Washington D.C. Employment Law Update : Washington D.C. Employment Lawyer & Attorney : Littler Mendelson Law Firm : Virginia, Tyson's Corner

During the past two weeks, measures were introduced in the House and Senate that address such topics as the minimum wage, employment taxes, labor-management relations and National Labor Relations Board Authority, wage and hour restrictions, and medical marijuana. A brief summary of new legislation is as follows:

Minimum Wage

Sen. Tom Harkin (D-IA) and Rep. George Miller (D-CA) introduced a bill that would increase the federal minimum wage. The Fair Minimum Wage Act of 2013 (S. 460; H.R. 1010) would increase the federal hourly rate from $7.25 to $10.10 in $.95 increments over a three-year period. After that time, the minimum wage would be tied to any cost of living adjustments. The bill would also increase the hourly wage for tipped workers from $2.13 to $3.00 during the first year, and then increase this base amount by either $.95 or an amount necessary to raise the rate to 70% of the minimum wage, whichever is less.

The Senate Committee on Health, Education, Labor and Pensions (HELP) will hold a hearing on the minimum wage on Thursday, March 13, 2013 at 10:00 a.m., ET. More information on the upcoming hearing can be found here.

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In addition to the many immigration-related bills that were introduced last week, legislative measures addressing password privacy, FMLA leave, the National Labor Relations Board’s authority, and payroll taxes also made their debut during the first full week of February 2013.

Social Media

Representatives Eliot Engel (D-NY), Jan Schakowsky (D-IL), and Michael Grimm (R-NY) introduced a bill that would prevent employers and educational institutions from requesting individuals’ usernames, passwords, or any other means of accessing their social networking sites and from taking adverse action against job applicants, employees, and students who refuse to provide such information. According to a press release, the Social Networking Online Protection Act (SNOPA) (H.R. 537) is currently the only bipartisan social media privacy legislation that has been introduced at the federal level this year. This bill has been referred to the House Committee on Education and the Workforce.

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Shortly after the President signed the fiscal cliff deal into law, the IRS issued updated income tax withholding tables to reflect the changes made by the measure. Among other provisions, the American Taxpayer Relief Act of 2012 allows Social Security payroll taxes to return to 6.2%. The revised IRS Notice 1036 (pdf) includes the percentage method income tax withholding tables and related guidance that employers will need to adjust their payroll procedures.

In a news release, the IRS advises employers to

start using the revised withholding tables and correct the amount of Social Security tax withheld as soon as possible in 2013, but not later than Feb. 15, 2013. For any Social Security tax under-withheld before that date, employers should make the appropriate adjustment in workers’ pay as soon as possible, but not later than March 31, 2013.

Photo credit: Bartek Szewczyk

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The eleventh hour agreement to avoid the precipitous tax hikes and spending cuts widely known as the “fiscal cliff” will still require employers to make some changes to their current practices, and leaves many questions unanswered. Notably, the deal delays – but does not resolve – the matter regarding the “sequestration” of federal funds, which could trigger mass layoffs or furloughs of federal contract employees. The final deal arrived at on January 1, 2013 – the American Taxpayer Relief Act of 2012 (H.R. 8) (pdf) – postpones this possibility an additional two months. The bill does, however, extend certain tax relief measures, while letting others expire. Highlights of the fiscal cliff deal are as follows:

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By Aurelio J. Pérez

Earlier this week, the IRS issued two announcements that will affect its Voluntary Classification Settlement Program (VCSP) that was first instituted in September 2011. In Announcement 2012-45, the IRS provided notice and information regarding a number of revisions to the VCSP and in Announcement 2012-46, the IRS has relaxed the requirements for participation in the VCSP through June 30, 2013.

By way of reminder, the VCSP allows eligible taxpayers to voluntarily reclassify their workers as employees for federal employment tax purposes and thereby obtain partial relief from federal tax liabilities. The goal of the program is to entice employers who suspect they might be misclassifying their workers to participate in order to avoid the heavier tax assessments that might follow an audit. Under the original terms of participation, in order to be eligible for the VCSP, the employer must: (a) not be under audit by any federal or state agency regarding worker misclassification; (b) have consistently treated the workers as non-employees; and (c) have filed all required Forms 1099 for the workers for the previous three years. An employer that was previously audited by the IRS or the Department of Labor concerning worker classifications would be eligible only if it had complied with the results of that audit. Once accepted into the program, an employer would be responsible for paying 10% of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year.

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To further assist employees affected by Hurricane Sandy, the Internal Revenue Service (IRS) has announced that it is easing procedural and administrative rules to allow 401(k)s and similar employer-sponsored retirement plans to more readily make loans and hardship distributions to employees and their family members who live or work in a designated disaster area. Ordinarily, laws regarding qualified employer plans impose a number of restrictions on providing loans and distributions from those plans. For example, a pension plan hardship distribution is generally included in an employee’s gross income and subject to a 10% early withdrawal tax. As more fully discussed in IRS Announcement 2012-44, (pdf) the agency is relaxing these rules in order to make emergency funds more accessible to storm victims. Continue reading this entry at Littler's Employee Benefits Counsel.

