Category Archives: Payroll Tax

Employers face liability under payroll tax deferral guidance

Posted on by • Posted in Coronavirus, Deferred Payroll Tax Liability, Economic Crisis, Economic Stimulus, Executive Orders, Health System, Hospital, Hospital Industry, Internal Revenue Service (IRS), Payroll Tax • Leave a comment

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The onus to collect and pay back deferred payroll taxes, under guidance the IRS has released on President Trump’s executive order, falls on employers.

Trump signed the order last month after Congress failed to agree on extending COVD-19-related stimulus benefits. It directs participating employers not to withhold the 6.2% payroll tax that employees owe each pay period to cover their portion of Social Security taxes.

The absence of withholding gives employees a bigger paycheck, although they still must repay the deferred withholdings next year, unless Congress waives the liability. 

The benefit applies to employees earning less than $4,000 every two weeks, or about $104,000 a year. It’s in effect for paychecks issued between September 1 and the end of the year.

Effectiveness in doubt

Under the IRS guidance, liability for paying back the uncollected taxes could ultimately fall on employers; there’s no language explaining how deferred taxes will be returned to the Treasury if an employee quits between now and the end of the year or otherwise can’t pay the deferred taxes.

“You could give [the tax deferral] to the employee, but then a year from now you might be on the hook for the money,” University of Chicago law professor Daniel Hemel told CNBC.

“Liability is going to stick to the employer like flies to flypaper,” Marianna Dyson, a lawyer at Washington firm Covington & Burling, told The Wall Street Journal.

Low participation

Many employers may choose not to participate, which would dampen the stimulus impact.

“Many [employers could] decline putting the extra money in workers’ paychecks — blunting any potential economic or political boost Trump had hoped to reap,” an Accounting Today/Bloomberg News analysis said.

The last-minute revamping of systems to administer the change could also deter participation.

“The programming changes are substantial in scope,” the National Payroll Reporting Consortium said in an August 20 statement. 

The deferral is also not a clear win for employees, who could face double withholdings when taxes must be repaid early next year.

“It’s not clear employees will want to take it, even if they qualify.” Pete Isberg, vice president of payroll processing company ADP, told the Washington Post.

 

 

 

 

One State’s Big Leap to Reduce Medicare and Medicaid’s Out-of-Pocket Costs

Posted on by • Posted in Continuum of Care, Health Insurance Coverage Adequacy, Health Policy, High Deductible Health Plans, Long-Term Healthcare, Out of Pocket Expenses, Payroll Tax • Leave a comment

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Washington state is going further than any other to cover aging Americans’ medical bills.

More than 15 percent of Americans have already reached the age of 65, and by 2030 that number will have risen to one in five as the last of the baby boomers reach retirement age. Despite these numbers, insurance options to cover the long-term health-care needs that many aging Americans will need are elusive. While Medicare pays for medical services in a nursing facility, it covers the cost of the stay itself only for short stints. And Medicaid typically covers long-term care only for those Americans with virtually no assets.

It’s an issue that state legislatures are continually revisiting, but overall there’s been little progress toward meeting the full health-care costs of the elderly. This year, however, the state of Washington passed legislation that will go further than any other state in closing coverage gaps for a large proportion of its residents.

The program will be funded by a wage tax of about 0.6 percent, which kicks in in 2022. Beginning in 2025, the state will offer a maximum lifetime benefit of $36,500 for a person to use for long-term care needs, with the benefit indexed to rise annually with inflation. The coverage isn’t universal: To use the money — up to $100 a day — a resident will need to have worked and paid into the program for at least three years in the past six or for a total of 10 years with five years of uninterrupted work. In addition to the standard stay in a nursing home, the benefit will cover items such as installing wheelchair ramps at home and providing services such as those offered at an assisted living facility or by in-home care.

A challenge for the state will be to make sure that as residents’ paychecks reflect the new wage tax, they understand where their money is going. “We need a backstock of resources, and that’s what this does,” says Jason McGill, health policy adviser to Gov. Jay Inslee. “They might not know what they’re paying into, and it’s our next step to communicate what that is and why it’s important.”

While Washington’s approach is broader than most, advocates say there are plenty of other ways to chip away at the unaffordability of health care for the elderly. “It’s not one thing or the other. It’s a series of policy changes that will change the landscape,” says Elaine Ryan, vice president for state advocacy and strategy integration at AARP.

Ryan lists helping with caregiver expenses as a good place to start, given that the average out-of-pocket cost for a caregiver is $7,000 a year. Hawaii took such a step in 2017 with legislation providing $70 a day for up to a year for caregiver expenses. A couple of other states are weighing tax credits for caregiving costs, and a bipartisan federal bill taking that approach is pending.

Another step that would lessen the burden of long-term health care costs would be to implement more flexible sick-leave policies that would make it easier for employees to care for aging relatives. “It’s hard to believe you don’t have that for anything other than your own health,” says Ryan.

Whatever approaches a state considers must be framed around the need for options across the continuum of a person’s life, in Ryan’s view. “We need these systems to be more contemporary,” she says. “That’s why when we communicate the need for these policies at the state level, we refer to them as a whole-family caregiving journey.”