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New VT Payroll Tax to go into Effect July 1, 2024 - Employer Responsibilities and Cost

The Vermont Legislature enacted Act 76 of 2023. The act tasks the Vermont Department of Taxes with the implementation and administration of a new Child Care Contribution (CCC) tax on wages subject to VT withholding.


I recently attended a webinar for employers presented by the Vermont Department of Taxes concerning this new VT payroll tax, which goes into effect on July 1, 2024.


I provided the following information to my existing accounting clients impacted by the impending law's implementation.


To be clear, this a new payroll tax covering wages paid for work performed in Vermont. Out of state employers, are not required to pay this tax to Vermont unless they have employees physically working in Vermont and who are being paid wages required to have Vermont income taxes withheld.


The state provides extensive information on the tax in pamphlet form here: CCC VT Dept of Taxes


But, below are the highlights and my thoughts on implementation:


Highlights:


- The total tax is 0.44% of taxable wages subject to VT withholding (Box 1 wages of an employee's W2). There are no exempt employers, no cap on the tax collected, and no exclusions based on the type of employee (part-time, full-time, business owner wage salary, visa holder, etc).


- Employers can either undertake the full tax themselves OR employers can offload up to 0.11% of the tax burden and withhold that amount from their employees' paychecks. The amount withheld from employees will show in Box 14 of their W2.


- The state law does allow discriminate withholding - for example you could withhold the CCC tax from salaried employees and not from hourly employees and you could withhold the CCC tax at different rates among employees. Some you may withhold 0.05% and others the maximum 0.11%. (I DO NOT recommend this method)


Example of Tax Cost:


When the employer bears the full cost of the CCC tax:


When the cost is spread across employees and employer:


Recommendations:


- I recommend that all employers with employees withhold the maximum allowed 0.11% from their employees instead of employers bearing the entire 0.44% burden. 


- I believe this is an important move out of principle:

 

1.) Employees should be made aware of this legislative move so that if they are upset about this new tax they may be empowered to petition their legislators.


2. Employees are usually unaware of the true employer cost of their employment. Offloading a small portion of this new tax does shed some light on that burden. 


3.) I sense VT will soon try to move forward with a similar tax for paid family leave like many of our surrounding states. Employees may be more aware of additional legislative changes if they already see the similar CCC tax on their paycheck.


Implementation: 


- While the law DOES NOT require specific employee notification, I do suggest employees are made aware of this new tax prior to July 1st. As was discussed in the webinar, the VT Department of Taxes does not have a formal notification template designed for employees, but they may draw up one given viewer feedback. If I do not see a template in the next few weeks I will draw one up myself that can be given to employees.  


Payments of the CCC tax will be made with regular Vermont withholding payments and will be reported in a new section of the existing quarterly WHT-436 form.





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