The District of Columbia’s paid family leave tax begins July 1, 2019

The District of Columbia (D.C.) has enacted a paid family leave tax requiring certain employers to pay a quarterly tax based on their covered employees’ wages. The new tax, established by the Universal Paid Leave Amendment Act of 2016 (Act), is mandatory for covered employers and elective in nature for self-employed individuals.

The Act provides paid leave benefits for qualifying family leave events, qualifying medical leave events and qualifying parental leave events. Qualifying family leave events are the diagnosis or occurrence of a serious health condition of a family member of a covered individual. The Act provides benefits up to six workweeks within a 52-workweek period for qualifying family leave events. Qualifying medical leave events are defined as the diagnosis or occurrence of a serious health condition of a covered individual. The Act provides benefits up to two workweeks within a 52-workweek period for qualifying medical leave events. Finally, qualifying parental leave events are events associated with the birth of a child of a covered individual, the placement of a child with a covered individual through adoption or foster care, or the placement of a child with a covered individual for whom the covered individual legally assumes and discharges parental responsibility. The Act provides benefits up to eight workweeks in a 52-workweek period for qualifying parental leave events.

The Act’s benefits are calculated based on the eligible individual’s average weekly wages up to a maximum of $1,000 per week. D.C. will begin administering paid leave benefits on July 1, 2020.

Covered employers are assessed a quarterly tax of 0.62% of the wages of its covered employees. Self-employed individuals who opt into the Act are assessed a quarterly tax of 0.62% of total gross earnings from all of the self-employed businesses for which the individual performs at least 50% of his or her work in D.C. For covered employers, required payments to the paid leave program will commence on July 1, 2019, based on wages from April 1, 2019, to June 30, 2019. The due date of quarterly wage reports and payments is the last day of the month following the close of each calendar quarter (the first deadline is July 31, 2019). For self-employed individuals that opt into the Act, the first required payment will commence on Oct. 1, 2019, based on the individual’s performance during the period of July 1, 2019 to Sept. 30, 2019 (the final deadline for the first payment is Oct. 31, 2019).

Both self-employed individuals who opt in and covered employers should submit quarterly wage reports and payments to the Department of Employment Services (DOES) through the online portal which can be accessed via the DOES website. 

Below are some additional highlights from the Act.

Definitions:

• A covered employer is any individual, partnership, general contractor, subcontractor, association, corporation, business trust, or any group of persons who directly or indirectly through an agent or any other person, including through the services of a temporary services or staffing agency or similar entity that employs or exercises control over the wages, hours or working conditions of an employee and is required to pay unemployment insurance on behalf of its employees to D.C.
• A covered employee is an employee of a covered employer who spends more than 50% of his or her work time for that employer working in D.C. In addition, a covered employee is also an employee who works for a covered employer based in D.C. and who regularly spends his or her work time working for the covered employer in D.C., and not more than 50% of his or her work time for that covered employer in another jurisdiction.  

Covered employers:

• Covered employers must remit the paid leave tax regardless of any other benefit program offered.
• Covered employers who pay unemployment insurance to D.C. for an employee during any quarter of a calendar year are presumed to be required to remit the paid leave tax for that employee for that quarterly period.
• The quarterly wage report required by DOES may use data from existing reporting forms, including Form UC-30 – Employer’s Quarterly Contribution and Wage Report.
• Covered employers must keep records mandated by DOES for no less than three years and make them available for inspection, copying and transcription by DOES representatives upon request.
• Covered employers must maintain a paid leave program notice provided by DOES at each worksite in a conspicuous place where notices to employees are customarily posted. Notice must be sent to remote covered employees.
• The paid leave program notice must also be provided to an employee within 30 days of hiring, annually to all employees, and to an employee at the time the employer receives direct notice from that employee that leave for a qualifying event is needed.

Self-employed individuals:

• Self-employed individuals may opt into the Act during open enrollment periods. These periods include the first 90 days of the Act’s commencement in 2019, the months of November and December beginning in 2020 and each year thereafter and within 60 days of commencement of self-employment in D.C.
• Self-employed individuals who opt in will be considered a covered employer and a covered employee eligible for the paid leave benefits provided by the Act.
• Once a self-employed individual opts in, they will remain continuously enrolled in the Act until they opt out.

For more information on this topic, or to learn how Baker Tilly’s professional services team can help, contact our team.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax advice, if any, contained in this communication was not intended or written to be used by any taxpayer for the purpose of avoiding penalties.