
to the significant impact on
federal income tax
withholding calculations,
the update was delayed
until 2020.
 The IRS has indicated that a number of taxpayers were underwithheld for
2018, likely because they did not update Forms W-4 where allowances
were claimed.
 The same could be true for 2019 if taxpayers did not properly update
Forms W-4 where allowances were claimed.
Impact

Form W-4 changes for 2020
► The IRS released the final Form W-4 for 2020 on December 5, 2019 that
includes numerous changes from prior years.
► The IRS released the second draft of Publication 15-T that contains
significant changes to the income tax withholding instructions for 2020 and
the early release of the 2020 percentage method withholding tables for use
by automated payroll systems. (The final Publication 15-T will be published in
mid December)
► The IRS has not yet revised the lock-in letter process which is still based on
the prior version of the Form W-4 and personal allowances. The IRS has not
yet indicated when guidance or revisions to the lock-in letter process will
occur. (IRS Publication 15, pg. 22)

Form W-4, Marital status
2019 Form W-4 Draft 2020 Form W-4
► Single
► Married
► Married but withhold at higher single rate
Step 1:
► Single or married filing separately
► Married filing jointly (or qualifying widow(s))
► Head of household
Form W-4, Personal allowances
► Total number of allowances you’re claiming (from
the applicable worksheet on the following pages)
► Step 2: Check box 2 if multiple jobs and/or
married filing jointly and spouse also works*
► Step 3: Claim dependent exemption (for 2019,
$2,000 for qualifying children under 17 and
$500 for other dependents)*
The IRS announced the following changes will be made to the Form W-4 in 2020 to
accommodate the changes under the TCJA and to improve accuracy in withholding.
Major Form W-4 overhaul for 2020
* For employees who have not submitted a Form 2020 Form W-4, treat these fields as having no data.

Form W-4, Other adjustments
► Additional amount, if any, you want withheld from
each paycheck
Step 4:
► Enter any additional tax you want withheld
each pay period including any amount from
Step 2
Additional fields*
► Other income: Enter the amount of other
income you expect this year that won’t have
withholding*
► Deductions: If you expect to claim deductions
other than the standard deduction and want to
reduce your withholding, use the Deductions
Worksheet and enter the result here*
Major Form W-4 overhaul for 2020, continued
* For employees who have not submitted a Form 2020 Form W-4, treat these fields as having no data.

Form W-4, Other adjustments
► (Step 7) Claim exempt from federal income tax
withholding
► There is no designated entry on the 2020
Form W-4 to claim exemption from federal
income tax withholding.
► Employees are instructed to write “Exempt”
on Form W-4 in the space below Step 4(c) to
have no federal income tax withheld from
their paychecks.
► Electronic systems may add a check box for
claiming exemption provided they include the
conditions for claiming exemption (see
Publication 15-T).
► The IRS has indicated it is not considering
comments to add a designated check box for
claiming exemption from federal income tax
withholding.
Major Form W-4 overhaul for 2020, continued

Form W-4 changes for 2020, continued
► For those employees who furnished forms before 2020 and who do
not furnish a new one after 2019, you must continue to withhold
based on the form previously submitted.
► You are not permitted to treat employees as failing to furnish Forms
W-4 if they don’t furnish a new Form W-4. Note that special rules
apply to Forms W-4 claiming exemption from withholding.
► The same withholding tables will be used for Forms W-4 issued
before 2020 and Forms W-4 issued in 2020 and later years.
► You can apply these tables separately to systems for new and old forms
OR
► You can use a single system based on the new Form W-4. To do this, you
could enter zero or leave blank the data fields from the new Form W-4 that
are not available because the employee still has an old form on
file. Publication 15-T provides specific instructions for calculating income
tax for the old and new Form W-4 (IRS FAQs)

► When computing the income tax adjustment for nonresident aliens,
two tables are provided: one table for Forms W-4 issued before 2020,
and another table for those issued in 2020 and later years.
* These dollar amounts will be indexed for inflation for 2020.
*

► Employee submitted a 2018 Form W-4 claiming married and 2 allowances.
He did not submit a new Form W-4 after January 1, 2020.
► In this case, the Standard Withholding Rate Schedules are used.

