I-9/E-Verify

By: Dave Fowler

In December 2009 the E-Verify Photo Tool was released to E-Verify Designated Agents (DAs) using the E-Verify web site. Many DAs, including TALX, provide an electronic I-9 service that communicates with E-Verify using a sedure computer-to-computer connection referred to as the E-Verify Web Services Interface. E-Verify supports several versions of this interface. The current release is version 20 (v20) and it supports the Photo Tool. DAs recently received instructions to upgrade to v19 by July 23. While v19 supports some of the Photo Tool data fields, it does not provide all the necessary functionality needed for DAs to support the Photo Tool in their electronic I-9 services. DAs have not received notification from DHS regarding when v20 must be implemented.

The lack of v20 notification is a good thing at this time since many DAs and employers are working through supporing and complying with the Federal Acquisition Regulation (FAR rule) that requires Federal contractors with covered contracts to verify new and existing employees with E-Verify. The other reason this is good news is that later in 2010 (perhaps in the fall) another Photo Tool update (v21?) will probably be released to add U.S. passport photos. Currently, the Photo Tool only provides photos when an employee presents a EAD card or a LPR card to complete the Form I-9. By delaying the requirement for DAs to upgrade to v20, employers will only have to train hiring managers one time on the use of the Photo Tool. If DAs were required to upgrade to v20 and then 6 months later to v21 (if that is the version that supports passport photos), employers would be required to train hiring managers twice on the Photo Tool. This would most likley increase confusion, result in noncompliant practices that increase risk, and additional employer costs. It would be better for those employers hiring seasonal workers this fall to not be burdened with implementing a new E-Verify feature such as the Photo Tool.

After the release of v21 there will likely be another release (v22?) that will be the first installment of updates as part of the plain language initiative. This project is to make the language of E-Verify more understandable to users of the service. The first release will change such technical terms as Tentative Nonconfirmation so they are clearer and describe the actions the hiring manager and employee must take to resolve the issue.

Again, it is good for employers for the release of v22 to be delayed until after the seasonal hiring season is over so hiring managers and employees don't have to be taking training and learning new terms during a peak hiring season.

Kansas

In the state of Kansas Governor Parkinson recently signed House Bill 2676 that lowered unemployment insurance tax rates and provided additional time to submit their tax contribution payment.

Indiana

In the state of Indiana; Governor Mitch Daniels recently signed Senate Bill 23 that postpones scheduled unemployment tax changes to take effect on January 1, 2011, rather than January 1, 2010.

What Employers Need to Know

Kansas

Kansas HB 2676 sets tax rates for 2010 and 2011. The Kansas agency immediately mailed revised 2010 rate notices to the employers impacted by the bill which was signed by Governor Parkinson on March 24, 2010.

In addition, all employers are given an additional 90 days in which to make their contribution payments for the first three quarters of 2010 and 2011 without accruing interest. However if the payments are not made within that 90-day window, interest will be assessed from the original due date.

The 90-day grace period provided to all employers does not apply to submission of the quarterly wage report, only to the payment of UI tax contributions. Quarterly wage reports are still due the last day of the month following quarter end. Reports submitted past the due date are subject to a penalty.

Indiana

Indiana SB 23 postpones from January 1, 2010 to January 1, 2011 the increase in the taxable wage base from $7,000 to $9,500. In addition, it postpones the increase in the maximum rate from 5.6% to 12.0% and decreases the rate for certain employers, from 2.7% to 2.5%. Changes to the fund ratio and rate schedules were also delayed to take effect in 2011 rather than in 2010.

Tammy Mullin

Part 3 – Major Program Changes

The latter half of the 20th century saw significant changes occur in the unemployment insurance (UI) program. It began in 1953 when the law was amended to impose liability on an employer who employed eight or more workers during 20 different weeks in a calendar year, or, who paid wages in excess of $12,000 in any quarter of the year. This was the first time a payroll factor was used to determine employer liability.

Coverage requirements for employers were again changed in 1956. The number of employees needed to establish a company liable for UI tax was dropped from eight down to four or more during 20 different weeks in a calendar year. At the same time, the payroll factor dropped from $12,000 down to $6,000 per quarter. Coverage requirements then remained basically unchanged for the next 16 years.

In 1972 employer liability provisions were extended to employers who had 1 or more employees performing services for them in 20 different weeks of a calendar year or had a payroll in any quarter of $1500. In addition, the FUTA taxable wage base increased from the first $3000 to $4200.

Also during 1972, coverage was extended to workers in state government and non-profit organizations. 1974 saw the inclusion of city and county government workers and additional changes occurred in 1978 when employees of large agricultural firms, domestic employers and schools below the level of college were provided UI coverage. The wage base was again increased in 1978 from $4200 to $6000. Then, in 1983, the taxable wage base became $7000 and remains at that level today. Stay tuned: I believe the FUTA taxable wage base will be substantially increased within the next year.