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The Internal Revenue Service (IRS) and Department of Labor (DOL) have announced new deadline filing extensions and tax relief measures to individuals and businesses affected by Hurricane Sandy. According to an IRS notice issued on November 2, qualified disaster relief payments made to individuals by their employer can be excluded from those individuals’ taxable income. Payments deemed “qualified disaster relief” include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance, as well as expenses to repair or rehabilitate homes or to repair/replace the homes’ contents to the extent they are not covered by insurance.

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Federal agencies are granting businesses some leeway in the wake of Hurricane Sandy. The Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA), for example, has released an emergency declaration temporarily exempting truckers providing direct assistance to the hurricane relief effort from several FMCSA regulations (parts 390 through 399), including safety and hours of service (HOS) requirements. According to the FMCSA declaration:

The emergency exemption is issued as a result of extreme weather conditions, shortages, and interruptions in the availability and/or delivery and repair of services and property throughout the States affected in the Eastern Region to include the following: Connecticut, Delaware, the District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia and West Virginia. It is effective beginning October 29, 2012.

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The Internal Revenue Service has issued new guidance (Rev. Rul. 2012-18) that provides answers to a number of questions about how taxes are imposed on employee tips under the Federal Insurance contributions Act (FICA). The document begins with a detailed explanation of both an employer’s and employee’s FICA tax obligations as they apply to tips, clarifies how tips are to be reported to the employer and to the agency, and discusses the consequences for unreported amounts. The guidance also differentiates between what constitutes a tip and a service charge for tax purposes, explains when the section 45B employer tip credit should be applied, and sets forth a series of Q&As for employees and employers. The document is designed to modify and supersede prior guidance (Rev. Rul. 95-7) issued on this topic.

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Update:  On June 7, 2012, the House of Representatives approved H.R. 436, H.R. 5842, and H.R. 1004 as a single bill, the Health Care Cost Reduction Act of 2012. (pdf) A section-by-section summary of this measure can be found here. (pdf)

On May 31, the House Committee on Ways and Means approved two bills that would repeal provisions included in the Affordable Care Act, and two others that would ease restrictions on the use of Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs). Approval of these measures came the same day a House subcommittee heard testimony on the increasing popularity of HSAs and other account-based health plans (ABHPs) and the need to ease the limitations the new health reform law imposes on such plans.

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Sen. Majority Leader Harry Reid (D-NV) has introduced a bill that would give small businesses a 10% payroll tax credit for hiring new employees and extend bonus depreciation on new equipment for one year. Under the terms of the Small Business Jobs and Tax Relief Act (S. 2237), small businesses would receive the credit for either hiring new employees in 2012 or for increasing wages. Specifically, qualified employers would receive a credit equal to 10% of the difference between the wages and compensation paid during 2012 over what they paid in 2011, up to $5 million.

The bill would also allow employers to write off the entire cost of new equipment purchases instead of having to depreciate the cost over several years. The measure would extend this 100% bonus depreciation an additional year. The allowance for 100% bonus depreciation was a temporary measure that expired at the end of 2011.

Provisions extending 100% bonus depreciation and offering tax credits for expanding payroll were included in Reid’s American Jobs Act, a more expansive jobs measure that failed to advance in the Senate last October. The Small Business Jobs and Tax Relief Act has been placed on the Senate calendar.

Photo credit: amphotora

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Updated: February 23, 2012

As expected, both chambers of Congress approved the conference report to the Middle Class Tax Relief and Job Creation Act of 2012 (H.R. 3630) before adjourning for the Presidents’ Day recess. The measure extends the 2% payroll tax cut and emergency unemployment insurance benefits through December 2012, and delays the planned cut of Medicare reimbursement rates to doctors, commonly known as the “doc fix” provision. The conference report reconciled the differences between the House and Senate versions of the legislation. The House approved the changes made by the conference report in a 293-132 vote. The Senate approved the measure 60-36 shortly thereafter.

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Ending a political stalemate, both the House and Senate on Friday approved a measure that provides a two-month extension of the payroll tax cut, emergency unemployment insurance benefits, and delay in the planned cut of Medicare reimbursement rates to doctors, commonly known as “doc fix” provisions. President Obama signed the Temporary Payroll Tax Cut Continuation Act of 2011 (H.R. 3765) into law hours later. This bill is similar to legislation (H.R. 3630) the Senate approved last Saturday, but includes provisions allowing businesses to use their current accounting structure to process the temporary payroll tax break, and will require the House and Senate to work together to draft a bill that would extend these provisions for all of 2012.

In a press release, bill sponsor Rep. David Camp (R-MI) said that the amended bill “fixes a critical flaw in the hastily passed Senate bill, which failed to provide employers with a workable mechanism with which to implement a partial-year payroll tax holiday.”

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Less than two weeks after the Senate failed to advance two competing payroll tax cut bills, the House of Representatives on Tuesday passed its own measure. Approved by a vote of 234-193, the Middle Class Tax Relief and Job Creation Act of 2011 (H.R. 3630) seeks to extend by one year both the payroll tax cut and emergency unemployment insurance benefits, but also includes a number of sticking points that likely will prevent passage of this House bill in the Senate.

