The Honorable Orrin G. Hatch
Committee on Finance
United States Senate
219 Dirksen Senate Office Building
Washington, DC 20501
Re: Transitional Relief and Paid Family Leave in Tax Reform Legislation
Dear Chairman Hatch,
The ERISA Industry Committee (“ERIC”) applauds your efforts to develop tax reform legislation without adversely impacting the ability of workers and families to save for retirement. We look forward to working with you to advance retirement savings measures in future legislation.
In this letter we request transitional relief for withholding-related activities resulting from changes to amounts included in income and new income tax rates. In addition, we propose clarifying language to be included in the paid family leave tax credit that was recently added to the tax reform legislation.
ERIC is the only national association that advocates exclusively for large employers on health, retirement, and compensation public policies at the federal, state, and local levels. ERIC members provide comprehensive health, retirement, and compensation benefits to tens of millions of active and retired workers and their families, providing them with income security and wellbeing. ERIC members have a strong interest in policies that affect our member's abilities to offer competitive compensation and benefit packages to their employees and their families.
I. Transition Relief for W-4 Preparation and Processing
The Finance Committee legislation proposes several changes to the tax code that affect individuals, including a reduction in the individual federal tax rates. With so many changes to the tax code, individuals will need time to review the impact the legislation will have on their overall tax liability, which may lead to withholding changes to be completed on the IRS Form W-4. Employers have in place policies to distribute and process requested changes to the withholding liability for individual employees; however, major revisions to the tax code could cause a drastic increase in the number of revised forms than an employer must process. For large employers in particular, this may mean that tens of thousands of revised forms will need to be processed in a short period of time.
For example, in 1986, following passages of landmark tax reform legislation, the Internal Revenue Service released a revised Form W-4 in November 1986 for the taxable year 1987. The tax reform legislation required individuals to complete a new Form W-4 by October 1, 1987. If an individual did not complete a new form, an employer was required to withhold at a certain exemption level based on the filing status (single or married) of the Form W-4 on file.
According to IRS Publication 15, Circular E, Employer’s Tax Guide, an employer must process a revised Form W-4 no later than the start of the first payroll period ending on or after the 30th day from the date the employer received the form. An employee would expect the changes to withholding liability to be changed immediately, and large employers would hope they could accomplish this task for the employee. However, due to the potential for a mass number of revised forms, we request an extension of time to comply with the current rule. We respectfully request that for 2018, an employer be provided additional reasonable time to process revised forms. In addition, this time frame should take into account the possibility that the Internal Revenue Service may need to issue a new Form W-4, which might not be available until a later date in 2018. Further, we request that an employer be able to carryover the current withholding election of an employee, unless a revised Form W-4 is received. These requests will ensure that individual tax withholding continues without interruption as well as provide administrative relief to employers processing a large volume of revised forms.
II. Paid Family Leave Tax Credit
ERIC members strive to provide high-quality paid family and medical leave benefits to their employees, and we seek to enhance our members’ ability to administer flexible paid leave policies by advocating for public policies that ensure employers can provide a consistent experience for all employees. We are encouraged by the inclusion of a paid family leave tax credit in the tax reform legislation because it will encourage employers to provide this benefit while maintaining the ability to implement a flexible paid leave policy. We request clarification and expansion of the following points with respect to the legislation: (1) allow a tax credit to employers that provide an employer-paid fully-insured product to employees (so long as the product provided satisfies the definition of paid leave in the legislation); and (2) enable an employer to receive the tax credit for paid leave provided above and beyond any state-mandated paid leave policy. We believe both recommendations will enhance the usage of paid leave policies across America.
We look forward to working with you and your staff on these and other matters relating to health, retirement and compensation benefits, and would be happy to provide additional information or answer any questions. Thank you for your consideration of these important matters.
Annette Guarisco Fildes
President & CEO