Below is a convenient chart that shows the changes that have occurred over the years in the FUTA taxable wage base and tax rate:

FEDERAL UNEMPLOYMENT TAX ACT

TAXABLE WAGE BASE AND RATE  

Rett Hensley
TALX Strategic Consultant

The attached Tax Intelligence details a recent Court ruling regarding severance pay and FICA. In a controversial decision, a sixth circuit District Court held that certain severance payments made outside a qualified supplemental unemployment benefits (SUB) plan were not subject to FICA tax since the severance payments were not earnings.

Please review the attached for further details, including a possible option which might be advisable to preserve the right to a refund in the future when the case is finally resolved.

This communication was sent to our clients on March 23.

Part 2 – The Early Years

On August 14, 2010, the Federal/State Unemployment Program will be Seventy-5 years old. I began working for the Florida Industrial Commission, Bureau of Unemployment Compensation, on January 5, 1970 (40 years ago). At that time, I was trained and supervised by individuals who were reaching the end of their careers in the unemployment program. These great pioneers set the program up from scratch after it was established by the Florida legislature in 1937, signed into law by Governor Fred P. Cone on June 9, 1937, and approved by the Social Security Board as meeting all Federal requirements on June 24, 1937. It began in a small office space above a drug store in downtown Tallahassee, Fl, with three employees. By August it had grown to 27 employees.

Newspapers around 1937 gave you a glimpse at the economy of the day. For instance, employment as a bartender was advertised at a salary of $7 per week. You could buy a six room home for $3,000, a new truck for $395, and a pot roast sold for 15 cents a pound. The initial unemployment weekly benefit amount was $15, which offered real hope for financial survival at the time.

These early years were completely devoted to getting the program up and running. Every state had to begin by locating and establishing employer’s who were considered liable for the payment of unemployment tax. Of course, this coming at a time when employers were struggling to make ends meet as a result of the Great Depression.

The original program covered workers who were employed by companies that had 8 employees on the payroll during 20 different weeks in a calendar year. It did not, however, provide unemployment coverage for large groups of workers. For instance, workers performing services in agriculture, non-profit organizations, domestic service and government work, were not covered for unemployment purposes and the employers were not liable for unemployment taxes. The Act also did not cover workers over the age of 65. The first tax and wage reports were collected from liable employers on a monthly basis, however, by 1938 states were moving to the quarterly report process that is still in use today.

Other major changes began to occur in 1939. The first being the removal of railroad workers from the Federal/State Unemployment Program due to the passage of the Railroad Unemployment Insurance Act which established a program solely for railroad workers. Around 1941 states were beginning to see a need to investigate unemployment fraud and employer audit programs began springing up around 1949. The original intent of the field audit program was to audit every employer once every four years. Never happened, and never will!

A lot of changes occurred from the 1950’s through the 1970’s. I’ll discuss them next week along with a history of FUTA tax rates.

Rett Hensley
TALX Strategic Consultant

In response to the severe recessionary economic conditions, several states either passed legislative changes in 2009 or had statutory provisions in place that resulted in significant state unemployment (SUI) tax increases for 2010. The extreme rise in unemployment taxes is expected to continue for the next several years as states work to replenish their trust funds. The Congressional Budget Office (CBO) estimates that taxes will increase from $38 billion in 2009 to $75 billion by 2013 and range from $78 - $84 billion through 2020.

The cost of high unemployment state taxes will be compounded by higher federal unemployment taxes as states struggle to repay their Title XII Loans. The states must repay the loans as well as interest on the monies borrowed.

To date, thirty two (32) state unemployment trust funds are broke and have borrowed over $32 billion from the federal government. The USDOL estimates that forty (40) states will become insolvent and borrow a total of $90 billion as a result of this recession.

There is tremendous pressure for the states to address the repayment of the federal loans as well as bringing solvency to their state trust funds, through higher unemployment taxes. On the flip side, there is unprecedented pressure from the employer community to reduce the unemployment tax burden.

As of this writing, both Florida and Massachusetts have enacted legislation to lessen or defer the significant tax increases their employers were experiencing in 2010. Hawaii, Indiana, Kansas and Maryland have similar legislation pending.

With the landscape continuously changing it will be critical for employers to stay abreast of the developments and factor them into their budget projections.

The attached Tax Intelligence Flyer was sent to our client base for the month of February. The flyer contains information on state legislative activity and the importance of rate forecasting.

Thanks!

TALX Tax Intelligence - ETS -February 2010 (PDF, 162kb)

Today is an exciting day for our clients.  President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act.  The HIRE Act has many provisions which will focus on the hiring of unemployed workers.  The legislation will help spur job growth while allowing employers the opportunity to retain a portion (6.2%) of the Social Security tax.

Social Security Tax Exemption

The Social Security Tax Exemption is available for employees hired after February 3, 2010 and before January 1, 2011.  The tax exemption of 6.2% is based on the wages paid after March 18, 2010.  The employee must have been previously unemployed for at least 60 days and may not exceed the $106,800 Social Security wage base. A signed affidavit is required to document eligibility.

Tax Credit

The up to $1,000 income tax credit is available for each employee hired after February 3, 2010 and before January 1, 2011, that is employed for at least 52 consecutive weeks. Wages during the last 26 weeks must be at least 80 percent of wages paid for the first 26 weeks.  Companies who retain these new employees for a year may claim an additional credit of the lesser of $1,000 or 6.2 % of the wages paid to the employee in 2010.