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Neither side of the Senate was able to muster the 60 votes needed to advance their respective payroll tax cut bills on Thursday. The Middle Class Tax Cut Act of 2011 (S. 1917) introduced by Sen. Robert Casey (D-PA) failed by a 51-49 vote margin, while the Republican countermeasure introduced by Sen. Dean Heller (R-NV), the Temporary Tax Holiday and Government Reduction Act (S. 1931), failed by a vote of 20 – 78.

While both bills would have extended the payroll tax cut set to expire at the end of the year, the measures differed in how to pay for this tax break. The Middle Class Tax Cut Act would have reduced from 6.2% to 3.1% the Social Security payroll tax paid by employers on the first $5 million of taxable payroll for 2012. Under the current tax holiday, this tax rate is set at 4.2%. In addition, the bill would have eliminated the Social Security payroll tax paid by employers on the first $12.5 million of an employer’s increased taxable payroll for the 4th quarter of 2011 and $50 million in increased payroll for 2012 as an incentive to promote hiring. The cost of these changes would be offset by a 3.25% tax on individuals making more than $1 million.

In contrast, the Temporary Tax Holiday and Government Reduction Act would have extended the current temporary payroll tax holiday for one year primarily by reducing the size of the federal workforce and extending the current federal employee pay freeze for three additional years.

The popularity of the tax holiday increases the likelihood that a bipartisan compromise will be reached before the benefit expires.

Photo credit:  MBPHOTO, Inc.

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By Will Weissman

There are a variety of changes to federal tax laws as a result of recent legislation as well as triggers in long-existing legislation that impact employers, including repeal of withholding on payments to federal contractors, enhanced tax credits for hiring veterans, and increased federal unemployment tax rates resulting from states’ failure to repay federal loans.

Repeal of 3% Withholding on Payments to Government Contractors

On November 21, 2011, President Obama signed into law H.R. 674, the “3% Withholding Repeal and Job Creation Act,” which repeals the highly controversial 3% withholding on payments to contractors of federal, state and local governments under Internal Revenue Code section 3402(t). This provision, originally enacted in 2005, never actually went into effect because Congress kept delaying its implementation. Acknowledging the potentially devastating effect such withholding could have upon the cash flows and the operations of government contractors, Congress decided to remove the withholding requirement. This change is a significant benefit to government contractors and allows them to better plan their finances for coming years.

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Updated:  November 21, 2011

The first portion of President Obama’s jobs package is likely to become law this week after the House unanimously approved a bill the Senate amended (H.R. 674) that contains employer tax incentives for hiring unemployed veterans. The veterans provisions are set forth in the VOW to Hire Heroes Act, added as an amendment to a previously-approved tax bill the House cleared in October. Among other job training and assistance benefits offered to veterans, the measure would provide employers with a tax credit of up to $5,600 for hiring veterans who have been unemployed for at least six months, a $2,400 credit for hiring veterans who have been unemployed for more than four weeks, but less than six months, and a credit of up to $9,600 that would increase the existing Wounded Warriors Tax Credit for employers that hire veterans with service-connected disabilities who have been unemployed for at least six months. These hiring incentives were included in the broader American Jobs Act (S. 1660) that failed to advance in the Senate last month.

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On Thursday the Senate voted 95-0 in favor of legislation that would provide employers with tax credits for hiring long-term unemployed and wounded veterans. These benefits were approved as an amendment (S. Amdt. 927) (pdf) to the 3% Withholding Repeal and Job Creation Act (H.R. 674) that the House of Representatives cleared in October.  Introduced by Sen. Jon Tester (D-MT), the VOW to Hire Heroes Act of 2011 amendment would provide employers with a “Returning Heroes” tax credit of up to $5,600 for hiring veterans who have been unemployed for at least six months, a $2,400 credit for hiring veterans who have been unemployed for more than four weeks, but less than six months, and a credit of up to $9,600 that would increase the existing Wounded Warriors Tax Credit for employers that hire veterans with service-connected disabilities who have been unemployed for at least six months. These credits were initially included in President Obama’s more comprehensive job stimulus bill, the American Jobs Act (S. 1660), which stalled in the Senate last month. The Senate agreed to include the VOW to Hire Heroes amendment to H.R. 674 by a vote of 94-1 before passing the entire measure.

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Updated:  October 21, 2011

On October 12 the House by a 307-122 margin approved a measure that temporarily and retroactively extends the Trade Adjustment Assistance (TAA) program that was enacted as part of the 2009 stimulus package and expired in February 2011. The TAA is a federal, state-administered program created to provide benefits and services to individuals who become unemployed as a result of international trade. Such benefits include trade readjustment allowance, training, assistance with healthcare premium costs, alternative trade adjustment assistance, and job search and relocation allowances. The bill that has been approved by both houses of Congress – H.R. 2832 – extends the authorization of appropriations for the TAA through December 31, 2013.

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As expected, proponents of the American Jobs Act (S. 1660)  failed to garner the 60 Senate votes needed to proceed with further consideration of the jobs legislation. Democratic senators Ben Nelson (D-NE) and Jon Tester (D-MT) joined 46 Republican senators in voting against further consideration of the measure Tuesday evening. Fifty Democratic senators voted in favor of proceeding, ten votes shy of the number needed to prevent a filibuster.