State income tax withholding calculations
starting January 1, 2020
► For states that continue to allow use of the
Federal Form W-4, the additional fields of the
2020 Form W-4 are ignored in the state’s
income tax withholding calculation.
► It is expected that states currently allowing
use of the Federal Form W-4 will either issue
guidance before 2020 or will require use of
their own specific state form.
► See the heat map on the following slide for
those states that still allow use of the federal
Form W-4.

Form W-4 overhaul for 2020
State income tax withholding impact
New state form available in 2019:
Idaho, Montana, Oklahoma, Oregon
MT ND MN
ID WY SD IA IL IN OH PA NJ CT
WI MI NY MA
VT NH
ME
OR
CA
NV CO NE MO KY WV VA DC DE
UT NM KS AR TN NC SC MD
AZ OK LA MS AL GA
FLTX
WA
Employers will need to closely watch the states shaded in yellow as
further guidance will be needed on how state income will be withheld in
light of the extensively modified 2020 Form W-4. This heat map is current
as of November 24, 2019.
No state income
tax withholding
Use of federal
Form W-4 allowed
Specific state form
is available
Withholding allowances
do not apply
Federal Form W-4 not
allowed for new hires,
changes after 12/31/19
Legend
New state form available 2020:
Nebraska
State personal
allowances apply and
Form W-4 is allowed
Use of federal
Form W-4 allowed

Employee
support
► Consider a call
center operated by
a third-party tax
professional firm
to respond to Form
W-4 questions.
4
3
2
1
System retesting
► Using 2020
Forms W-4
collected post-
employee
orientation, test
federal income tax
withholding using
2020 tables.
Employee
orientation
► Notify all
employees of the
new 2020
Form W-4.
► Consider third-
party tax
professional
assistance
(webcast, video,
portal).
System testing
► Test Form W-4
systems and employee
master file integration
with mock data for new
2020 fields.
► Test federal income tax
withholding calculations
using 2019 tables in
Publication 15-T.
► Test state income tax
withholding using mock
data.
November to
December 2019
December 2019
December 2019
December to
April 2020
Form W-4 employer implementation
Leading practices

Polling question 2
How confident are you that your employer will meet the
new Form W-4 and income tax withholding requirements
for 2020?
A. Extremely confident
B. Somewhat confident
C. Not at all confident
D. Don’t know or does not apply (e.g., EY, faculty, other)

2020 Form W-4: employee considerations

Employee frequently asked questions
What are the
risks for not
updating my
Form W-4 for
2020?
Employees who choose not to update their W-4 take the risk of paying too much
or paying too little in taxes through the year. Paying too much through
withholding will lead to a tax refund, but it also means you had less money for
your day-to-day expenses throughout the year. So, for employees on a tight
budget, over-withholding can create unnecessary budgeting problems.
Employees that do not withhold enough to cover their tax liability not only face
the problem of having a tax bill when they file their Form 1040, but the IRS also
imposes a penalty if you severely underwithhold on your tax liability. When filing
your tax return, the IRS looks to see if you withheld enough to cover at least
90% of your total to tax liability. If you did not, the IRS will check to see if you
paid at least 100% (110% if adjusted gross income (AGI) is over $150,000 or
$75,000 if married filing separate) of your tax liability in the previous year. If you
do not meet either of these requirements, the IRS will impose an underpayment
tax penalty.
What if I have a
simple tax
situation?
If you have a simple tax situation, you can complete just step 1 and then sign
the form. When completing only step 1, the withholding will be based on your
filing status’s standard deduction and tax rates applicable to the wages paid by
your employer, without regard to any second job or other income.

