December 13, 2023
United States | Employment Tax | Updates to California State Disability Insurance, and updates on new state paid family leave programs, and new Child Care Contribution tax in Vermont
Impact High
Summary
Expansion or inception of state-run programs to provide employee continued wages during illness for themselves or a family member continues. Beginning January 1, 2024, employers have a responsibility to collect and remit increased employee contributions in California, provide expanded paid leave in Illinois, and beginning July 1, 2024, employers have a responsibility to collect a new payroll tax in Vermont. We’ve also summarized recently enacted bills that will commence in the near future.
Overview
California – State Disability Insurance (SDI):
SDI is an employee paid tax that allows the California disability fund to pay Disability Insurance and Paid Family Leave benefits to California workers. The SDI program is funded through payroll deductions, the SDI rate for 2024 is increasing to 1.1%, and effective January 1, 2024, the SDI taxable wage limit is being eliminated. As such, California based workers will be subject to SDI on all wages without a taxable wage limit.
Illinois – Paid Leave for Workers Act (Act):
The Paid Leave for Workers Act, SB208, was signed into law in March 2023 by Governor JB Pritzker which mandates paid time off to be used for any reason for Illinois workers. Starting March 31, 2024, or 90 days following commencement of employment, employees working for an employer in Illinois can begin using their earned time off for any reason without the requirement of providing documentation to their employer under the Act. Employees will accrue paid leave at the rate of one hour for every 40 hours worked up to a minimum of 40 hours in the 12-month period. The Act is a state-run program which excludes employees and employers that are subject to local existing paid sick leave ordinances (e.g., The City of Chicago and Cook County).
Maryland – Family and Medical Leave Insurance (FAMLI) program
Maryland’s FAMLI program was established through the Time to Care Act passed. Any worker in the State who has worked 680 hours in the past 12 months would be considered covered. Employers will be required to enroll in the state plan or seek approval for a private plan that provides benefits equal to or greater than the state plan. Employer and employee contributions are required beginning October 1, 2024. The state plan contribution rate was set on October 1, 2023, which is 0.9% of covered wages up to the Social Security wage cap. The rate will be equally divided between employers and employers with 15 or more workers. Employers with 14 or fewer employees are not required to contribute but will still collect payments from their workers. Employees can begin receiving leave insurance benefits on January 1, 2026.
Vermont – Child Care Contribution:
Vermont’s Child Care Contribution (CCC) newly enacted payroll tax is effective July 1, 2024. The new law makes major investments in Vermont’s child care system, implementing changes in both early childhood and school age settings. The rate is 0.44% on wage income and 0.11% on self- employment income. Employers are responsible to pay a 0.44% payroll tax on all wages earned in Vermont. Employers have the option to deduct and withhold 25% of the required contribution (i.e., 0.11%) from employee wages. Payment of the Vermont CCC should be made in the same way employer’s remit their Vermont income tax withholding.
Other State paid family leave updates:
➢ Delaware: Employer and employee contributions are required for Delaware’s Family and Medical Leave Insurance program beginning January 1, 2025. Employees can begin receiving leave insurance benefits in 2026.
➢ Maine: Employer and employee contributions are required for Maine’s Family and Medical Leave program beginning January 1, 2025. Employees can begin receiving leave insurance benefits on May 1, 2026.
➢ Minnesota: Employer and employee contributions are required for Minnesota’s Family and Medical Leave program beginning January 1, 2026. The program premium rate will be 0.7% of an employee’s taxable wages. Employers may charge a maximum of half this premium (or 0.35%) to their employees through a wage deduction. Employees can begin receiving leave insurance benefits on January 1, 2026.
How we can help
Vialto can assist you in complying with your responsibilities related to state paid leave programs, including determining which employees are covered under the program, assisting with any required registrations, calculating employee and employer contribution amounts, drafting employee communications, and assisting with wage reporting.
Please reach out directly to your Vialto contact or one of the individuals listed below to discuss next steps.
Contact us
Please reach out to us to discuss further.
Tina Schrob
+1 (201) 787-0114
cristina.g.schrob@vialto.com
Greg Fetter
+1 (908) 313-6439
gregory.fetter@vialto.com
Ligeia Donis
+1 (202) 809-4072
ligeia.m.donis@vialto.com
Further information on Vialto Partners can be found here: www.vialtopartners.com