Among other provisions affecting employers, the American Jobs Act would prohibit unemployment discrimination; temporarily ease payroll taxes for employers; provide incentives for hiring veterans and long-term unemployed workers; encourage employers to develop temporary work sharing positions in lieu of layoffs; extend emergency unemployment compensation; extend 100 percent business expensing of investments in certain business assets through 2012; mandate that all laborers and mechanics employed by contractors and subcontractors on projects funded directly by the bill be paid the prevailing wage rate; provide additional funding for transportation infrastructure projects; and require that all projects funded by the bill use American-produced iron, steel, and manufactured goods. The bill would be financed by a $5.6 surtax on millionaires, a change from the initial bill aimed at increasing Democratic support.

Even if this bill had been allowed to progress in the Senate, it would have faced tough opposition in the Republican-controlled House of Representatives. The Obama Administration has stated that it would be amenable to splitting the measure into smaller bills that would have a greater likelihood of passage. At this point, it is uncertain which provisions of the bill, if any, would receive support as standalone legislation.

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Employers that voluntarily reclassify their independent contractors as employees for federal tax purposes and pay a fee covering a portion of their past payroll obligations can escape certain tax liability for improper misclassification under the IRS’s new Voluntary Classification Settlement Program (VCSP). In a statement announcing the program, IRS Commissioner Doug Shulman said: “This settlement program provides certainty and relief to employers in an important area,” adding: “This is part of a wider effort to help taxpayers and businesses to help give them a fresh start with their tax obligations.”

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President Obama has formally released a draft of his jobs bill to Congress for consideration. As discussed during his address to a joint session of Congress last Thursday, several provisions of the American Jobs Act (pdf) are aimed at easing payroll taxes for employers, promoting hiring of the unemployed and veterans, and prohibiting discrimination against the unemployed. Generally, the Act pieces together a number of bills that have already been introduced in some form within the past year or two.

Unemployment Discrimination

Subtitle D of the American Jobs Act – Prohibition of Discrimination in Employment on the Basis of an Individual's Status as Unemployed – incorporates a previously-introduced bill that would make it unlawful for an employer or employment agency to discriminate against individuals based on their unemployment status or history of unemployment. The Fair Employment Opportunity Act of 2011 would, among other things, prevent employers and employment agencies from refusing to consider or offer a job to an unemployed individual; prohibit the publication in any medium of an advertisement or announcement for a job that includes language indicating the unemployed need not apply; and entitle those discriminated against to bring a civil action against the employer or employment agency for actual, compensatory and punitive damages. These terms would apply to employers with 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year. A person would be considered to have a “status as unemployed” if the individual, “at the time of application for employment or at the time of action alleged to violate this Act, does not have a job, is available for work and is searching for work.”

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On Thursday, President Obama delivered his much-anticipated speech on job creation, urging Congress to pass the American Jobs Act, (pdf) a $447 billion plan to jump-start the economy. According to the President, “there should be nothing controversial about this legislation,” as all of the proposals set forth in the bill have allegedly been supported by both parties in the past. Beginning his remarks, Obama stated:

The purpose of the American Jobs Act is simple: to put more people back to work and more money in the pockets of those who are working. It will create more jobs for construction workers, more jobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed. It will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business. It will provide a jolt to an economy that has stalled, and give companies confidence that if they invest and hire, there will be customers for their products and services. You should pass this jobs plan right away.

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Sen. Sheldon Whitehouse (D-RI) has introduced a measure that would provide businesses with tax incentives for hiring individuals in 2011 and 2012 who have been unemployed. The Job Creation Tax Credit Act of 2011 (S. 1271) would expand on certain provisions in the HIRE Act of 2010 by giving employers refundable tax credits of 15% of wages paid in 2011 and 10% of wages paid in 2012 for qualified new hires. Individuals deemed “qualified” would be those who (a) begin employment with the employer after the date of the bill’s enactment but before January 1, 2013; (b) have not been employed for more than 40 hours during the 60-day period before the date of hire; and (c) are not being hired to replace another employee unless that employee left work voluntarily or for cause. According to a press release on this bill, “the refundable nature of the credit means that struggling businesses can benefit from it even if they aren’t currently making profits.” This legislation has been referred to the Senate Committee on Finance.

Photo credit: amphotora

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Update: On April 14, 2011, President Obama signed this measure into law.

The highly contentious expanded 1099 information reporting requirement is a step closer to becoming law. On Tuesday, the Senate voted overwhelmingly in favor (87-12) of the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (H.R. 4), a bill that repeals the provision included in the health care reform law requiring employers to report all payments to corporations for goods or services of $600 or more. The legislation would also repeal a similar expansion of information reporting for owners of residential real estate who rent out that property, and increase the maximum amount of health care subsidy overpayments that an individual must repay. The House passed this measure last month.

Introduced by Rep. Daniel Lungren (R-CA), this bill has enjoyed a significant amount of bipartisan support. Since the reporting requirement’s inclusion in the Affordable Care Act, representatives of the business community as well as the IRS have criticized the move, claiming the reporting obligation would impose an undue administrative burden on all parties involved. Even President Obama during his State of the Union address called for the provision’s repeal. This legislation is expected to be signed into law within the week.

