As you may or may not be aware, there is a new payroll tax in Vermont that begins on July 1st. This new tax is referred to as the Child Care Contribution (CCC). The legislature has said that this new tax will help fund investments in Vermont’s childcare system.
So, what do I owe, exactly?
The tax is assessed at a rate of 0.44% on all wages paid to your employees. Unlike many of the other Vermont taxes levied on payroll activity, this item has no income-limit or hours-worked threshold that must be crossed before you owe. To help employers offset the cost, the legislature has provided an option to withhold a portion from their employees.
Your first option, as an employer, is to “eat” the entire cost to you. This would mean that your business pays the full 0.44% tax. This would likely be the best course of action; read on to learn more.
The second option is to withhold a portion of this tax—up to 25%—from your employees. This translates to 0.11% of your employees’ wages. Obviously, this will help offset the total cost of the tax to you; however, there are important factors to consider before passing along this cost to your employees.
Why not withhold?
Employees have been hard to come by since the COVID-19 pandemic. Wages have risen significantly due to this scarcity of labor and employees more readily resign from positions than ever before. Retaining your hard-working employees is crucial to keeping your operations working efficiently. Putting another deduction on your employee’s pay stub will undoubtedly cause frustration, regardless of how small it is.
This new tax is very small and the portion of taxes that you can withhold from your employees is even smaller still. To put this tax into perspective, an employee making $100,000 a year will generate $440 a year in CCC tax liability. If you elect to withhold the maximum amount in taxes from their wages, you will only save $110. When considering that you are already paying an employee $100,000 a year in this example, the savings are extremely small.
Our perspective is that the amount you’ll save by withholding from your employees is less valuable than the amount of goodwill you’ll retain by not passing on the tax to them. Simply seeing another deduction on their paystub is sure to induce frustration. The choice will be yours to make, and you should make the choice that best suits the needs of your business, we simply want to provide additional context for you to ponder while thinking this through.
How is this new tax reported?
The new tax will be reported on VT Form WHT-436. If you have payroll in Vermont, you are already filing this form every quarter. The calculation is extremely simple because, as mentioned before, there are no exceptions or limits on the wages subject to this tax. You will see the total tax amount paid per quarter as a new line on your filed WHT-436.
Have questions? Contact us to learn more about what this means for you business.