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Published by info, 2017-12-13 12:04:13

State & Local Tax Update 2017

State & Local Tax Update 2017 Slides

Copyright © 2017

New York Tax Update

Mark S. Klein, Esq. Peter C. Godfrey, Esq.
Hodgson Russ LLP Hodgson Russ LLP
605 Third Avenue, Suite 2300
New York, NY 10158 605 Third Avenue, Suite 2300
[email protected] New York, NY 10158
Phone: (646) 218‐7514
[email protected]
@MarkKleinNY Phone: (716) 848‐1246

Joseph N. Endres, Esq.
Hodgson Russ LLP

140 Pearl Street, Suite 100
Buffalo, NY 14202

[email protected]
Phone: (716) 848‐1504
@NYTaxGuy

2017-18 BUDGET BILL

 “Millionaires Tax” Extended

• Top NYS tax rate of 8.82% extended for two years (2018/2019)

 Limit Extended on Charitable Contribution Deductions
 Sales of Partnerships Interests by Nonresidents May be Taxable
 Disregarded Entities Treated as Single Taxpayer for Credits
 Sales Tax Deferral Technique for Related Entities Eliminated
 Energy Transportation, Transmission, and Distribution Services Subject to Tax
 Certain Credits Extended
 No Sales Tax on Cemetery Monuments (effective September 1, 2017)
 NYS Facing $4B Budget Deficit for 2018-2019 Budget
 Prepaid phone cards (effective December 1, 2017)

2

WHAT DIDN’T PASS

 Expand sales tax collection requirements to marketplace
vendors

 Eliminate the sales tax exemption for contributions of property
to new ventures

 Reduce the tax liability threshold to $5,000 to suspend a
taxpayer’s driver’s license

 Like-kind exchanges under IRC § 1031 – still the best loophole
in New York!

 Limited sales tax liability for LLC owners
 Federal Sub-S Conformity
 Centralized Administrative Hearings
 Gaied Legislation with “90 days/50 miles” Rule

(S.6860/A.8610)

3

CORPORATE TAX REFORM

 $1,000,000 NY sales threshold
 Market-based sourcing
 Exempt investment income limited to stocks held over one

year
 8% limitation on investment income exemption
 Special rules for pre-2015 NOLs
 Mandatory combined reporting (50% ownership test)
 Special NYC rules

4

ESTATE TAX CHANGES

 Rates
 Exclusion phase-out
 Gift “tax”
 GST gone
 No portability
 New calculation for nonresidents
 Trust changes

5

COMPLIANCE AND ENFORCEMENT

 Whistleblowers

• Harbinger Capital – April 2017, $40M settlement – largest to date

 New compliance measures
 Driver’s license suspension
 New reporting obligations
 New York wants a “CISS”
 Increased criminal investigations
 CARP

6

“FISH IN A BARREL”

 Hot Buttons for 2017-18

• Corp v. sales tax revenue
• Art Gallery sales and use
• NYC residents with Sch. C income (BOD members, too!)
• “No” Box
• Visiting executives
• Cash/credit ratio seems off
• Used automobile registration
• Facebook

 Return preparer penalties - $1K/return – no reasonable belief
$5K/return – reckless disregard

 Voluntary Disclosure

 Offers in compromise

7

ABANDONED PROPERTY: GENERAL RULES

 General Information

• All 50 states, the District of Columbia and 3 Canadian provinces (Alberta, British Columbia, and
Quebec) have enacted unclaimed property laws. Ontario proposed unclaimed property legislation
in its 2012 budget.

• Unclaimed property laws are intended to safeguard the property of a state’s citizens, while utilizing
the escheated property for the benefit of all citizens.

• States have increasingly turned to their unclaimed property laws to increase revenue without raising
or extending taxes, which is politically unpopular.