Employee frequently asked questions, continued
How will the
updated Form
W-4 increase
the accuracy of
federal income
tax withholding?
After determining your filing status in step 1, steps 2-4 take a deeper
look into your personal situation to get a better sense of your tax
situation. Step 2 asks for information concerning a second job
because if you have significant wage income from different sources
your withholding should be greater to account for the added income.
Step 3 will ask you to input information about dependents in order to
estimate how much of a child tax credit you will receive. The higher
your child tax credit, the lower the required withholding.
Step 4 then asks you to consider any other income from which
income tax will not be withheld, such as investment income.
Withholding extra amounts to cover the tax owed from other income
sources can save you from the requirement to make quarterly
estimated tax payments.
Step 4 also gives taxpayers who itemize their deduction, instead of
taking the standard deduction, to input their itemized deduction
amount thereby lowering the amount of withholding.

How can I
adjust my
withholding for
multiple jobs
(Form W-4,
step 2)?
Step 2, option 1. This is the most accurate and best option if you want
privacy in not revealing your other job to your current employer. This
option requires you to use the IRS Tax Withholding Estimator and input
the results from this calculator to the Form W-4.
Step 2, option 2. If you do not want to use the IRS Tax Withholding
Estimator, this option allows you to use a worksheet to input the
income from your second job, while still not revealing the second job to
your employer.
Step 2, option 3. This is the least accurate and will also reveal to your
employer that you have a second job. If you check the box for option 3
you are stating that you have multiple jobs. The standard deduction
and tax brackets will be split evenly between the two jobs. This is not
as accurate as other methods since it is possible the jobs do not
provide equal income.

When should I
make changes
to increase or
decrease my
withholding on
Form W-4?
There are many life events that can result in the need to change your
tax withholding. Taking on a second job, a spouse getting a new job,
and investment income, these are all reasons you may want to
increase your withholding. Getting married, having a child, and
increases in tax deductions are potential reasons to decrease your
withholding.
Tax deductions can increase from having a large medical expense in
the year, purchasing a home, or donating a large amount of money to
charity.

What resources
are available for
reviewing my
Form W-4?
In order to update your W-4, please use the following resources:
2020 Form W-4
Tax Withholding Estimator
Guidance and information on the new W-4 process
Check with your employer on how to submit Form W-4 changes.

Polling question 3
Which of the following is your business planning to
deploy to assist your employees in understanding the
2020 Form W-4? (Select all that apply)
A. Explanatory letter
B. Live training event
C. Employee website with training materials
D. Call center to respond to employee questions
E. None of the above
F. Don’t know or does not apply (e.g., EY, faculty, other)

State paid family and medical leave (PFML)
insurance

PFML insurance
WA*
2019 MT ND
WY SD IA IL IN OH PA
NJ
2008
CT*
2021
WI MI NY
2018
MA*
2019
RI
2014
VT NH
OR*
2022
CA
2004
NV CO
Pending
NE MO KY WV
DC*
2019 DE
UT NM AR TN NC SC MD
AZ LA MS AL GA
FLTX
AK HI
In 2004, California was the first to adopt a state insurance
program to provide wage replacement for time off to care for
family members. But since 2018, a trend has sparked in
historically progressive states.
Law for paid family and medical
insurance program enacted
Law for paid family and medical
insurance program under
consideration
*Click on the state for more information on the PFML contribution rate.

PFML insurance
Overview
When PFML benefits are
paid by the state fund, they
are reported by the state on
Form 1099-G and on Form
W-2 when paid by employer
or private insurance provider.
Most states allow
employers to self-insure
for PFML or use a third-
party insurance
company in lieu of the
state fund.
Unlike state disability insurance (SDI)
that covers only the illness of the
employee, PFML also applies in the
event of the illness of a family member.
PFML generally follows
state unemployment
insurance (SUI) law for
purposes of covered
employment and to
define taxable wages
(however, the SUI wage
limit does not
necessarily apply).
PFML is generally
administed by the state’s
unemployment
insurance agency with
some exceptions (e.g.,
New York).

Leave plan benefits comparison
Taxability
Paid time off
Regular taxable
wages
State disability-state plan
Taxable wages to the extent the
employer paid the contribution
State disability-private plan
Taxable wages to the extent the
employer paid the premium
PFML-state plan
Not included in taxable wages.
Reported on Form 1099-G
PFML-private plan
The full amount is treated
as taxable wages
Paid-time off, even if mandated by a state or local law, is treated as regular taxable wages unless paid
under a qualified plan for disability or PFML. Taxable disability benefits are subject to FICA and FUTA
only for the first six-month coverage period.