Angela Lockman

By a 68-29 vote, the Senate gave final approval to the HIRE Act. The $17.6 billion job creation bill was passed on Wednesday, March 17, 2010. The bill had already passed the Senate once but the House tweaked it, requiring the second Senate vote before it could go to the White House. President Obama has showed his support for the legislation in the past and plans to sign it.

The legislation will:

• Exempt employers from Social Security payroll taxes on new hires who were unemployed. The act requires employers to screen and collect affidavits from eligible employees.
• Fund highway and transit programs through 2010.
• Extend a tax break for business that spend money on capital investments, such as equipment purchases.
• Expand the use of the Build America Bonds program, which helps states and municipalities fund capital construction projects.

The centerpiece of the legislation is a hiring tax credit.  It would exempt businesses that hire the unemployed from paying the 6.2 percent Social Security payroll tax through December. The tax savings for companies is a maximum of $6,621 per new employee.  Companies who retain these new employees for a year may claim an additional credit of the lesser of $1,000 or 6.2 percent of the wages paid to the employee in 2010.

"The beauty of this bill: It's simple, it's focused on private-sector job growth and it's paid-for," said Sen. Charles Schumer (D-N.Y.), a co-author of the measure. "It's modest, but ... it's almost a legislative dream."

Angela Lockman

I-9/E-Verify

By: Dave Fowler

The APA Capital Summit was held last week in Washington D.C. During my time in D.C. I had a chance to meet with various individuals responsible for E-Verify and enforcement of immigration laws including the Form I-9. Here is an update on what we all might expect in the coming months regarding E-Verify and information on why improvements can take longer that most of us would like or expect.

1. An E-Verify ICD (Interface Control Document) is a specification that covers the E-Verify web service computer-to-computer interface that E-Verify makes available primarily to Designated Agents (DAs) and to a lesser extent individual employers. The current ICD is version 20, but there will likely be others released within the next 12 months or so. When a new ICD is released DAs are typically given 6 months to implement the new interface. Here are some examples of what we may see.

• Support for ICDs older than version 19 will be discontinued.
• An ICD providing an expansion of the Photo Matching Tool that will include additional documents such as U.S. passport photos.
• An ICD that includes updates supporting the DHS plain language initiative to replace terms such as Tentative Nonconfirmation with something more meaningful to the user.

2. There are many stakeholders involved with E-Verify. Therefore, changes to the program, which, by the way, will remain a pilot program until Congress changes its status, must be reviewed and approved by a variety of groups within the government. For example, a partial list of these groups might include E-Verify, DHS management, DOJ OSC, SSA just to mention a few. Each of these groups have their own legal staffs and E-Verify is just one item on their worklist. So, you can see how it might be somewhat of a challenge getting all these groups and individuals on the same page.

3. Why are there so many different E-Verify manuals? I'll speculate that there are two main reasons for this.

• First, to avoid burdening a user with information that does not apply to them E-Verify has published manuals for each specific user audience.
• Second, government agencies need to comply with the paperwork reduction act to limit the amount of paper documents that are printed. While most E-Verify manuals are published online as PDFs and downloaded by the user, there are a number of users that request hardcopy manuals. So, E-Verify is required to cost justify the publication and printing of any new manuals. Since the publication of manuals doesn't generate revenue or reduce costs, it is much easier for E-Verify to get approval to publish smaller manuals. This might help explain why there is a Supplemental Guide for Federal contractors rather than a larger single manual for Federal contractors.

4. Guidance to simplify and clearly define what is acceptable as the Employment Date in E-Verify as well as what to enter as the Employment Date in Section 2 of the Form I-9. The same guidance must also apply to the Rehire Date entered in Section 3 of the Form I-9. There appears to be disagreement among the various stakeholders involved with the Form I-9 and E-Verify as to how to what the specific definition of these two fields can be and what it needs to be. Therefore, we should not anticipate that any guidance provided in the short-term will provide a simple, clear, and consistent definition of these dates. In my opinion, the guidance should be as simple as:

• The date (Employment and Rehire dates on the Form I-9 as well as what is provided to E-Verify) must be the date applicable section of the Form I-9 is signed or a previous date. The date must not be a date in the future. There is no requirement that the date match any date in the employer's systems.

Unfortunately, the guidance is more likely to be different for E-Verify and the Form I-9. In other words, E-Verify will not accept a future date, but a future date will be acceptable on the Form I-9. This will mean that if the date on the Form I-9 is a future date, the user will be instructed to enter the current date in E-Verify to verify the employee's work authorization. This approach will be confusing to users, limit or eliminate the E-Verify Monitoring and Compliance group from obtaining realistic statistics, it may serve to promote pre-screening, which is not allowed by E-Verify, and it is bad for the E-Verify brand to instuct users to enter information into E-Verify that is not on the Form I-9.

To sign off on a positive not, I will tell you that while there are challenges and enhancements that will make it easier to use and reduce the burden on employers, E-Verify is continuing to improve. So, hats off to the E-Verify team for that! However, we all need to keep the pressure on to push for needed enhancements.

That's it from the Capital.