Bloomberg BNA S Guide to. Payroll. in California, New York, Ohio and Pennsylvania: Administering Payroll in America s Most Challenging States

Transcription

1 Bloomberg BNA S Guide to Payroll compliance in California, New York, Ohio and Pennsylvania: Administering Payroll in America s Most Challenging States

2 Bloomberg BNA s Guide to Payroll Compliance in California, New York, Ohio and Pennsylvania: Administering Payroll in America s Most Challenging States A

3 Copyright 2012 The Bureau of National Affairs, Inc S Bell Street Arlington, VA ISBN ISSN This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. From a Declaration of Principles, jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations. For inquiries about purchasing multiple copies of this report, please contact: Matthew Sottong, Research Director (msottong@bna.com) THE BUREAU OF NATIONAL AFFAIRS, INC.

4 TABLE OF CONTENTS 3 Table of Contents Introduction... 7 California General Reporting Requirements Overview of California s Payroll Requirements Overview of Special Rules Applicable Only to California Recent Developments Tips for Handling California Payroll How to Handle Multistate Employees Online Payment Options Special California Taxes California Temporary Disability Insurance California Employment Training Tax San Francisco Business Operations Tax Sacramento Business Operations Tax New York General Reporting Requirements Overview of New York s Payroll Requirements Overview of Special Rules Applicable Only to New York Recent Developments Tips for Handling New York Payroll How to Handle Multistate Employees Online Payment Options Special New York Taxes New York State Temporary Disability Insurance New York City Income Tax New York City Metropolitan Commuter TransportationMobility Tax New Jersey-New York Waterfront Payroll Tax Yonkers Resident Income Tax Surcharge and Nonresident Earnings Tax Ohio General Reporting Requirements... 73

5 4 TABLE OF CONTENTS Overview of Ohio s Payroll Requirements Overview of Special Rules Applicable Only to Ohio Recent Developments Tips for Handling Ohio Payroll How to Handle Multistate Employees Online Payment Options Special Ohio Taxes Workers Compensation Tax Municipal Income Tax School District Income Tax Pennsylvania General Reporting Requirements Overview of Pennsylvania s Payroll Requirements Overview of Special Rules Applicable Only to Pennsylvania Recent Developments Tips for Handling Pennsylvania Payroll How to Handle Multistate Employees Online Payment Options Special Pennsylvania Taxes Local Earned Income Tax Local Services Tax Philadelphia City Wage Tax Pittsburgh City and School District Income Tax Scranton Municipal Income Tax and School District Tax Appendices Appendix A: Contact Information for States Appendix B: Source for Latest Tax Rates Appendix C: New York City Income Tax Tables Appendix D: Yonkers City Income Tax Tables Appendix E: New York Disability Tables Appendix F: Ohio Local Tax Jurisdictions Appendix G: Ohio School District Tax Rates Appendix H: Ohio City Taxes Appendix I: Source Documents for Tax Laws

6 TABLE OF CONTENTS 5 Appendix J: State Nexus Survey

7 6 Bloomberg BNA s Guide to Payroll Compliance in California, New York, Ohio and Pennsylvania: Administering Payroll in America s Most Challenging States Matthew R. Sottong Director of Surveys and Research Reports Joyce Ann Grable Consulting Editor Elaine Stattler Consulting Editor Michael Baer Managing Editor, Bloomberg BNA Howard Perlman, FTC Editor/Writer, Bloomberg BNA Allison Gatrone Editor/Writer, Bloomberg BNA Kristin Washington Editor/Writer, Bloomberg BNA The authors would like to thank Carla Wheeler and Fonda Jarrett of Bloomberg BNA for their diligent, conscientious, and professional work in designing and laying out this report.