Taxability of PFML employee contributions
paid by the employer
► For the purposes of FIT, FITW, FICA and
FUTA, when an employer pays federal, state
or local taxes that are required of the
employee, the amount is included in wages
subject to FIT, FITW, FICA and FUTA (IRS
Reg. § 31.3401(a)-1(b)(6); IRC § 3306(b)(6);
IRC § 3121(a)(6)).
► Whether the employer is paying the
employee’s “tax” under the PFML program
depends on state law and whether the
employee is in fact obligated to pay the
premium.
► Guidance is needed from the IRS to address
this matter fully.

Polling question 4
Are you planning on having a third-party accounting
firm support your call-in center for employees’ Form
W-4 questions?
A. Yes
B. No
C. We are not planning to offer a call-in center for employees’ Form
W-4 questions

Other state and local developments

State unemployment insurance
2019 wage bases at a glance
WA
$49,800
MT
$33,000
ND
$36,400
MN
$34,000
ID
$40,000
WY
$25,400
SD
$15,000
IA
$30,600
IL
$12,960
IN
$9,500
OH
$9,500
PA
$10,000
NJ
$34,400
CT
$15,000
WI
$14,000
MI
$9,000
NY
$11,400
MA
$15,000
RI
$25,100
VT
$15,600
NH
$14,000
ME
$12,000
OR
$40,600
CA
$7,000
NV
$31,200
CO
$13,100
NE
$9,000
MO
$12,000
KY
$10,500
WV
$12,000
VA
$8,000
DC
$9,000
DE
$16,500
UT
$35,300
NM
$24,800
KS
$14,000
AR
$10,000
TN
$7,000
NC
$24,300
SC
$14,000
MD
$8,500
AZ
$7,000
OK
$18,100
LA
$7,700
MS
$14,000
AL
$8,000
GA
$9,500
FL
$7,000
TX
$9,000
AK
$39,900
HI
$46,800
PR
$7,000
©Copyright 2019. Ernst & Young LLP. All rights reserved.
Federal
minimum
Wage base of
$18,100 to $30,600
Wage base of
$30,600 to $49,800
Wage base is
adjusted annually
VI
$26,500
Wage base of
$7,000 to $18,100

How do your work states rate?
This can affect the state unemployment insurance (UI) tax rates that apply
State Jobless
rate as of
May 2019
Ranking
Vermont 2.1% (↓) 1
North Dakota 2.3% (↓) 2
Iowa 2.4% (↓) 3
New Hampshire 2.4% (↓) 3
Hawaii 2.8% (↑) 4
Idaho 2.8% (↓) 4
Wisconsin 2.8% (↓) 4
South Dakota 2.9% (↓) 5
Utah 2.9% (↓) 5
Massachusetts 3.0% (↓) 6
2019 lowest 10
State Jobless
rate as of
May 2019
Ranking
Puerto Rico 8.5% (↓) 23
Alaska 6.4% (↓) 22
Washington DC 5.7% ( - ) 21
Mississippi 5.0% (↑) 20
New Mexico 5.0% (↑) 20
Virgin Islands 4.9% (↓) 19
Arizona 4.9% (↑) 19
West Virginia 4.8% (↓) 18
Washington 4.7% (↑) 17
Louisiana 4.4% (↓) 16
2019 highest 10
Jobless rate
The national jobless rate dropped from 3.8% to 3.6% between May 2018 and May 2019
(↑) Increase from 2018 (↓) Decrease from 2018 ( − ) No change from 2018

