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D.C. Paid Leave Payroll Tax Set for Implementation

3 min readBy: Joseph Bishop-Henchman

District of Columbia officials are preparing to implement a new paid leave program, funded by a 0.62 percent payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. , guaranteeing eight weeks of parental leave, six weeks to care for an ailing family member, and two weeks of personal illness leave.

District of Columbia Mayor Muriel Bowser let the legislation, the Universal Paid Leave Amendment Act, become law without her signature on February 16. The law, which was championed by D.C. Councilmembers David Grosso and Elissa Silverman and revised by Chairman Phil Mendelson, passed the Council 9 to 4 and will formally take effect after a 30-day congressional review period. Key elements:

  • By July 1, 2019, all District employers will pay a 0.62 percent payroll taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. (except the federal and D.C. governments). There are no exceptions for nonprofit employers or businesses with existing paid leave programs.
  • Beginning January 1, 2020, employees in the District can take eight weeks of paid parental leave for a birth or adoption, six weeks to care for an ailing family member, and two weeks for personal medical care. A citywide pool will cover their pay, at a rate of 90 percent up to 1.5 times the minimum wage ($900 per week in 2020), then 50 percent beyond that up to a cap of $1,000 of benefit per week. The $1,000 cap will be adjusted for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. each year starting in October 2021. Partial weeks of leave will be prorated.
  • Employees can only take the leave once per year, and must have been a covered employee for 52 weeks prior to taking the leave.
  • The benefits would be taxed.
  • The program would not cover federal or D.C. government employees. Residents of Virginia and Maryland who work in D.C. are covered. Self-employed workers can opt in.
  • Employers will be required to display a notice provided by D.C. with details on the program.

Grosso and Silverman had originally sought a more generous level of benefits and a 1 percent payroll tax. The business community argued the tax would be too high (it’d be in addition to the 9.0 percent business tax, and low-margin businesses would be heavily impacted) and the city’s chief financial officer said the math didn’t work out. Mendelson’s compromise reduced the benefit level, capped it, and lowered the proposed tax rate.

Mayor Bowser, in her message of February 16, listed five concerns with the bill as reasons she was not signing it:

  • The package is a $250 million tax increase at a time when D.C. is “reducing taxes to maintain our competitiveness in the region and nationally”
  • C. government will administer a large program where two-thirds of the benefits go to residents of Maryland and Virginia
  • The technology to make the program work will be difficult and costly to implement
  • Does not cover D.C. residents who work outside the city or who work for the federal government
  • Doesn’t begin until 2020

Chairman Mendelson said in response that he’s open to better ideas but clarified (over Twitter) that he means the financing mechanism; the benefit levels are “here to stay.”

Federal law requires larger employers to provide at least 12 weeks of unpaid medical or family leave. Rhode Island, New Jersey, and California have adopted paid leave programs, though less generous than what D.C. is proposing, and New York has one going into effect in 2018. While campaigning, President Trump proposed a paid family leave program offering six weeks but opposed new taxes to fund it.