• States’ Unclaimed property laws apply to all entity types, including:

 Corporations;
 S Corporations;
 Partnerships; and
 Limited Liability Companies
 Not for Profits

8

ABANDONED PROPERTY: GENERAL RULES

 General Information

• As you might expect, NYS is known as one of the more aggressive states for abandoned property
purposes.

• In fact, the Council on State Taxation (“COST”) recently gave NY its lowest grade when
comparing the aggressiveness of the abandoned property laws across the 50 states. Only NY, DE
and MS received a grade of “D-”.

• Here is a sampling of some of the states in the Northeast:

 CT : B-

 MD: B+

 NH: D

 MA: A

 NJ: D
 PA: D

 VT: C-

9

ABANDONED PROPERTY: GENERAL RULES

( ) NY’s Abandoned Property Statistics State Fiscal Year 2015-2016

• Third consecutive year OUF set national record for funds returned – over $452 million.

• NY currently holds over $14.5 billion in unclaimed funds dating back to 1943.

• Collected $741 million in cash receipts and $247 million in securities.

• Sources of unclaimed funds:

 Banks 38% (up from 36%)
 Other 14% (down from 27%)
 Insurance companies 20% (same)
 Corporations 21% (up from 14%)
 Brokers/dealers 3%
 State court funds 4%

• Transfers from OUF to General Fund:

 2012-13 – $714 million
 2013-14 - $528 million
 2014-15 - $648 million
 2015-16 – $524 million

10

ABANDONED PROPERTY: GENERAL RULES

 NY’s Abandoned Property Statistics (State Fiscal Year )2014-2015

• OUF audits produced $142 million in receipts.
• Audit recoveries are significantly increasing year-over-year

 Audit recoveries increased 26% over SFY 2013-14
 SFY 2013-14 increased audit recoveries by 21% over SFY 2012-13
• For the first time in 3 years, the Comptroller’s Office did not produce audit
collection statistics.
• The State recently entered into contracts with large third-party audit firms.

11

AP GENERAL RULES: DEFINITIONS

 So What Constitutes Unclaimed Property?

• In order to qualify as unclaimed property, most states impose the following general
requirements:

 Unclaimed property is generally intangible property - While there are exceptions to this rule
(e.g., some states have real property escheat laws), typically intangible property makes up the
bulk of unclaimed property (e.g., credit balances, uncashed payroll/accounts payable checks,
gift certificates, etc.).

 There must be a fixed and certain legal obligation between the holder and the owner.

 The property must remain unclaimed by the owner for a set, statutorily prescribed period
during which there is no contact between the holder and the owner. This period of inactivity
is known as the dormancy period. If there is any contact between the holder and the owner,
then the dormancy period can reset. Dormancy periods typically range from 1 to 7 years.

12

AP GENERAL RULES: DEFINITIONS

“UNCLAIMED PROPERTY”

 Unclaimed property generally includes property for which there has been no

contact between the owner and holder for a statutorily prescribed period of time
(“dormancy period”).

 Common categories include:

• Wages, payroll, salaries, commissions, pension payments
• Uncashed payable/vendor checks
• Gift certificates/gift cards/stored value cards
• Customer credits, deposits, refunds or rebates
• Overpayments/unidentified balances
• Cash and stock dividends
• Merger redemption proceeds
• Underlying and unexchanged shares
• Bond principal and interest
• Mutual fund and dividend reinvestment plan book shares, physical shares, and associated distributions

13

AP GENERAL RULES: IT’S NOT A TAX

So is it a tax?

 No. But it sure does look like one in some respects.
 Because unclaimed property is technically not a tax, some tax-related protections may not apply:

• “Nexus” – nexus refers to the “connection” between a state and a business that justifies the
imposition of that state’s laws on the business. A state generally can’t tax a business unless
the business has some activity or “nexus” in that state. With respect to abandoned property
laws, however, nexus requirements do not have to be satisfied. Thus New York could require
a holder in California to comply with New York’s abandoned property law even though the
California business does not have any nexus with New York.

