Many 2020 Federal Updates Affecting Payroll Process, Speakers Say

The federal government implemented many significant tax and compensation requirements in 2020 with which payroll departments must ensure compliance, payroll educators said June 2.

Measures enacted in response to the coronavirus crisis have resulted in a variety of new tax and compensation provisions, such as the first federally required form of paid sick leave; a new type of paid family leave; three new refundable payroll tax credits; and changes to Form 941, Employer’s Quarterly Federal Tax Return, said Curtis E. Tatum, the American Payroll Association’s director of federal payroll compliance.

These new payroll-related requirements were established by the Families First Coronavirus Response Act (FFCRA); the Coronavirus Aid, Relief, and Economic Security (CARES) Act; and associated regulations, Tatum said during the American Payroll Association’s 2020 Annual Congress (Congress Xstream), which is an online event this year because of the coronavirus outbreak.

Effective from April 1, 2020, to Dec. 31, 2020, qualified paid sick leave is available for up to 80 hours to an employee who cannot be at a worksite in person or telework because that employee is experiencing at least one of six conditions related to actual or suspected coronavirus infection, coronavirus-related quarantines, or caring for a family member. Also during that nine-month period, qualified family leave for up to 12 weeks, of which up to 10 weeks involve required paid leave, is available to employees who cannot be at their worksite in person or telework because they need to care for at least one of their children who because of the coronavirus outbreak cannot access their school or child-care services.

With regard to private-sector employers, only those with fewer than 500 employees are required to provide these types of leave to eligible employees, although private-sector employers with fewer than 50 employees can be exempt from the requirement to provide these types of leave in some circumstances.

Private-sector employers with fewer than 500 employees are eligible for a refundable payroll tax credit related to the amount of qualified sick leave wages they paid and a refundable payroll tax credit related to the amount of qualified family leave wages they paid, Tatum said.

Private-sector employers with any number of employees are eligible for another refundable payroll tax credit, the employee retention credit, if they fulfill either a business suspension condition or gross receipts condition, Tatum said. The amount of the employee retention credit available to an employer per employee is based on a maximum of $10,000 in qualified wages paid to an employee during the period from March 13, 2020, to Dec. 31, 2020.

Employers with up to 100 employees on average generally may count any wages as qualified wages paid to an employee as long as those wages were not directly used for calculating another tax credit, while employers with more than 100 employees on average may count only wages paid to employees even though the employees are not providing services because the employer fulfilled either the business suspension condition or the gross receipts condition.

More information regarding the payroll-related provisions that were established by the federal government in response to the coronavirus crisis is available in Bloomberg Tax & Accounting’s Payroll – Coronavirus Roadmap on Federal Provisions.

Revised Form W-4

A highly revised Form W-4 was implemented for 2020, with the form’s redesign reflecting the elimination of the ability to use withholding allowances tied to personal exemptions to adjust withholding, Tatum said. The tax code overhaul that took effect Jan. 1, 2018, eliminated the ability to use personal exemptions in calculating income tax liability until Dec. 31, 2025.

The revised form bases an employee’s federal income tax withholding adjustments on the employee’s answers provided for the five parts of the form, the first and fifth of which must be completed by all employees filing the form. An employee is to complete the second, third, and fourth parts only if the circumstances referred to in those parts apply to the employee.

The 2020 Form W-4 must be filed by new employees who were first paid wages by their employer in 2020 and employees that are required to provide a new Form W-4 because they experienced in 2020 one of seven types of changed circumstances, such as a qualifying change to their tax filing status, Tatum said. Employers must continue to honor the terms of valid Forms W-4 filed before 2020 by employees who in 2020 have not experienced a change in circumstances for which filing the 2020 Form W-4 would be required.

The new Publication 15-T, Federal Income Tax Withholding Methods, contains five separate withholding methods to be used in conjunction with Forms W-4, with the set of withholding methods reflecting the reality that many employers in 2020 will have some employees whose withholding is calculated using valid Forms W-4 filed before 2020 and other employees whose withholding is calculated using the 2020 Form W-4.

More information regarding the revised Form W-4 and the new Publication 15-T is available in Bloomberg Tax & Accounting’s Payroll Special Report, The New Form W-4: Withholding in 2020, Line by Line.

Revised Salary Threshold for FLSA Exemption

Effective since Jan. 1, 2020, the threshold of weekly compensation that an employee generally needs to be paid for an employer to be able to treat that employee as exempt from the FLSA’s overtime requirements under the executive, administrative, and professional exemptions from the FLSA, i.e., the standard salary level, is $684, up from $455, said Andrew Garboden, CPP, the American Payroll Association’s director of payroll training.

The regulation (RIN 1235-AA20) that increased the standard salary level for overtime exemption also established the weekly salary threshold for overtime-requirements exemption as $455 for Puerto Rico, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands, and the weekly salary threshold as $380 for American Samoa, Garboden said. These thresholds also are known as special salary levels.

Up to 10% of the standard salary level and special salary levels can be satisfied with nondiscretionary bonuses and incentive payments, including commissions, as long as these payments occur at least annually, the regulation said.

Additionally, the regulation updated the annual salary threshold for exempting highly compensated employees from the overtime requirements of the FLSA, with the threshold $107,432 as of Jan. 1, 2020, up from $100,000, Garboden said.