State First year
of loan
2018 FUTA
credit
reduction
Net 2018
FUTA rate
Projected
2019 FUTA
credit
reduction
Waived
2019
Benefit
Cost Rate
(BCR)
add-on1
Projected
2019 net
FUTA
rate2
Total projected
2019 FUTA cost
in excess of the
standard $42
per employee
Virgin
Islands
2009 2.4% 3.0% 2.7% 0.0% 3.3% $189
Legend
FUTA credit reduction for 2019
BCR courtesy of the U.S. Department of Labor (USDOL). The 2.7 add-on could, in certain
cases, apply if the BCR add-on is waived; however, the USDOL indicated that this will not be
the case for the Virgin Islands in 2019.
1

State unemployment insurance cost trends
2013 2014 2015 2016 2017 2018 2019
State increase in jobless rate 3 21 15 5 7 15
Increase in wage base 23 22 24 24 21 18 20
Decrease in SUI wage base 2 2 1 2 1 8 3
Decrease in SUI base tax rates 15 24 21 26 16 23 18
Increase in SUI base tax rates 12 7 9 5 7 4 3
0
5
10
15
20
25
30
Basic comparison 2013–2019
Observations of cost
trends 2013 to 2019
 There were fewer
jurisdictions that increased
their base tax rates in 2019
than in any other year since
2013.
 2013 saw the largest
number of jurisdictions with
base tax rate increases.
number of jurisdictions with
base tax rate decreases.
number of jurisdictions
with an SUI wage base
decrease.
Numberofjurisdictions

19
14
8
5
2 2
1 1
2012 2013 2014 2015 2016 2017 2018 2019
Number of jurisdictions subject to the FUTA credit reduction from 2012–2019
FUTA credit reduction

Connecticut
► 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
and mirrors the rule of the state where the employee is
working.
California
► On September 11, 2019, the California Senate passed
legislation under AB-5 to codify the California Supreme Court
decision in Dynamex Operations West, Inc. v. Superior Court
(the ABC test) and expand and clarify its application. This bill
would significantly impact all industries that customarily
engage independent contractors; however, it is widely
believed that it would have the greatest impact on the gig
economy (e.g., rideshare and delivery drivers).

New Jersey
► New Jersey legislation (SB 1567) will require employers of
20 or more employees to offer pretax transportation fringe
benefits to employees effective the earlier of March 1, 2020
or the effective date of regulations to be adopted by the New
Jersey Department of Labor & Workforce Development.
► Further clarification will be necessary because New Jersey
tax law offers no tax benefit for pretax transit benefits.
New Jersey,
Jersey City
► In November 2018 the Jersey City, New Jersey city council
unanimously approved the establishment of a 1% payroll tax
paid by employers. (Ordinance 18-133; Jersey City Office of
Tax Collector website.)
► This tax is paid by employers and is not withheld from wages
paid to employees. All private for-profit employers located
within Jersey City with a quarterly gross payroll of $2,500 or
more are subject to the tax on the wages of non-Jersey City
residents.

New York,
New York City
► Legislation was introduced under Senate Bill S6709 to
impose a New York City payroll tax paid by the city’s
employers for the funding of expanded child care services.
The proposal comes as a result of the New York City
Comptroller’s “NYC Under Three” that lays out the reasoning
for implementing a plan to make childcare affordable for New
York City families.
► The payroll tax, which would not be deducted from
employees’ wages, would be graduated based on the
employer’s quarterly payroll expense as follows:
.15% of the payroll expense for employers with payroll
expense over $625,000 and not more than $1.25 million
expense over $1.25 million and not more than $2.5 million
expense over $2.5 million

Pennsylvania,
Philadelphia
► On November 26, 2019, Philadelphia Mayor Jim Kenney
officially signed into law a groundbreaking ordinance
establishing a bill of rights for domestic workers that
includes, in addition to basic labor protections, a legal right
to a portable paid time off system that takes effect May 1,
2020.
► Except for casual work, and any exemptions created as part
of the establishment of the portable benefits system, each
employer of the domestic worker is required to pay its pro-
rata share of paid leave funds into the portable leave
system based on the hours worked for the employer.
► The ordinance is silent concerning how payroll taxes will be
withheld and paid and reporting requirements met (e.g.,
Form W-2).
► There is widespread speculation that Philadelphia’s
landmark portable benefits program will be a model
emulated in cities and states across the US for all gig
workers.