• Statute of Limitations – most businesses operate assuming a three to five year statute of
limitations period with respect to tax liabilities (assuming returns are filed). That is not
necessarily the case with unclaimed property. Most states specifically exempt unclaimed
property laws from statute of limitations provisions. Such is the case in New York. There is
no statute of limitations in New York for purposes of abandoned property!

14

AP COMPLIANCE: SOURCING RULES

The Supreme Court of the United States in Texas v. New Jersey, established the
following two-pronged unclaimed property sourcing rule:

 The state in which the owner’s last known address is located has the power to escheat
the unclaimed property, but;

 If that state does not have a law covering the property or if there is no record of the last
known address, then the state in which the holder is incorporated has the power to
escheat the unclaimed property.

15

AP COMPLIANCE: SOURCING RULES

 Reporting organizations incorporated, chartered, organized, or domiciled (in the case of a federally-
chartered bank) in New York are required to report all amounts and securities held for:

• New York residents,
• foreign owners, and
• Unknowns (big for gift cards/certificates)

 New York incorporated life insurance companies are required to report amounts payable to New York
residents and unknowns.

 All other reporting organizations are required to report amounts held for New York residents only.

16

AP COMPLIANCE: NY DUE DILIGENCE

 New York requires holders to attempt to contact owners prior
to remitting the property to the state.

 This is known as “due diligence.”
 NY due diligence requires:

• First mailing for all property regardless of value at least 90 days
before reporting.

• Second mailing via certified letter for all property of $1,000 or more
at least 60 days prior to reporting.

17

AP COMPLIANCE: REPORTING

For Traditional Business Corporations

 Filing Date: 3/10
 Covers Property Abandoned as of: 12/31 of the preceding

year
 Due Diligence:

• First Mailing: 12/10 of the preceding year
• Second Mailing: 1/10 (for accounts over $1,000)
 Penalties: Willful failure to report penalty is $100 a day for
every day the report is late
 Interest: 10% simple interest

18

AP VOLUNTARY DISCLOSURE

 Advantages

• Limited lookback of 10 years of liability;
• Eliminates penalty and interest (10% per annum in NYS);
• The holder gets to take a “first crack” at fixing the liability;
• Indemnification from owners and states; and
• Ability to re-evaluate or even release reserves.

 Disadvantages
• Though the lookback is limited, it still reaches back a significant number of years.
• Pandora’s Box: The state may not agree with the holder’s liability calculation.
• Coming forward will likely put the state on notice about other related entities.

19

NUTS AND BOLTS OF A SALES TAX AUDIT

 Expenses – recurring test or stat
sample

 Sales – guest checks - test?

• Reconcile to corporate return and
bank deposits

 Capital – usually in detail

• Reconcile to depreciation schedule

20

SALES TAX NEXUS GENERALLY

 Nexus Defined

• Nexus is a fancy word for “connection.” In order for a state to
impose its income or sales taxes on an out-of-state business, there
must be a requisite level of connection between the state and the
business.

1. Quill v. North Dakota, 504 U.S. 298 (1992)
2. The “Bright Line” Test: Physical Presence
3. Do you have any people or property in the state?

• Offices
• Employees or independent contractors
• Inventories
• Other property – servers and Texas

4. De Minimis Standard? Is a “cookie” property?

21

NEXUS GENERALLY

 EXPANDING NEXUS

Physical Presence Under Attack:

• National Conference of State Legislators 1/2016 model nexus legislation

• Direct Marketing Association V. Brohl, No. 12-1175 (10th Cir. 2/22/16). Justice
Gorsuch’s concurring opinion in DMA v. Brohl: “…Quill’s very reasoning —its ratio
decidendi —seems deliberately designed to ensure that Bellas Hess’s precedential
island would never expand but would, if anything, wash away with the tides of time.”

