Payroll Tax 2022 - Emerging Trends
So, we made it through 2022! Congratulations! Not to sound like a cliché, but Happy New Year and may this year be better than the last!
As we move into January most organizations are on the tail end of their 2021 payroll year close. Forms W-2 are getting finalized, federal/state/local payroll tax returns are getting prepped for submission to the taxing authorities and thoughts turn to 2022. Now, as we know, not much really changes just because the calendar flips a page. Sure, taxable wage bases reset, deferral/expense limitation change, flex spending/HSA accounts start up again, 401(k) and similar plans start getting funded, etc. But amidst everything that is basically the same, there are some significant considerations to be given to the new year, especially THIS new year.
While there are many employment/payroll tax issues to consider as we move forward, such as the impact of past and future M&A transactions, continued lag-time when working on IRS and state issues and a likely increase in state/local audit and assessment activity, the number one question I receive revolves around the issues of telework, nonresident withholding, workplace footprint, etc. and how to move closer to compliance in that space for 2022.
In late 2020 and throughout 2021 most employers implemented “temporary” work from home/work from anywhere policies for their employees, and many states similarly developed relief provisions with respect to income tax withholding and state unemployment. While most states have eliminated this relief as Executive Orders expired or were revised, employers are still struggling with how to adapt to a workforce that has been working remotely for the last year plus and the future path for such workers. With every new variant, and other challenges in the space, we do start to question if and when the old office structure will rebound…or is work from home/hybrid here to stay. Personally, I think that mix is more than likely long-term, if not permanent, for many employers for a variety of reasons, and that adaptation should now be a priority.
Here are a few thoughts and considerations as we head into 2022:
It is your responsibility as an employer to know where your employees are working and to withhold, remit and report state/local income taxes accordingly. Consider using the start of 2022 to move towards compliance by requesting new Forms W-4 to identify correct resident locations from your employees and to align your payroll tax and HRIS systems.
As your organization reaches for that compliance ring remember that working with the states, and registering properly, will be a key to success. Most states have implemented online registrations for SUI and SIT (and, where applicable, State Disability, Paid Family/Medical Leave, etc.). Every state has different registration requirements, time constraints, documentation needs, etc. The registration process can be extremely complex in some states, and often includes other tax types, such as sales tax, income/franchise, etc. to be applied for at the same time. It is important to work with other areas within your organization to avoid any registration pitfalls and to cover all the potential bases.
It may be necessary to correct prior year reporting as you comply with 2022 requirements. While it sounds easy to just start fresh in the New Year, consider this scenario…you have had employees working in a state for all of 2020 and 2021 but never withheld SIT or paid SUI in the state assuming the move was “temporary.” As you look to come into compliance in 2022, ALL state registration forms will ask when you first had an employee performing services in their state. If the true date is in 2020 or 2021, are you comfortable having a corporate officer sign or submit electronically a document that affirms, under penalty of perjury, that employment began in January 2022? In most cases a retroactive correction is fairly easy to accomplish and allows for accurate document completion and sign-off by a corporate officer.
A few employment tax/payroll considerations to keep front-of-mind:
If you have applied for the Employee Retention Credit via Form 941X, it appears that refunds are starting to be issued. I have seen several twists though, including refunds being inadvertently shorted due to processing errors, incorrectly completed Forms 941X being rejected, etc. Keep your eyes out for IRS notices and, if you utilize a 3rd party payroll provider, make sure they are sending information to you timely on these matters.
If your organization has NOT applied for the ERC in either 2020 or 2021 (available through Q3, 2021) refunds may still be available, capped out at $26,000 per employee. Certain eligibility requirements must be met, and I would be happy to walk you through those and evaluate eligibility for your organization.
With the depletion of state unemployment insurance reserves, states will be struggling with how to replenish funds. Most states implemented relief for employers for benefits related to COVID paid in 2020 and even into 2021, waiving or limiting benefits charged to employer tax accounts. However, 2022 SUI rates are coming out now, and all employers should review those rates, and in particular the benefits charged the past two years. If the rates and/or charges do not appear accurate, they must be protested on a timely basis, generally within 30-60 days of issuance.
Be prepared for questions about 2021 Forms W-2, especially for those employees who worked remote in 2021 but may not have been withheld properly. Consider how to respond to those instances and where Forms W-2c may be necessary.
Remember tp update state Supplemental Withholding rates required for bonus and other off-cycle payouts to be made in 2022.
January 31, 2022 is the deadline for providing Forms W-2s to employees and to provide copies to the Social Security Administration (electronic or paper).
I can’t possibly cover all of the components of a successful year end close or provide tips for starting out the new year strong in the course of a 2-page newsletter, and there are an abundance of strong resources for that. As all payroll and employment tax professionals can attest to, there are myriad issues to consider and attend to, but hopefully these few points help as you move forward into the new year.