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On Thursday, the House of Representatives approved by a 314-112 margin the Small Business Paperwork Mandate Elimination Act of 2011 (H.R. 4), yet another measure that seeks to repeal the expansion of the 1099 reporting requirement for payments to corporations for goods or services of $600 or more, which was included in the health care reform law. The Senate had already approved a different version of the 1099 reporting repeal as part of the FAA reauthorization bill it voted in favor of last month.

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Less than one month into the new session, the 112th Congress continues to introduce labor and employment-related bills at a rapid pace. While a substantial portion of new legislation targets health care, a number of bills have focused on employment-related reforms. The following measures were offered during the past week alone:

Immigration

On January 24, Rep. Jeff Flake (R-AZ) re-introduced the Stopping Trained in America Ph.D.s From Leaving the Economy (STAPLE) Act of 2011 (H.R. 399), a bill that would exempt foreign students who have earned a Ph.D. degree in science, technology, engineering, or mathematics from a U.S. university and have a job offer in the U.S. from visa quotas. In a statement, Flake said: “At a time when there’s a lot of focus on keeping the U.S. competitive globally, if we don’t keep these highly-skilled workers in the U.S. after they’ve graduated, we’re going to see the next round of high tech companies created overseas rather than here in the United States.”

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On Wednesday, the House Committee on Education and the Workforce held a hearing to discuss the state of the American workforce. Panelists pointed to a number of factors that they believe hinder job creation and economic growth, and made suggestions to jump-start the economy.

Robert McDonnell, Governor of Virginia, claimed that “excessive federal regulations” and the new health care requirements were imposing significant burdens on small businesses. Specifically, McDonnell criticized the National Labor Relations Board’s proposed rule that would require almost all private sector employers to post in the workplace a notice to employees outlining their rights under the National Labor Relations Act. McDonnell explained that this proposed notice “lists seven bullet points that state employees have the right to organize, form or join a labor union and repetitively state they have the right to negotiate their wages, benefits and working conditions with their employer. This is counterproductive and detrimental to the message we are trying to send in Virginia.”

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The U.S. Supreme Court has upheld a Treasury Department rule that considers medical residents as full-time employees subject to Federal Insurance Contributions Act (FICA) payroll taxes. In Mayo Foundation v. U.S. (09-837), (pdf) the Court was asked to consider whether the stipends provided to medical residents that perform medical and patient care services for 40 or more hours per week as part of an accredited graduate medical education program are subject to FICA, commonly referred to as “Social Security” taxes, which are imposed on both employers and employees based upon wages paid. Among the many statutory exceptions to this tax requirement is the “student” exception, which exempts “service performed in the employment of. . . a school, college, or university . . . if such service is performed by a student who is enrolled and regularly attending classes at such school, college, or university.” A Treasury Department amended regulation interpreting this student exemption was issued in 2004. The amended regulation clarified, among other things, that:

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On Friday, President Obama is expected to sign into law compromise legislation that would extend expiring tax cuts. The $858 billion tax deal will also extend emergency unemployment benefits an additional 13 months, and cut Social Security payroll taxes by 2 percent for one year on income up to $106,800. The House of Representatives approved the measure (H.R. 4853) by a 277-148 margin late Thursday night. An almost equal number of Democrats (139) and Republicans (138) voted in its favor. On Wednesday, the Senate overwhelmingly approved the bill by a vote of 81-19.

Photo credit: MBPHOTO, INC.

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As expected, the contentious tax compromise bill (H.R. 4853) cleared a procedural hurdle on Monday when the Senate secured enough votes to invoke cloture and move the measure closer to a final vote. Among other things, the bill would extend expanded unemployment insurance benefits through 2011, and cut payroll taxes by 2 percentage points to 4.2 percent. By a margin of 83-15, the Senate voted in favor of the measure, enough to thwart a potential filibuster. A final Senate vote is expected to occur on Tuesday. If approved as anticipated, the legislation would then move to the House of Representatives, where it will face a tougher reception.

Update:  On Wednesday, the Senate approved the measure by a vote of 81-19.

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The Senate on Monday began its consideration of the Creating American Jobs and Ending Offshoring Act (S. 3816), a bill that would provide employers with tax incentives to maintain jobs in the United States, and eliminate tax advantages for outsourcing work. Introduced on September 21, 2010, this legislation would do the following:

Provide Tax Incentives to Create U.S. Jobs

The bill would create a payroll tax break for employers that replace foreign workers with American workers. Specifically, the measure provides for a two-year Social Security tax break on wages paid to U.S. employees who have replaced their foreign counterparts. The payroll tax holiday would be available for two years for employees hired during a three-year period beginning on September 22, 2010. To be eligible for this break, employers would be required to certify that the U.S. employee is replacing a foreign worker who had been performing the same or similar job.

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Senator John Kerry (D-MA) and Rep. Jim McDermott (D-WA) have introduced a bill that would curtail the use of a federal “safe harbor” that allows businesses to treat workers as independent contractors for federal employment tax purposes, regardless of the employee’s actual status under the common law test. The Fair Playing Field Act of 2010 (pdf) (H.R. 6128, S. 3786) would, among other things, require the Secretary of the Treasury to issue prospective guidance on worker classification for federal employment tax purposes. The safe harbor provided under section 530 of the Revenue Act of 1978 would continue to be available until the date an individual’s employment status is reclassified. The worker’s reclassification date would be the earlier of (a) the first day of the first calendar quarter beginning more than 180 days after the date of an employee classification determination by the Secretary of the Treasury; or (b) the effective date of the “first application final regulation” issued by the Secretary of the Treasury with respect to such individual (or if later, the first day of the first calendar quarter beginning more than 180 days after such regulation is issued).