8 INTRODUCTION 7 Introduction Every payroll professional knows that state and local withholding laws add a level of complexity to administering payroll that cannot be overstated. Over the years, each state has operated fairly independently to develop laws that balance the desire to attract businesses against the need to protect its residents employed by those businesses. The result has been 50 separate state approaches that can complicate life for payroll professionals who, in addition to having to comply with federal tax policies and procedures, must be aware of their unique state requirements. Three additional developments have further added to the wide diversity of payroll regulations. First, some states have given counties, boroughs, cities, townships, villages, and school districts the power to implement their own payroll taxing structures, of which they, for the most part, have taken full advantage. Not only did this create far more taxes for the payroll processor to track, but the same lack of conformity that already existed at the state level was reproduced at the local level. Second, modern economic and technological developments have enabled commerce to spill easily across state lines and around the world. The speed with which these changes occur frequently outstrips the ability of state laws to cope how to regulate business. Consider, for example, the ongoing legal challenges over whether an online company such as Amazon.com has to pay state sales tax in every state where it does business. Third, difficult economic times have caused states to look for new revenue streams to replace lower-than-expected federal funding. For example, in 2009, New York enacted the New York City Metropolitan Commuter Transportation Mobility Tax to raise funds for its New York City-area transit system. And, as this book is being written, the city of San Francisco is considering levying a gross receipts tax. All of this has conspired to make compliance more burdensome for payroll practitioners, at least for those companies that do business in those states that have developed the most complicated rules. Four states have managed to rise above all others in terms of the complexity of their payroll processing laws. California, New York, Ohio, and Pennsylvania will appear on just about any payroll processor s list of the states with the most difficult set of employee wage withholding rules. This book s purpose is to demystify the wage withholding rules in California, New York, Ohio, and Pennsylvania by explaining why those four states laws are so difficult, addressing what

9 8 INTRODUCTION those difficulties mean for payroll practitioners, and arming practitioners with some tools and advice for how best to handle those difficulties. It also addresses any efforts in those states to simplify reporting. The report is organized by state, with one chapter for each of the four states. Within each state, the content is organized as follows: Overview of the state s payroll requirements. This section identifies the state and local rules that make the state such a challenge for payroll professionals. It also addresses what test an employer must meet before it is subject to withholding in that state, how the state determines if an employee is a resident or nonresident, and to what extent the state has consolidated or simplified its withholding requirements. Overview of special rules applicable only to that state: Examines the basic requirements of each of the taxes that makes the state such a withholding challenge. This is intended as an introductory overview; a more in-depth analysis of each tax appears later in each state chapter. Recent developments. This section takes a quick look at current trends and recent developments in the state: Discusses changes that have occurred, or are in the process of occurring. It also includes possible modifications that have been identified as possible or on the table. While they may never come to pass, they are topics with which practitioners should remain vigilant. Tips for handling state payroll: Provides tips from active payroll practitioners for keeping track of the latest payroll developments in each state. It includes advice on navigating the most difficult aspects of that state s payroll rules and on avoiding tax penalties. It also contains references to important websites about which any payroll practitioner withholding wages in that state should be aware. How to handle multistate employees: Discusses the state s general withholding rules, including how residents and nonresidents are taxed. It also addresses multistate withholding for each type of tax, including not only the state and local taxes that make the state unique, but also the general rules for state income tax withholding and unemployment insurance withholding. Online payment options: Uses a question-and-answer format to discuss the key part of that state s online reporting and remitting requirements. It explains which online options each state offers to businesses required to withhold in that state.

10 INTRODUCTION 9 State and local laws that differentiate the state: Provides an in-depth look at each of the laws that make withholding so difficult. Each section has subsections which examine topics such as who is subject to the tax (employers and employees), who owes the tax (employee or employer), how much tax is imposed, how often the tax is required to be reported and remitted to the taxing body, what the recordkeeping requirements are, what the penalties are for violations, and who to contact if questions arise. Appendices: Contain charts and tables of interest to practitioners in the four states. For example, Ohio practitioners can find a table listing all the basic withholding requirements for each local taxing jurisdiction in Ohio. The appendices also contain the following: A listing of contact information for every special tax in the four states; Information on where to find the latest tax rates as those rates change over time; Information on where to find the source document for the laws discussed in this book; and A table with more information on what acts within a state will subject an employer to the state s wage withholding requirements.

11 About Bloomberg BNA Bloomberg BNA delivers specialized information to human resources, legal, business, and government professionals at every level of expertise. As the leading independent publisher of print and electronic news, analysis, and reference products, Bloomberg BNA has provided intensive coverage of new developments for more than 75 years. An extensive network of more than 500 Bloomberg BNA editors, reporters, and correspondents, posted at federal, state and international government offices, courts and other key locations, ensures that you have timely information and expert analysis of the issues that matter most. Our authoritative, nonpartisan publications are recognized for their editorial excellence and objectivity. See why Bloomberg BNA s fast, reliable HR answers make us the most trusted information leader in the industry. Visit to learn more S. Bell Street Arlington, VA bna.com 2012 THE BUREAU OF NATIONAL AFFAIRS, INC