West Virginia,
Montgomery
► Effective July 1, 2019, the City of Montgomery, West Virginia
requires employers with a place of business located within
the city to withhold a city service fee from the wages of
employees working within the city. (City ordinance enacted
May 2019.)
► From July 1, 2019 through June 30, 2020 the service fee is
$1 per calendar week, increasing to $1.50 per week on July
1, 2020 and $2 per week on July 1, 2021. Employers may
choose to instead pay the fee rather than withholding it from
employee wages.
Washington
► Recently enacted Washington state legislation (HB 1087)
establishes a state-run long-term care insurance program.
► Beginning January 1, 2022, and through December 31, 2023,
employers will withhold and remit to the Washington
Employment Security Department premiums equal to 0.58%
of employee wages. Effective January 1, 2024, the
Department will determine the premium biannually at a rate
not greater than 0.58%.

Mobile workforce income tax
Federal proposed legislation
Mobile Workforce State Income Tax
Simplification Act of 2019 (H.R.4796 / S.604)
► First introduced in 2009
► Currently opposed by the Federation of Tax
Administrators and the National Governors
Association
► Also opposed by states that benefit the most
from nonresident income tax revenues (e.g.,
New York)
► Currently supported by the American Institute of
Certified Public Accountants and the American
Payroll Association
► Notably, the proposed legislation would prohibit a
state from imposing an income tax on
nonresident individuals who work within the
nonresident state for 30 or fewer days
► The bill does not address the tax treatment of
equity or other trailing compensation
Barriers to passage
Currently opposed by
Senate Majority
While passed by the House
in 2012 and 2015, it failed to
gain traction in the Senate
both times
Currently, more pressing
matters are likely to take
priority, namely, health care
and immigration
1
2
3

As a result of the federal TCJA 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.
State payroll tax matters
Important steps employers should take

Polling question 5
How confident are you that your business is prepared
to meet changing state Form W-4 requirements?
A. Extremely confident
B. Somewhat confident
C. Not at all confident

Federal, state and local taxability

Tax set up
Are the proper attributes for Social
Security, Medicare, federal and
state income tax and
assigned? Is the item properly
classified as supplemental
wages? Tax setup can vary based
on tax type (unemployment
insurance, income tax) and
jurisdiction (federal, state and
local).
Labeling
Frequently, an earning or deduction
code is improperly named, causing
an incorrect tax setup. For instance,
a deduction code for an HSA may
be improperly labeled as a health
flexible spending account. The
annual limits and federal and state
tax treatment differ depending on
how a code is labeled.
Reporting
Depending on the nature of the
benefit plan (e.g., stock, life
insurance), special Form W-2
reporting may be required.
Earnings and deduction codes
What can go wrong?

Tax overpayments
Configuration errors can result in the
overpayment of employment taxes
such as Social Security, Medicare and
unemployment insurance.
Reputational risk
Errors can impact employees’ tax
returns, loan approvals, and more,
leading to negative and unwanted
publicity.
Litigation
Some tax and reporting errors,
particularly for nonqualified plans, can
lead to costly employee litigation
(Davidson v. Henkel Corporation, DC
MI, 115 AFTR 2d 2015-369, 1/6/15).
Officers’ personal liability
Most state and local taxing authorities
hold officers personally liable for the
consequences of tax and reporting.
errors.
Tax reporting penalties
Federal, state and local penalties can
be assessed for incorrect wage
reporting.
Withholding tax liability
Employers are generally liable for
100% of the taxes they fail to withhold.
Watch the video
Risks and opportunities

Localities follow the
state income tax definition
of taxable wages...
Not necessarily.
Kentucky locals, for
instance, each have their
own unique definition of
taxable wages.
Myth
Fact
Myths and facts—local taxability

Very few states follow
the federal definition of
taxable wages for state
purposes.
Taxable wages for state
unemployment
insurance is the same
as taxable wages for
federal unemployment
insurance…
Myth
Fact
Myths and facts—unemployment insurance taxability

