Recent Payroll Tax Changes For 2022

September 21, 2022

Arkansas Updates Withholding Methods, Effective Oct. 1

Arkansas’ withholding methods were updated by the state Department of Finance and Administration on Sept. 2, following an income tax cut passed in a special legislative session. The new withholding formula takes effect Oct. 1. The highest tax rate used decreased to 4.9%, instead of 5.5%, and the tax brackets used were adjusted. The formula’s standard deduction increased to $2,270, from $2,200, but the value of a state allowance was unchanged at $29. The withholding instructions were updated to decrease the supplemental withholding rate to 4.9%, also effective Oct. 1.

Utah Reduces The Threshold For Nonresident Withholding

The Utah State Tax Commission has reduced the threshold for nonresident income tax withholding from 60 days to 20 days. Starting January 1, 2023, employers will not be required to withhold Utah income tax from nonresident employee wages for services performed in the state who have not spent more than 20 days performing employment tasks in the state. This includes those using the percentage method and wage bracket withholding tables effective for wages earned on or after May 1, 2022.

Pennsylvania’s New Tip-Related and Overtime Pay Requirements

Effective August 5, 2022, amended wage and hour administrative regulations impact Pennsylvania minimum wage requirements for tipped employees and the calculation of overtime pay for nonexempt, salaried workers who work a fluctuating workweek (FWW) schedule. 

Increasing this $30 tip threshold is among the changes going into effect August 5th, when Pennsylvania’s Department of Labor and Industry updated regulations for minimum wage and tipped workers goes into effect. 

It’s the first time these rules have been updated since 1977.

The changes cover five primary areas for tipped workers:

  • Instead of $30, an employee must now make $135 a month before their base hourly wage can be adjusted from $7.25 to $2.83 an hour. In addition, the combination of their base pay and tips must average at least the minimum wage otherwise, the employer must make up the difference.
  • Employers are prohibited from deducting credit card or other payment processing fees from employees’ tips.
  • Employers, managers, and supervisors are excluded from receiving tips from a tip pool.
  • Known as the 80/20 rule, an employer can only take a tip credit when an employee spends 80% of their time performing tip-generating duties. If an employee spends more than 20% of their time performing non-tip generating duties, their employer cannot apply the tip credit to those hours that exceed 20%.
  • Employers must be transparent about automatic service charges, clarifying to customers that those fees are not gratuities for tipped employees.

Michigan Minimum Wage and Paid Sick Leave Changes Delayed Until February

On July 19, 2022, the Michigan Court of Claims held that, in 2018, the state legislature violated the Michigan Constitution when it enacted, and within the same legislative session amended, two ballot initiatives, one to raise the minimum wage and the other to require employers to provide paid sick leave. Now, citing public concerns over the ability of employers and the relevant state agencies to immediately implement the changes required by its decision, the court has granted a stay of its order until February 20, 2023.

Amendments made by the state legislature substantively changed some provisions of the ballot initiatives, including by reducing the minimum wage increase from $12 per hour (under the ballot initiative) to $10.10 per hour (under the amended law), reducing the total annual amount of PSL from 72 hours per year (ballot initiative) to 40 hours per year (amendments), and exempting employers with fewer than 50 employees from PSL requirements.

The court decision nullifies those changes made by the legislature, so the ballot initiatives will be implemented as originally written.

IRS Interest Rates Increase For The Third Quarter Of 2022

The Internal Revenue Service announced that interest rates will increase for the calendar quarter beginning July 1, 2022. The rates will be:

  • 5% for overpayments (4% in the case of a corporation).
  • 2.5% for the portion of a corporate overpayment exceeding $10,000.
  • 5% for underpayments.
  • 7% for large corporate underpayments. 

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. The overpayment and underpayment rate is the federal short-term rate plus three percentage points for taxpayers other than corporations.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus three percentage points, and the overpayment rate is the federal short-term rate plus two percentage points. The rate for large corporate underpayments is the federal short-term rate plus five percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during April 2022 to take effect May 1, 2022, based on daily compounding.

Some information for these stories is sourced from American Payroll Association, Bloomberg Tax, and State agencies.