• Justice Kennedy’s concurrence regarding Quill in Direct Marketing Association V.
Brohl, US Sup. Ct. No. 13-1032 (3/3/15).

• New Alabama rule for sellers with more than $250K in sales – has collected $39.1
million this fiscal year.

• New North and South Dakota Economic Nexus Laws: annual sales of $100K or 200
separate transactions. Not being enforced while appeals are proceeding. September 13,
2017, the South Dakota Supreme Court upheld the lower court’s holding that the state
could not impose a sales tax collection and remittance obligation on sellers that do not
have a physical presence in the state. The South Dakota Supreme Court’s ruling is the
first by a state’s highest court. The Court observed that S.B. 106 was passed with the
intention to challenge the US Supreme Court’s physical presence decisions. It appears
that US Supreme Court is the next step.

22

NEXUS GENERALLY

EXPANDING NEXUS

 Physical Presence Under Attack (continued):

• New Tennessee Rule: “systematic solicitation” and sales that exceed $500K. This rule
has been stayed pending court action.

• Massachusetts was going to require internet retailers with more than $500K in sales
and more than 100 transactions to collect MA sales tax beginning 7/1/17. This policy
has been revoked and the state is said to be working on a formal rule.

• Similar legislation failed to make it out of the Arkansas state House of Representatives.

• Vermont –HB 873 (enacted May 25, 2016) –Establishes economic nexus provisions
($100K in sales or 200 transactions) for sales and use tax purposes, remote seller
notification requirements; various effective dates dependent upon either US Supreme
Court action or actions by other states

• Wyoming –HB 19 (enacted March 1, 2017) –Adopts an economic nexus standard
($100K in sales or 200 transactions) for sales and use tax purposes, effective 1 July
2017

23

EXPANDING SALES TAX NEXUS

NEXUS ISSUES

 Can a third party’s activity in a state confer nexus on an out-
of-state seller?

1. Affiliate / Click-Through Nexus.
 Most states now impose some sort of affiliate nexus, including: AL, AR, CA, CO, CT,
DC, FL, GA, IA, ID, IL, KS, KY, LA, MA, MD, ME, MI, MN, MO, NC, ND, NE, NJ,
NM, NV, NY, OH, OK, RI, SC, SD, TX, TX, UT, VA, VT, WA, WI, WV, WY
 Several states now impose some sort of Amazon (Click-Through) nexus, including: AR,
CA, CT, GA, IL, KS, LA, ME, MI, MN, MO, NC, NJ, NV, NY, OH, PA, RI, TN, VT,
WA

24

TOP TEN SALES TAX AUDIT ISSUES

1. Cloud computing
• Is it a license of software?
• Is it a an information service? – RetailData and Wegmans
• Is it the electronic delivery of other tangible property?
• Remember allocation and overlapping audit rules.
• CT, NJ and NY all have very different rules.

2. Cheeseboard consultants
3. Catering rules

• And coat checks!

4. Bulk sales rules (derivative liability)

25

TOP TEN SALES TAX AUDIT ISSUES (CON’T.)

5. Contractors
6. Sales to residents – use tax
7. Substitute of assets in a Trust
8. Art Galleries
9. Cash businesses
10. Boats

26

SALES TAX AUDIT QUESTIONS

 Where to hold audit
 Responsible officer questionnaire (special

statute of limitations)
 Access to information
 Consent to extend
 Statute of Limitations
 Consent to test period
 Penalties
 Exemption certificate issues
 FOIL!!

27

NEW YORK PAID FAMILY LEAVE:
ARE YOU READY?
COMMON ISSUES AND QUESTIONS

 What employers are covered by the New York Paid Family Leave (“PFL”) Law?

 What employees are eligible to take PFL?

 What amount of PFL is available to eligible employees?

 For what reasons may employees take PFL?

 What are the PFL benefits and how are they funded and paid?

 To what extent does an employer have to continue health insurance and hold the employee’s
position open during PFL?