Some states do not
conform to the Internal
Revenue Code (IRC),
and others must pass
legislation periodically to
conform to the IRC.
Myth Fact
Myths and facts—state income tax taxability

Is it time for an earnings and deduction code
review?
Excitation Phase
Work
performed in
multiple
states
History of
federal and
state W-2
errors
Equity or similar
complex benefit
plans
Change in payroll system
or key vendor
Reliance
on
third-party
system
Is it time for
an earnings
and deduction
code review?
Consider time and
resources devoted
to testing and overall
governance
Consider the
number of local
taxing jurisdictions
where employees
live and work
Consider not only
volume of error but also
those involving officers
and the highly paidConsider the extent that
benefits and human resources
are routinely involved in tax
configuration review

Polling question 6
Do you currently hold the designation of Certified
Payroll Professional (CPP) or Fundamental Payroll
Certification (FPC)? (An RCH certificate will be
emailed only if you answer “yes”)
A. Yes
B. No

Payroll year-end checklist

Building your payroll year-end checklist
Some items to consider
Employee level review Company-level review
Coordinate third-party data feeds Coordinate internal data feeds
► Pension and benefit plans
► Stock and equity compensation
► Transit pass and parking
► Relocation
► Tax equalization/shadow payroll
► Disability pay
► General ledger (non-wage payments)
► Employee expense reports
► Vehicles (including personal jet)
► Employee loans and receivables
► Employee recognition and other awards
► Short-term business travel tax true up
► Confirm tax withholdings
► Pretax limits not exceeded
► Federal, state and local reported
wages and taxes reconcile
► Valid SSN and work/home address
► Bank reconciliation through December
► Form W-2, 941 and 940 reconciliation
► Federal-state-local wage reconciliation
► Tax payment and deposit reconciliation
► Company ID data (Employer
Identification Number, address, etc.)

Payroll year-end preparations
Timeline
Oct. 1 – Dec. 15
Confirm tax settings and
Form W-2 mapping for pay
and deduction codes.
Dec. 1 – Dec. 15
Review year-end checklist
items for completeness with
eye to federal, state and local
changes in law or regulations.
Jan. 1 – Jan. 15
Verify that all notices required under
federal, state and local law are, or
will be handled (e.g., EITC notices).
Test accuracy of W-2 files.
Dec. 1 – Dec. 15
Compare employee work state
and resident state to income tax
withholding deposits and
returns and identify gaps where
income tax not withheld or
returns not filed. Sample test
withholding calculations.
Dec. 31 – Jan. 15
Reconcile federal, state and
local wages and taxes per
system data to pro-forma returns
and information statements.
Confirm systems updates for
2018 for income tax and
unemployment insurance.
Jan. 15 – Apr. 15
Reconcile amended Forms
W-2 to Forms 940/941 and
state and local equivalents.
1
2
3
64
5

2019 year-end resources

2019 year-end resources
Form W-2
SSA specifications for filing electronically
SSA AccuWage (testing files)
IRS specifications for substitute forms (Pub. 1141)
Ernst & Young LLP Form W-2 FAQs (rev. 2018)
Request a year-end training session
Ernst & Young LLP Correcting W-2 errors (rev. 2018)
Form W-2 and W-3 instructions
Fringe benefits reporting for 2019 – FAQs
Fringe benefits federal reporting chart

Paid family and medical leave insurance
State enactments 2019-2022

Connecticut (effective January 1, 2021)
► Effective January 1, 2021 Connecticut employers will begin withholding for
Connecticut PFML up to 0.5% (to be determined by a state board) of covered
wages up to the Social Security wage limit in effect for the year (for example,
$132,900 if the tax were in effect in 2019)
► There is no employee contribution
► For more information, see Public Act 19-25 and Governor’s press release

District of Columbia (effective July 1, 2019)
► Effective July 1, 2019, District of Columbia employers are required to pay
PFML contributions of 0.62% of covered employees’ gross wages for each
quarter.
► The District’s PFL program is funded 100% by employers and employers
are not allowed to deduct any of the assessment from employee wages.
► Although the program’s effective date was July 1, 2019, employers were
required to report gross employee wages from April 1, 2019 through June
30, 2019 (second quarter 2019) and pay 0.62% of these gross wages by
July 31, 2019.
► While the program follows the District’s definition of wages under its
unemployment insurance law, there is no wage limit for PFML.
► More information is available here.