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On Tuesday, the Senate refused to advance two amendments to the Small Business Jobs and Credit Act of 2010 (H.R. 5297) offered by both Democratic and Republican senators that sought to amend or repeal a provision in the newly-enacted Patient Protection and Affordable Care Act (“Affordable Care Act”) that imposes increased tax reporting requirements on businesses. Specifically, the provision requires all businesses, charities, and state and local governments to file 1099 forms if they purchase $600 or more in goods from other entities after December 31, 2011. This reporting mandate has drawn fire from a number of sectors on the grounds that the burden is simply too onerous and will wind up impacting a considerable number of businesses.

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The Senate on Thursday failed to advance the American Jobs and Closing Tax Loopholes Act (H.R. 4213) (pdf), the “tax extender” bill that would have provided for additional months of emergency unemployment benefits and continued various tax relief programs, among other things. The 57-41 vote fell three votes short of limiting debate and scheduling final floor action on the measure. The latest version of the bill offered by Sen. Max Baucus (D-MT) was introduced on Wednesday in an effort to trim costs and gain enough support to pass it. Previous Senate-passed tax extender legislation would have extended the COBRA premium subsidy and various unemployment programs through the end of the year. In May, the House approved this legislation once COBRA premium subsidy extensions were dropped. Earlier this month, the Senate introduced a substitute version of the bill that lacked certain defined contribution pension plan fee disclosure provisions. After it became evident that he did not have enough votes to limit debate on the bill, Baucus introduced a scaled back version that ultimately – like the latest edited version – failed to gain sufficient approval. At this point, Senate passage of the bill in any form appears unlikely.

Photo credit:  MBPHOTO, INC.

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On Friday, the Senate unanimously approved the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act, (pdf) a bill that reverses a 21 percent payment cut for doctors in Medicare and TRICARE, updates the physician payment formula through November 30, 2010, and provides temporary funding relief for single- and multi-employer pension plans that suffered significant losses in 2008. With respect to the pension relief provisions, according to a summary, (pdf) employers that elect the relief would be required to make additional contributions to the plan if they pay compensation to any employee in excess of $1 million, pay extraordinary dividends, or engage in extraordinary stock buybacks during the first part of the relief period. Additional relief would be available to certain plans sponsored by charitable organizations. The legislation now needs approval by the House.

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The Internal Revenue Service (IRS) has made available on its website a revised Form 941, (pdf) the Employer’s Quarterly Federal Tax Return, which can be used to claim the HIRE Act’s payroll tax exemption for wages paid to qualified employees. Signed into law on March 18, the Hiring Incentives to Restore Employment (HIRE) Act, among other things, relieves certain employers from their obligation to match the OASDI (Social Security) portion (typically 6.2% on the first $106,800 of wages for the calendar year) of FICA tax for certain workers hired after February 3, 2010 and before January 1, 2011, on wages paid March 19 through December 31, 2010. Those hired must attest that they have been “substantially” unemployed for at least 60 days prior to the date of hire.  The IRS has also provided instructions (pdf) for the new Form 941 to explain how this exemption can be claimed on the second quarter return.

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On Tuesday, the Senate resumed consideration of the American Jobs and Closing Tax Loopholes Act (H.R. 4213) (pdf), also known as the “tax extender” or “jobs bill” that would extend emergency unemployment compensation and other tax break programs, as well as provide temporary pension funding relief. Although the Senate passed a tax extender bill in March, the House of Representatives on May 28 narrowly cleared a scaled-back version of this legislation that omitted a number of the original provisions, including an extension of the premium COBRA subsidy. The revised Senate bill unveiled this week, which has been offered in the form of a substitute amendment, does not contain the defined contribution plan fee disclosure provisions that would have required the creation of rules relating to fees incurred in connection with defined contribution plans (such as 401(k) plans) for plan administrators and plan participants. A COBRA subsidy extension was not among the changes included in the Senate substitute either. A summary of all of the changes made by the Senate amendment can be found here. (pdf)

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On Friday the House of Representatives narrowly approved (215-204) a scaled-back version of the American Jobs and Closing Tax Loopholes Act (H.R. 4213), a bill that would extend a number of benefit programs, including emergency unemployment payments, and provide for pension funding relief and fee disclosures. Details of this joint legislation were first unveiled last week.  Due to the measure’s escalating cost estimate, however, members of Congress agreed to trim a number of benefit extensions to ensure enough votes for passage, including a last-minute decision to omit the COBRA premium subsidy extension entirely. Other provisions, such as the one providing for an extension of the emergency unemployment benefits program, was reduced by one month. Specifically, as outlined in a summary (pdf) of the revised bill, certain provisions would do the following:

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On Thursday, House Ways and Means Committee Chairman Sander Levin (D-MI) and Senate Finance Committee Chairman Max Baucus (D-MT) introduced a summary of the American Jobs and Closing Tax Loopholes Act, (pdf) joint legislation that, among other things, extends emergency unemployment benefits and COBRA credits through the end of 2010, and provides pension funding relief for single- and multi-employer pension plans. The legislation will be introduced as a House Amendment to the American Workers, State, and Business Relief Act of 2010 (H.R. 4213), which the Senate passed in March as an amendment to the original Tax Extenders Act of 2009 that cleared the House in December.