 How does PFL interact with existing paid time off policies and can an employer require
employees to use paid time off concurrently with PFL?

 How does PFL interact with the FMLA and to what extent will FMLA and PFL run
concurrently?

 What procedure applies to PFL requests?

28

COMMON ISSUES AND QUESTIONS

 What employers are covered by the new Paid Family Leave (“PFL”) Law?
 What employees are eligible to take PFL?
 What amount of PFL is available to eligible employees?
 For what reasons may employees take PFL?
 What are the PFL benefits and how are they funded and paid?
 To what extent does an employer have to continue health insurance and hold the employee’s

position open during PFL?
 How does PFL interact with existing paid time off policies and can an employer require

employees to use paid time off concurrently with PFL?
 How does PFL interact with the FMLA and to what extent will FMLA and PFL run

concurrently?
 What procedure applies to PFL requests?

29

COVERED EMPLOYERS

 The PFL Law applies to all private employers with at least
one employee for 30 or more calendar days in a year.

• Covered employer status takes effect four weeks after the 30th day of
such employment.

 Public employers (including political subdivisions of the
state, public authorities, public school districts, etc.) are not
required to provide PFL, but they have the option to elect to
be a “covered employer” for PFL purposes.

30

VOLUNTARY ELECTION TO BECOME
COVERED

 Any employer who already provides voluntary DB to its employees
(whether insured or self-insured), was required to notify its
employees and the Workers’ Compensation Board whether it will
or will not be providing PFL benefits to its employees by
December 1, 2017.

 If an employer is not already approved for and providing voluntary
DB coverage, it can still voluntarily elect to become a covered
employer for PFL purposes, subject to a number of procedural
requirements.

• The Employer must seek prior approval from the Chair of the Workers’
Compensation Board.

• If it will require employees to contribute to the benefit, the employer must
attain the consent of more than one half of the employees.

31

COMMON ISSUES AND QUESTIONS

 What employers are covered by the new Paid Family Leave (“PFL”) Law?
 What employees are eligible to take PFL?
 What amount of PFL is available to eligible employees?
 For what reasons may employees take PFL?
 What are the PFL benefits and how are they funded and paid?
 To what extent does an employer have to continue health insurance and hold the employee’s

position open during PFL?
 How does PFL interact with existing paid time off policies and can an employer require

employees to use paid time off concurrently with PFL?
 How does PFL interact with the FMLA and to what extent will FMLA and PFL run

concurrently?
 What procedure applies to PFL requests?

32

COVERED EMPLOYEES

 Employees whose regular schedule is 20 or more hours per week.

• Eligible for PFL after he or she has been “in employment” of the employer for at
least 26 consecutive work weeks “immediately preceding the first full day family
leave begins.”

 Employees whose regular schedule is under 20 hours per week.

• Eligible for PFL after working 175 days in “such employment” immediately
preceding “the first full day the leave begins.”

 Use of scheduled vacation, sick, personal, or other time off that was
approved by the employer, as well as “other periods where the employee
is away from work but is still considered to be an employee,” count
toward the 26 week/175 day requirement if the employee was making PFL
contributions “that the employer requires of like employees.”

 Periods of temporary disability taken under NYS Disability Benefits Law
do not count.

33

COVERED EMPLOYEES – EMPLOYEES COVERED
BY A COLLECTIVE BARGAINING AGREEMENT

 When employees of a covered employer are entitled to family leave
benefits under a CBA, the employer is relieved of providing PFL
benefits if the following conditions are met:

• The CBA provides benefits “at least as favorable” (as specifically
defined) to those provided under the PFL Law; and

• The CBA cannot permit an eligible employee to waive his or her rights
to paid family leave or otherwise opt-out of the PFL Law.

 Subject to approval by the WCB Chair, the CBA may provide rules
related to family leave that differ from the requirements in the PFL
Law. But if the CBA does not provide a different rule, the PFL
provisions will apply.