Massachusetts (effective October 1, 2019)
► The Massachusetts PFML contribution rate is set each year and applies up to
the Social Security wage limit, or $132,900 for 2019
► For 2019, the $132,900 wage limit applies to total wages paid between October
1, 2019 and December 31, 2019, and not to the year-to-date Social Security
wages paid.
► Employers with fewer than 25 average employees from the last calendar year
are not required to pay any portion of the PFML, hence the employee
contribution rate for 2019 is 0.378% of eligible wages.
► Employers with 25 or more average employees are required to pay and
deduct PFML as follows:
► Up to 100% of the family leave contribution can be withheld from a covered
individual’s wages (0.13% of eligible wages for 2019)
► Up to 40% of the medical leave contribution can be withheld from a covered
individual’s wages (0.248% of eligible wages)
► Employers are responsible for contributing the remaining 60% of the medical
leave contribution (0.372% of eligible wages)

Oregon (effective January 1, 2022)
► Under HB 2005 and effective January 1, 2022, employers of 25 or more
employees will begin paying at least 40% of contributions and withholding up
to 60% of contributions from employee wages, up to a maximum 1.0%
combined contribution rate on employee wages of up to $132,900 (indexed
annually for inflation).
► Both the contribution rate and taxable wage limit will be determined annually
by the Department (Governor’s press release, August 8, 2019).
► The definition of wages is the same as for state unemployment insurance
(ORS 657.105), but the taxable wage limit will differ. If employers of fewer
than 25 employees elect to pay the 40% employer portion they may be
eligible for a state grant.
► Employers with fewer than 25 employees are exempt from paying the
employer contribution.

Washington (effective January 1, 2019)
► Effective January 1, 2019 through December 31, 2020, a PFML premium rate
of 0.4% is in effect, with Washington employers required to pay at least
36.67% of the premium, and employees up to 63.33% of the premium, on
wages up to the Social Security taxable wage base ($132,900 for 2019).
► Employers may choose to pay up to 100% of the premium.
► Employers with 50 or fewer employees are exempt from the requirement to
pay the employer share of the premiums, though they may choose to do so.
These employers must still remit premiums and file quarterly reports.
► More information is available here.

Download our special reports
Federal and state Form
W-4 compliance for 2019
Employing staff in the US US employment tax
rates and limits for 2019
Courtesy withholding Crossing US borders
Paid family leave Managing wage repayments Direct deposit and
pay cards - state rules
Gross-ups Managing third-party
payroll outsourcing
arrangements

TaxAbility™
Map, confirm and streamline pay/deduction code settings
► Upload plan documents to your
TaxAbility™ portal for hyperlinking to
your pay and deduction codes
► We work with you to identify those
plans impacted by tax reform and the
changes required. Tax configuration
schemes are then matched to your
final plan documents to confirm they
are correct
► Align your pay and deduction codes to
our standardized list of compensation
types configured to comply with tax
agency sources and flag those
implicated by tax reform
► Our compensation and benefits
professionals can team to provide
insights on plan design and operation
compliance
► An exception report is
provided showing pay and
deduction code settings
that may be incorrect
► Pay codes are verified for proper
supplemental wage indicators
► Special Form W-2 reporting information,
if applicable, is provided for your pay and
deduction codes
► Refer to your TaxAbility™ portal
throughout the year for tax rules, plan
documents and key information to
support your tax configuration settings
► Access white papers and other
thought leadership from your
TaxAbility™ portal for updates and
insights on payroll tax and reporting
rules
TaxAbility™ documents are
housed within our secure
portal
Maintain
Confirm tax
setup
Define
TaxAbility™
Match plan
document
Anytime is the right time to
review the accuracy of your
payroll system tax settings.
Watch the video

View our services
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