© 2020 American Payroll Institute, Inc. 2020 State and Local Ballot Roundup What Employers Need to Know OFlorida, n November 3, voters in Arizona, California, Colorado, and Illinois, and in San Francisco, California, voted on key issues that could impact payroll and withholding taxes. Payroll professionals should be aware of these election results to prepare for changes to come. Note that the information provided is based on unofficial election results and news coverage and could change once additional ballots are counted in the coming days. Any changes will be reported in a future issue of PAYSTATE UPDATE. Ballot measures Arizona. Income tax increase. For tax years beginning after December 31, 2020, Proposition 208 imposes a 3.5% tax surcharge on taxable annual income over $250,000 for single persons or married persons filing separately, or $500,000 for married persons filing jointly or heads of households, to increase funding for public education. The surcharge of 3.5% will be added to the income tax rate for the highest income bracket (4.5% in 2020). California. Gig economy employer exemption from A.B. 5. Proposition 22 exempts certain app-based transportation and delivery drivers (e.g., workers for Uber, Lyft, Instacart, DoorDash, Postmates) from the worker classification requirements of A.B. 5 (see PAYSTATE UPDATE, Issue 18, Vol. 22). For covered gig economy companies, workers will be considered independent contractors unless the company sets workers’ hours, requires acceptance of specific ride and delivery requests, or restricts workers from working for other companies. Independent contractors are not protected by most state employment laws, including minimum wage, overtime, unemployment insurance, and workers’ compensation laws. Covered gig economy workers will be entitled to other compensation, however, including minimum earnings, healthcare subsidies, and vehicle insurance. Local employment regulation of covered workers will be prohibited [Changes Employment Classification Rules for App-based Transportation and Delivery Drivers, 19-0026A1]. Consumer privacy act, employer exemption extension. Proposition 24 extends the employer exemption from the privacy law for an additional two years, until January 1, 2023 (see PAYSTATE UPDATE, Issue 20, Vol. 22). Legislation had already extended the exemption through January 1, 2022 the passage of the ballot measure adds an additional year of exemption for employers [The California Privacy Rights Act of 2020, 19-0021]. San Francisco, California. Payroll expense tax elimination. Proposition F modifies the local business tax structure, in part by eliminating the payroll expense tax beginning in tax year 2021 (see PAYSTATE UPDATE, Issue 18, Vol. 22). It also provides tax relief to small businesses by decreasing the annual business registration fee for some and increasing the threshold for the small business exemption so more businesses will qualify (beginning July 1, 2021) [Charter Amendments, Business Tax Overhaul, File No. 200648]. Colorado. Income tax decrease. Proposition 116 reduces the individual income tax rate to 4.55% (from 4.63%). The tax cut is retroactive to January 1, 2020, meaning taxpayers benefit from the relief starting this tax year (for taxes due in 2021) [Secretary of State, Amendments and Propositions on the 2020 Ballot, Proposition 116, Initiative 2019-2020 #306]. Paid family leave program. Proposition 118 establishes a statewide paid family and medical leave program that will be funded through a 0.9% payroll tax on employee wages, to be split equally between the employer (0.45%) and employee (0.45%) (see PAYSTATE UPDATE, Issue 18, Vol. 22). Contributions will begin January 1, 2023. Employers with fewer than 10 employees will be exempt from the employer contribution but must withhold and remit employee contributions. Employers with approved private plans can qualify for an exemption from the state program. Beginning January 1, 2024, the program will provide up to 12 weeks of paid leave (plus an additional four weeks under certain circumstances). The program will be administered by the Division of Family and Medical Leave Insurance, which will be created within the Department of Labor and Employment [Secretary of State, Amendments and Propositions on the 2020 Ballot, Proposition 118, Initiative 283, 2019-2020]. Florida. Minimum wage increase. Effective September 30, 2021, a ballot measure increases the state minimum wage to $10 per hour (from $8.65 per hour), with additional annual increases of $1 per hour until it reaches $15 per hour in 2026 (see PAYSTATE UPDATE, Issue 18, Vol. 22). Beginning on September 30, 2027, the minimum wage will be adjusted annually for inflation. The tip credit will remain $3.02 an hour [Initiative 2, 18-01]. Illinois. Graduated income tax. Election results are not yet definitive for a ballot measure that would replace the flat tax (currently 4.95%) with six graduated tax rates, imposed by the state legislature via S.B. 687 (of 2019). The change to the tax rate structure is contingent upon voters agreeing to an amendment to the state constitution via a ballot initiative. As of publication, the measure did not seem likely to pass. The graduated marginal rates would range from 4.75% to 7.85% with a rate of 7.99% of net income for high earners [Statewide Question, Proposed Amendment to Section 3 of Article IX of the Illinois Constitution]. November 9, 2020 Volume 22 Issue 22
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