34

COVERED EMPLOYEES – WAIVER

 Employers must allow the following employees the option to file a waiver of PFL
benefits:

• Employees whose regular schedule is 20 or more hours per week but who will not work 26
consecutive weeks; and

• Employees whose regular schedule is less than 20 hours per week and who will not work
175 days in a 52 consecutive week period.

 If the employee waives PFL benefits, he or she will be exempt from making
contributions to PFL and ineligible for PFL benefits.

 If the employee’s work schedule changes so that he or she will work 26 consecutive
weeks or 175 days in a 52-consecutive week period, the waiver will be automatically
revoked within 8 weeks of the change.

 The employee will then be obligated to make contributions, including any retroactive
amounts due from date of hire necessary to prevent the employer from paying for
coverage, as soon as notified by the employer of the obligation.

35

COMMON ISSUES AND QUESTIONS

 What employers are covered by the new Paid Family Leave (“PFL”) Law?
 What employees are eligible to take PFL?
 What amount of PFL is available to eligible employees?
 For what reasons may employees take PFL?
 What are the PFL benefits and how are they funded and paid?
 To what extent does an employer have to continue health insurance and hold the employee’s

position open during PFL?
 How does PFL interact with existing paid time off policies and can an employer require

employees to use paid time off concurrently with PFL?
 How does PFL interact with the FMLA and to what extent will FMLA and PFL run

concurrently?
 What procedure applies to PFL requests?

36

AMOUNT OF LEAVE

 PFL benefits are available to eligible employees as of January 1, 2018.

 Under the PFL Law, eligible employees may take up to the following amount of
paid leave in any 52-week period:

• January 1, 2018: 8 weeks of leave
• January 1, 2019: 10 weeks of leave
• January 1, 2021: 12 weeks of leave

 The 52-week period is computed retroactively with respect to each day for which
PFL benefits are claimed.

• Effectively the same “rolling 12-month period” method that is permitted by the FMLA.

 Employees may take PFL intermittently, rather than in a consecutive block, in no
less than daily increments.

• If the employee works even part of the day, he or she is not eligible for PFL that day.
• The maximum number of days is calculated based on the average number of days the

employee works per week.

37

COMMON ISSUES AND QUESTIONS

 What employers are covered by the new Paid Family Leave (“PFL”) Law?
 What employees are eligible to take PFL?
 What amount of PFL is available to eligible employees?
 For what reasons may employees take PFL?
 What are the PFL benefits and how are they funded and paid?
 To what extent does an employer have to continue health insurance and hold the employee’s

position open during PFL?
 How does PFL interact with existing paid time off policies and can an employer require

employees to use paid time off concurrently with PFL?
 How does PFL interact with the FMLA and to what extent will FMLA and PFL run

concurrently?
 What procedure applies to PFL requests?

38

QUALIFYING REASONS FOR LEAVE

 Eligible employees may take PFL for the following reasons:

• To care for family member with serious health condition.

 “Family member” includes spouse, domestic partner, child, parent, grandparent, or grandchild.
 A “parent” includes a biological, foster, or adoptive parent, a parent-in-law, a stepparent, a legal guardian, or

other person who stood in loco parentis to the employee when the employee was a child.
 A “child” includes a biological, adopted, or foster son or daughter, a stepson or stepdaughter, a legal ward, a

son or daughter of a domestic partner, or the person to whom the employee stands in loco parentis.
 A “grandchild” means a “child” of the employee’s child.

• To bond with a child during the first 12 months after the child’s birth or placement for adoption or
foster care or to meet adoption or foster care obligations.

• To meet “qualifying exigencies” (as defined in the FMLA) arising from the fact that a spouse,
domestic partner, child, or parent of the employee is on active duty or “has been notified of an
impending call to active duty” in the U.S. Armed Forces.