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The Internal Revenue Service (IRS) has made available Form W-11 (pdf), the Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit employees are to use confirm that they are “qualified” employees under the HIRE Act. An employer seeking to benefit from the HIRE Act’s payroll tax holiday or retention tax credit must have employees complete form W-11 or a similar form to attest that they began employment after February 3, 2010, and before January 1, 2011; have not been employed for more than 40 hours during the 60-day period ending on the date they begin employment with the employer seeking the HIRE Act benefits; are not being employed to replace another employee unless the other employee separated from employment voluntarily or for cause (including downsizing); and are not related to the employer seeking the tax benefit.

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The Internal Revenue Service (IRS) has set up a website to provide employers with guidance on the payroll tax exemption and business credit provisions of the newly-enacted Hiring Incentives to Restore Employment (HIRE) Act.  This Act, among other things, relieves certain employers from their obligation to match the OASDI (Social Security) portion (typically 6.2% on the first $106,800 of wages for the calendar year) of FICA tax for certain workers hired after February 3, 2010, and before January 1, 2011, who have been substantially unemployed for at least 60 days. The IRS has created a draft model affidavit (Form W-11) (pdf) for employees to certify their un- or underemployment status, although employers may use their own form. This tax holiday covers wages paid to these employees on or after March 19, 2010 and only through 2010, and does not apply to the FICA tax portion covering the Medicare Hospital Insurance contribution nor to other state and federal employer tax obligations. The HIRE Act also creates a similar tax holiday for employers covered by the Railway Retirement Act instead of FICA. A business (tax) credit of up to $1000 is available to certain employers in 2011, with respect to employees retained for at least 52 weeks.

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On Thursday, President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act (H.R. 2847), the scaled-down jobs bill that provides employers with various tax breaks for hiring and retaining previously unemployed workers. The Senate approved this measure on Wednesday by an overwhelming 68-29 margin. In addition to exempting employers from paying 2010 Social Security taxes on wages up to $106,800 on each new employee who has been out of work for at least 60 days, the HIRE Act provides employers with a $1,000 income tax credit for every new employee retained for at least a year, and allows small businesses to deduct up to $250,000 for certain capital expenditures in the year purchased.

For more information on this new law, see Littler's ASAP:  HIRE Act Signed Into Law — What it Means to Employers by GJ Stillson MacDonnell.
 

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On Wednesday, the Senate overwhelmingly approved by a 68-29 vote the Hiring Incentives to Restore Employment (HIRE) Act (H.R. 2847), the nearly $18 billion jobs bill that will provide employers with financial incentives for hiring unemployed workers. Specifically, an employer would be exempt from paying its share of 2010 Social Security taxes on any new hire who has been without full-time employment for at least 60 days. The maximum tax break an employer could gain per employee under this provision would be $6,621, or 6.2 percent of total wages paid in 2010 up to the $106,800 FICA wage cap. Employers would also be eligible to receive a $1,000 income tax credit for every new employee retained for 52 weeks. Earlier this week, the Senate voted 61-30 to limit debate on this measure.

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On Monday, the Senate voted 61-30 to limit debate on the Hiring Incentives to Restore Employment (HIRE) Act, the $15 billion jobs bill the House of Representatives approved on March 4. The HIRE Act was introduced as an amendment (S. Amt. 3310) to H.R. 2847, the more expansive jobs bill the House had already passed in December. The Senate initially cleared this scaled-down jobs bill on February 24, but because the House made minor revisions to the bill, the Senate once again needs to vote on the final jobs package.

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On Wednesday, the Senate passed by a 62 to 36 margin the Tax Extender Act of 2009 (H.R. 4213), legislation that would extend until Dec. 31, 2010 the 65% premium COBRA subsidies and emergency unemployment insurance benefits, both programs that are set to expire in the coming weeks. The bill also extends several other tax credit initiatives, and includes pension funding relief measures. On Tuesday, the Senate voted 66-34 to limit debate on this bill, which was introduced by Sen. Max Baucus (D-MT) as an amendment (S. Amdt. 3336) in the nature of a substitute to the tax extender bill the House of Representatives passed in December.

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On Tuesday, the Senate voted to end debate on a $150 billion bill that would extend premium COBRA subsidies and emergency unemployment insurance benefits through December 31, 2010, as well as continue certain programs aimed at providing pension-funding relief. Sen. Max Baucus (D-MT) introduced the American Workers, State and Business Relief Act of 2010 (pdf) as an amendment (S. Amt. 3336) in the nature of a substitute to the Tax Extender Act of 2009 (H.R. 4213).  The tax extender bill has been serving as the vehicle to provide extensions to these and other expiring tax credit programs. The premium COBRA subsidy and emergency unemployment benefits were recently given one-month extensions through the Temporary Extension Act of 2010, signed into law on March 2.

