The Internal Revenue Service and several state and local taxing authorities: Kentucky, Louisiana, Massachusetts, and City of Philadelphia have recently issued updates to provisions that could impact employee wage reporting and employment taxes.
Federal
The Department of the Treasury and the Internal Revenue Service issued final regulations amending the rules for filing returns and other documents electronically (e-file). Specifically, the final regulations:
-Reduce the 250-return threshold enacted in prior regulations to generally require electronic filing by filers of 10 or more returns in a calendar year. The final regulations also create several new regulations to require e-filing of certain returns and other documents not previously required to be e-filed;
-Require filers to aggregate almost all information return types covered by the regulation to determine whether a filer meets the 10-return threshold and is required to e-file their information returns. Earlier regulations applied the 250-return threshold separately to each type of information return covered by the regulations;
-Eliminate the e-filing exception for income tax returns of corporations that report total assets under $10 million at the end of their taxable year, and
-Require partnerships with more than 100 partners to e-file information returns, and they require partnerships required to file at least 10 returns of any type during the calendar year to e-file their partnership return.
Kentucky
Kentucky enacted legislation that reduces the personal income tax rate from 4.5% to 4.0% effective for tax years beginning after 2023.
Louisiana
The Louisiana Department of Revenue released Information Bulletin No. 23-010 detailing its newly enacted “Fresh Start Proper Worker Classification Initiative” (Fresh Start Program). The program, enacted via R.S. 47:1576.3 and effective January 1, 2023, allows employers who have been misclassifying a class or classes of workers as independent contractors to reclassify those workers and voluntarily disclose such reclassification to the Department without liability for prior tax periods. To qualify, the employer must have consistently treated all workers in the same class as non employees for the last three years, treated all workers in the same class similarly, and have filed all IRS Forms 1099-NEC (or the predecessor IRS Form 1099-MISC) for all workers in the class.
Employers are disqualified from seeking relief under the program if employers treated workers as employees by withholding income taxes or making unemployment or unemployment insurance contributions for the worker. Qualifying businesses must submit an application for the Fresh Start Program, found on the Department’s website, to the Department between January 1, 2023 and December 31, 2023.
Massachusetts
For tax years beginning on or after January 1, 2022, the Massachusetts personal income tax generally conforms to the IRC as amended on January 1, 2022. The Massachusetts personal income tax previously conformed to the IRC as amended on January 1, 2005. As a result of this update announced on January 25, 2023, for tax years beginning on or after January 1, 2022 through tax years beginning on or before December 31, 2025, Massachusetts will no longer allow most chapter 62 taxpayers to either (i) exclude qualified moving expense reimbursements from their Massachusetts gross income or (ii) deduct qualified moving expenses.
Pennsylvania (Philadelphia)
Philadelphia now requires an employer of 50 or more employees to provide a mass transit and bicycle commuter benefit program. The bill took effect December 31, 2022 and requires one of the following:
1. Standard pre-tax mass transit expense or qualified bicycle expense funded through payroll deductions. This must be consistent with the Internal Revenue Code at benefit levels at least equal to the maximum amount that may be deducted for such programs.
2. Employer-paid standard tax-free transit benefit. This option requires an employer supply a Fare Instrument, such as pre-paid vouchers or cards, for an employee’s mass transit expense. Again, this must be offered at benefit levels at least equal to the maximum amount that may be deducted for such a program.
3. Any combination of the aforementioned two options. This means employers can offer both pre-tax transit benefits, pre-tax bike benefits, and an employer-paid tax-free transit benefit. The ordinance defines qualified bicycle expenses as the “purchase, maintenance, repair, and storage expenses related to bicycle commuting.” Employers are required to provide instructional and informational materials about the programs they plan to offer to their employees for their review.
For more information, please contact:
Lucy Ni
International China Market Americas Lead
+1 206 962 7753
Winnie Kwok
Senior Tax Manager
+1 713 292 4729