 PFL does not apply to the employee’s own serious health condition. However, employees
may be eligible for benefits and protections under the FMLA, ADA, NYS HRL, NYC HRL,
and NYS Disability Benefits Law.

 An employer is not required to allow more than one employee to use the same period of
PFL to care for the same family member.

39

COMMON ISSUES AND QUESTIONS

 What employers are covered by the new Paid Family Leave (“PFL”) Law?
 What employees are eligible to take PFL?
 What amount of PFL is available to eligible employees?
 For what reasons may employees take PFL?
 What are the PFL benefits and how are they funded and paid?
 To what extent does an employer have to continue health insurance and hold the employee’s

position open during PFL?
 How does PFL interact with existing paid time off policies and can an employer require

employees to use paid time off concurrently with PFL?
 How does PFL interact with the FMLA and to what extent will FMLA and PFL run

concurrently?
 What procedure applies to PFL requests?

40

AMOUNT OF PAID LEAVE BENEFIT

 Pay for PFL will be phased in as follows:

• January 1, 2018: 50% of the employee’s Average Weekly Wage (AWW), capped at 50%
of the NYS Average Weekly Wage (NYS AWW).

• January 1, 2019: 55% of the employee’s AWW, capped at 55% of the NYS AWW.
• January 1, 2020: 60% of the employee’s AWW, capped at 60% of the NYS AWW.
• January 1, 2021: 67% of the employee’s AWW, capped at 67% of the NYS AWW.

 An employee’s AWW is generally determined by reviewing his or her total wages
during the 8 weeks immediately preceding and including his or her last day worked
before PFL.

 The NYS AWW is the average weekly wage paid across New York State during the
previous calendar year. The Department of Labor publishes the NYS Average
Weekly Wage each year (for 2016, the NYS AWW is $1,305.92).

 Pay is available starting the first day of PFL. Unlike Disability Benefits, there is no
waiting period.

41

AMOUNT OF PAID LEAVE BENEFIT

 Employees cannot receive PFL and NYS Disability Benefits at the same
time.

 Employees who are eligible for both PFL and NYS Disability Benefits in
the same 52-week period cannot receive more than a combined total of 26
weeks of Disability Benefits and PFL benefits during that 52-week period.

 An employee cannot receive PFL benefits at the same time he or she is
receiving total disability payments under Workers’ Compensation (or
under volunteer firefighter and ambulance worker benefits).

• If employee is only receiving partial disability payments under Workers’
Compensation, he or she can still receive PFL but the total amount of PFL and WC
payments cannot exceed 100% of the employee’s AWW.

42

FUNDING THE PAID LEAVE BENEFIT

 PFL is intended to be 100% employee funded.
 Employers are obligated to purchase insurance coverage to provide

PFL benefits, but may fund such insurance coverage through payroll
deductions from employees.
 Beginning January 1, 2018, every insurance policy providing NYS
Disability Benefits is required to also include PFL coverage.
 Employers who purchase their NYS Disability Benefits coverage
from the New York State Insurance Fund or a private insurance
carrier will be required to purchase their PFL coverage from the
same carrier.

43

FUNDING THE PFL BENEFIT

 The Department of Financial Services has set the rate for PFL coverage and
the maximum deduction at .126% of the employee’s annual wages for the
calendar year, not to exceed .126% of the annualized NYS AWW.

• For employees making less than the annualized NYS AWW, the .126% is
applied to their annualized wages.

• For employees making the annualized NYS AWW or more, the .126% only
applies to the annualized NYS AWW.

• For example, using the 2016 NYS AWW of $1,305.92, the maximum annual
deduction amount for an employee making over $1,305.92 will be .126% of
$67,907.84 ($1,305.92 x 52), or $85.56 annually. This is a weekly deduction
of $1.64.

 Employers could start making deductions on July 1, 2017.

 An employer can only use employee contributions to provide PFL benefits
and must promptly return to employees any surplus that exceeds the annual
premium. Employers cannot derive a “profit” from the deductions.