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On Thursday, the House of Representatives voted 217 to 201 in favor of the Hiring Incentives to Restore Employment (HIRE) Act, the $15 billion jobs bill introduced by Sen. Majority Leader Harry Reid (D-NV) as an amendment (S. Amt. 3310) (pdf) to H.R. 2847, the more expansive jobs bill the House previously passed in December. The Senate cleared this scaled-down jobs bill last Wednesday by a 70-28 margin. Because the House intends to change the effective date of a tax provision in order to offset its cost, the Senate will once again need to approve the amended bill before it can be signed by the President.

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On Wednesday, the Senate voted 70-28 in favor of the Hiring Incentives to Restore Employment (HIRE) Act, the $15 billion jobs bill introduced by Sen. Majority Leader Harry Reid (D-NV) as an amendment (S. Amt. 3310) (pdf) to H.R. 2847, the more expansive jobs bill that cleared the House of Representatives three months ago. On Monday, the Senate voted 62-30 on a cloture motion to allow the slimmed-down bill to proceed. The HIRE Act, among other things, would exempt any employer that hires a worker who has been without full-time work for at least 60 days from paying the employer’s share of Social Security taxes on that worker for 2010, and extend a business tax deduction for certain capital investments.

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On Monday, the Senate voted 62-30 on a cloture motion to advance the scaled-back jobs bill introduced by Sen. Majority Leader Harry Reid (D-NV). Reid’s bill, the Hiring Incentives to Restore Employment (HIRE) Act, has been introduced as an amendment (S. Amt. 3310) in the nature of a substitute to H.R. 2847, known as the Jobs for Main Street Act, which cleared the House of Representatives in December. In a move that surprised even some Senate Democrats, Reid decided that the Senate would consider smaller, separate jobs bills instead of the $85 billion bipartisan bill (pdf) unveiled by Sens. Max Baucus (D-MT) and Charles Grassley (R-IA) on February 11. This decision was allegedly instigated after Senate Democrats complained to Reid that too many concessions had been made in order to garner Republican support of the bill. Reid has stated that introducing smaller bills will force the Senate to focus on job creation.

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The Internal Revenue Service (IRS) will begin mailing questionnaires to 401(k) plan sponsors to gather information about compliance with applicable tax rules. The questionnaire will focus on 401(k) plan operations, including eligibility, employee deferral rates, compensation definitions and nondiscrimination testing. The IRS is expected to mail several thousand questionnaires to 401(k) plan sponsors around the country to help make certain it reaches a representative sample.

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A draft of the 362-page Senate jobs bill (pdf) has been circulating among members of Congress this week. Although still a work in progress, the draft bill includes provisions providing for, among other things, unemployment benefits and COBRA health insurance premium extensions, tax incentives to promote hiring, spending programs on transportation initiatives, pension funding relief, and a tax proposal designed to raise revenue from foreign-held assets and trusts.

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With the Obama administration’s renewed emphasis on job creation, a number of lawmakers have introduced bills that focus on employer incentives. On Wednesday, Senators Chuck Schumer (D-NY) and Orrin Hatch (R-Utah) released details about the Hire Now Tax Cut Act of 2010 (S. 2983), legislation that would exempt any employer that hires a worker who has been without full-time work for at least 60 days from paying the employer’s share of Social Security taxes on that worker for 2010. According to its sponsors, the advantage of structuring a tax incentive in this fashion is that it would provide businesses with an immediate benefit, instead of rewarding them with a tax credit in 2011. Additionally, the benefits to an employer would increase the longer it retains and the more it pays the employee, up to the maximum Social Security wage of $106,800.

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Today President Obama outlined his plan to promote the growth of small businesses as a way to stimulate the economy and reduce unemployment. During his State of the Union Address, Obama proposed using $30 billion repaid funds that financial institutions received through the Troubled Asset Relief Program (TARP) to increase the ability of small businesses to obtain loans. In addition, he called for tax incentives for businesses to invest in new plants and equipment, and the elimination of capital gains taxes on small business investment. 

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In keeping with a key theme of President Obama’s State of the Union Address, lawmakers introduced a number of bills this week that seek to increase hiring. Sen. Al Franken’s (D-Minn.) bill, the Strengthening Our Economy Through Employment and Development (“SEED” or “Cash For Jobs”) Act (S. 2952), would take $10 billion in existing funds from the Troubled Asset Relief Program (TARP) and re-allocate it to creating jobs in the private and public sectors. This measure would use half of this amount to provide wage subsidies to encourage private sector hiring. Specifically, according to a press release:

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Two bills introduced yesterday would amend the Internal Revenue Code to provide employer tax credits for hiring. Rep. Bob Etheridge’s (D-NC) bill, the Hiring Incentives to Reinvest and Incentivize New Growth (HIRING) Act of 2010 (H.R. 4437), is designed to promote employment in general. According to a summary of the bill, the HIRING Act would provide a refundable tax credit to any business that expands its payroll by at least 3 percent in 2010 or by at least 5 percent in 2011. Additionally, the bill would provide a credit of 15 percent of additions to payroll in 2010 and 10 percent in 2011. The credit would be based on payroll and businesses would be rewarded for hiring new employees, increasing employee hours, or restoring employee pay. If enacted, the provisions of this bill would apply to taxable years beginning after December 31, 2009. This bill has been referred to the House Committee on Ways and Means.

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