NPRC Testimony: Payroll Service Providers Should be Excluded From Californiaā€™s Money Transmission Act

The California Department of Financial Institutions has advised some NPRC members that licensing of payroll service providers will be necessary under the Money Transmission Act (Chapter 612, Laws 2010). Accordingly, members have sought to become licensed, but the relevant provisions and stated purpose of the law is to protect consumers in over-the-counter money transmission services, such as check-cashing stores with bill-payment services, sale of money orders, etc.

Consequently, the specific requirements of the Act do not fit this industry well. In addition to licensing and examinations, service providers would need to post signs intended for public display, issue receipts for all transactions and offer to refund amounts that may already be in the process of being remitted to a tax authority. Fees would also be assessed based on the aggregate value of all California wages paid through a payroll service, which would impose substantial new costs on service providers and California employers, and significantly disrupt the smooth functioning of payroll processing arrangements that have been in place for decades.

NPRC developed suggested amendments that would generally exclude payroll services providers from the Act, and provided testimony for an Assembly Banking & Finance Committee hearing on March 11, 2013.

Originally from Government Corner — State

NPRC Assists in Considering Enhancements to Wage Reporting

In 2012, the federal/state Workforce Information Council established an Administrative Wage Record Enhancement Study Group to examine the feasibility of adding new data elements to the quarterly wage record reports that employers submit to all states as part of the Unemployment Insurance (UI) system.

This group is considering whether enhanced wage reporting could improve labor market information systems, which are generally survey-based today. Improved labor market information could have profoundly beneficial effects on students, educational institutions and the U.S. economy, so consideration of enhancements should be applauded.

NPRC members administer all aspects of data collection, reporting and compliance with the UI laws, rules and systemic requirements of every state. Consequently, NPRC represents a critical and unique perspective on the feasibility and practical implications of adding new elements to wage record data.

As always, NPRC remains strictly neutral on whether proposals affecting employer reporting are appropriate or necessary, or whether the benefit may be outweighed by the associated burden on employers. We serve only to provide technical and practical considerations for such proposals.

IRS Taxpayer Advocate's 2011 Report to Congress

NPRC wrote to the IRS Taxpayer Advocate to express concerns over the characterization of the payroll services industry within the 2011 TAS Report to Congress. One section of the report implied that payroll service providers may contribute to the "tax gap"; however the explanation and justification are incorrect. We offered to meet with TAS staff to provide appropriate background information on the payroll services industry and its role in tax administration.

Originally from Government Corner — Federal

NPRC Urges Prioritization of Suggested enhancements to Reporting Agent Regulations

As requested by the Service, NPRC provided recommendations for the IRS Annual Guidance Priority Plan, asking that the IRS prioritize proposed disclosure requirements that would improve the safety of client funds entrusted to payroll service providers. The IRS has not yet adopted the suggested recommendations.

Originally from Government Corner — Federal

NPRCā€™s Position Regarding Its Letter to Congress On H.R. 3630 - Payroll Tax Relief Proposals

Due to the many questions received concerning our letter of December 19, 2011 regarding a proposed two-month extension of the Social Security tax reduction, NPRC wishes to emphasize the following:

  • NPRC is strictly neutral on whether a reduced Social Security tax rate is necessary or desirable.
  • The concerns of NPRC are not politically motivated. NPRC is non-partisan and not affiliated with any political party.
  • NPRC routinely advises policymakers as to the administrative implications of proposals affecting payroll and payroll tax administration.
  • Enactment of H.R. 3630, as amended on December 16th, would create substantial problems, confusion and costs affecting a significant percentage of U.S. employers and employees.
  • Establishing the proposed Social Security Taxable Wage limit of $18,350, to which a reduced 4.2% rate would apply through February 29, 2012, would require substantial reprogramming of computer systems.
  • Programming of the magnitude that would be required normally takes a minimum of 90 - 180 days for an orderly transition.
  • Programming of systems generally can not begin before the IRS announces what new recordkeeping and reporting will be necessary.
  • Payroll service providers have appropriate resources to respond to such changes and are likely to be the best able of those affected to accommodate such tax law changes. Others may find it more difficult.
  • NPRC proposes several alternatives to achieve the legislationā€™s goal of extending the reduced Social Security tax rate, as indicated in its letter to Congress.

The NPRC letter was intended to explain in a neutral way the administrative difficulties inherent in the proposal. Interested parties may also wish to contact the American Payroll Association and/or Independent Payroll Providers Association for their assessment.

Pennsylvania Municipal Income Tax

NPRC organized a group of software developers and APA members to meet with the Pennsylvania Department of Community and Economic Development and representatives of counties and tax collectors to express concerns and discuss how to facilitate transition year provisions of Act 32 (local income tax simplification).

Originally from Government Corner — State

South Carolina Department of Employment and Workforce proposed due date change for wage and contribution reports for 2011

In December 2010, the South Carolina Department of Employment and Workforce announced their intention to accelerate the deadline for employer wage and tax reports to the 15th of the quarter-end month.

While the change only affected South Carolina, we believe that most states would have quickly followed suit. As background, unemployment insurance claimants must demonstrate attachment to the workforce in the form of recent wages. The 2009 American Recovery and Reinvestment Act (ARRA) provided incentives to states to modernize their unemployment insurance programs by adopting an alternate base period (ABP), among other things. The ABP permits UI claimants to qualify for benefits based on recent earnings, such as wages paid in the most recent quarter. Recent wages are not available on automated state systems until after employers submit wage reports. As a result, states are exploring alternatives to accelerate availability of wage data, normally reported on the 30th or later. More than 40 states have now adopted an Alternate Base Period.

A reporting deadline of the 15th would dramatically reduce quarter-end processing time, adversely affecting clients and multiplying the volume of necessary. NPRC provided written input and appeared at the hearing, and the Department announced that it would not pursue the 15th due date. NPRC is working with the state and USDOL to consider alternatives, such as the UI SIDES system, and/or enhancements to electronic filing systems.

Originally from Government Corner — State

NPRC Requests Clarification of the Department of Labor and Workforce Developmentā€™s Intended Scope in Implementing SB 1968

New Jersey legislation (s.1968) was enacted to regulate the UI claims administration industry. The bill contained no references or specifics as to applicability to payroll service industry. Nevertheless, the New Jersey Labor Department notified all payroll (tax filing) service providers to register under the provisions of SB.1968. Although some terms in the statute are quite broad (e.g., ā€œfiling of any informationā€), it all deals with representation of employers. Even simple registration requirements create the appearance of state oversight, licensing and implied government backing. NPRC formally requested reconsideration of the agencyā€™s position that it applies to payroll service providers.

Originally from Government Corner — State

Emerging Electronic Filing Issues: State Calculation of UI Taxable Wages

NPRC members recently formed a study group with several State Workforce Agency wage and tax reporting experts, as well as the National Association of State Workforce Agencies and the US Department of Labor, to examine how states are handling taxable wage calculations within new electronic filing systems, how these systems address wages paid in other states and related issues. The study group produced a paper that describes the experience of several states, and discusses alternatives and pros and cons.