44

TAX TREATMENT AND IMPLICATIONS

 The PFL statute and regulations do not expressly discuss the tax treatment
and implications of PFL deductions, coverage, or benefits.

 In August 2017, the New York State Department of Taxation and Finance
issued guidance regarding the tax treatment of PFL. The guidance
indicates:

• Benefits paid to employees will be taxable non-wage income to be included in
federal gross income
 If paid by the State Insurance Fund, will be reported on Form 1099-G.
 If paid by any other payer (e.g., private insurance carrier), will be reported
on Form 1099-MISC .

• Taxes will not automatically be withheld from benefits, but employees can request
voluntary tax withholding.

• Premiums will be deducted from employees’ after-tax wages.
• Employers should report employee contributions on Form W-2 using Box 14 –

State disability insurance taxes withheld.

45

COMMON ISSUES AND QUESTIONS

 What employers are covered by the new Paid Family Leave (“PFL”) Law?
 What employees are eligible to take PFL?
 What amount of PFL is available to eligible employees?
 For what reasons may employees take PFL?
 What are the paid benefits and how are they funded and paid?
 To what extent does an employer have to continue health insurance and hold the

employee’s position open during PFL?
 How does PFL interact with existing paid time off policies and can an employer require

employees to use paid time off concurrently with PFL?
 How does PFL interact with the FMLA and to what extent will FMLA and run concurrently?
 What procedure applies to PFL requests?

46

JOB AND BENEFIT PROTECTIONS

 Employers are obligated to maintain an employee’s health insurance benefits
(including individual and any family coverage) during PFL on the same
terms and conditions as if the employee were still working.

 Employees who contribute a share to the premiums must continue to pay
their share during PFL.

 Taking PFL cannot result in the employee losing any benefits that accrued
prior to the leave, such as accrued time off or seniority.

 An employee is not automatically entitled to the accrual of any seniority or
employment benefits during any period of leave, or any right, benefit, or
position to which the employee would have been entitled had he or she not
taken the leave.

47

JOB AND BENEFIT PROTECTIONS

 An employer must restore an employee to the position held when the leave
commenced, or a comparable position (with comparable pay, benefits, and
other terms and conditions of employment), at the conclusion of PFL.

• Failure to reinstate the employee may lead to a charge of discrimination or
retaliation under the PFL Law.

 Employers are also prohibited from discharging, failing to reinstate, or
otherwise discriminating/retaliating against an employee because he or she:

• Claimed PFL benefits;
• Attempted to claim PFL benefits; or
• Testified or is about to testify in a proceeding under the PFL law (e.g., a

hearing before an arbitrator or the WCB).

 Statute of Limitation: Two years.

48

COMMON ISSUES AND QUESTIONS

 What employers are covered by the new Paid Family Leave (“PFL”) Law?
 What employees are eligible to take PFL?
 What amount of PFL is available to eligible employees?
 For what reasons may employees take PFL?
 What are the paid benefits and how are they funded and paid?
 To what extent does an employer have to continue health insurance and hold the employee’s

position open during PFL?
 How does PFL interact with existing paid time off policies and can an employer require

employees to use paid time off concurrently with PFL?
 How does PFL interact with the FMLA and to what extent will FMLA and PFL run

concurrently?
 What procedure applies to PFL requests?

49

INTERACTION WITH EXISTING PTO
POLICIES

 Employers may allow – but cannot require – employees to use
available paid time off (e.g., vacation or personal time) during PFL
to receive full salary.

 If an employee elects to use paid time off to receive full salary for
all or part of his or her PFL, the employer can request
reimbursement for the PFL amount from the PFL carrier.

• The employer must make such request by filing a claim for
reimbursement with its carrier prior to the carrier’s payment of PFL
benefits.

 When an employee elects this option, he or she remains entitled to
the job and benefit protections of the PFL Law.

50


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