Regulatory Roundup October 2022

With the holiday season just around the corner, federal and state legislatures passed or enacted a generous amount of changes in October. The state of California was particularly busy, passing half a dozen new laws or updates, and federal agencies were no less active. The Social Security Administration (SSA) increased the wage base for social security taxes and the Internal Revenue Service (IRS) coordinated with the Treasury Department to correct the Affordable Care Act’s (ACA) lingering “Family Glitch,” while simultaneously releasing updated guidance regarding family health coverage under cafeteria plans and 2023 contribution limits to multiple types of benefits plans. Finally, the Equal Employment Opportunity Commission (EEOC) released a new poster regarding harassment and discrimination in the workplace. Learn more about these updates below in this month’s Regulatory Roundup.

California's Legislative Overhaul

The state of California wasted no time in October, with six legislative changes or updates being signed by Governor Newsom to take effect before or on January 1, 2023:

• The state will soon require employers with five or more employees to provide eligible employees with up to five days of unpaid bereavement leave for the death of a parent, spouse, child, sibling, grandparent, grandchild, domestic partner, or parent-in-law.
• The Supplemental Paid Sick Leave (SPSL) law has been extended to December 31, 2022, though employers do not need to provide new leave for employees who already used their SPSL for 2022.
• Employees will soon be allowed to use paid sick leave or take leave under the California Family Rights Act (CFRA) to care for a “designated person,” who is either related by blood or has the equivalent of a familial relationship with the employee.
• Increased wage replacement rates for State Disability Insurance (SDI) and Paid Family Leave (PFL) have been extended to January 1, 2025.
• Annual Pay Data Reporting will soon receive updates to its regulations and require employers to begin disclosing the pay scale of their workforces.
• The new Fast Food Accountability Recovery Act establishes a Fast Food Council that will create minimum standards on wages, working hours, etc. for fast food employees.

Increased Social Security Wage Base

The wage base for Social Security taxes will increase in 2023 from $147,000 to $160,200. This does not, however, affect the combined rate of taxable income for Social Security and Medicare taxes. 6.20% of earnings up to the taxable maximum will still go to Social Security while 1.45% will still go to Medicare. Additionally, as of January 1, 2023, individuals earning more than $200,000 (and married couples filing jointly who earn more than $250,000) must pay an additional 0.9% in Medicare taxes.

Fixing the ACA “Family Glitch”

When determining an individual’s eligibility for premium tax credits after they purchase coverage on a Health Insurance Exchange, the ACA measures the coverage’s affordability based on the cost of employee-only coverage. Thus, when the calculation would deem coverage to be affordable for the employee, it would classify both the employee and their family members as ineligible for said tax credits, regardless of whether the coverage was actually affordable for those family members.

The 2023 open enrollment period will correct this “Family Glitch,” by using family coverage costs instead of employee-only coverage costs when determining tax credit eligibility of an employee’s family member. This will not affect affordability calculations for the employee, nor will it affect an employer’s reporting requirements, including IRS forms 1094-C, 1095-C, 1094-B, and 1095-B.

New Cafeteria Plan Change Reason

Starting January 1, 2023, the IRS will allow a new reason to be used when an employee changes health coverage under a Section 125 cafeteria plan. Employees will be able to opt out of a non-FSA group health plan’s cafeteria plan midyear if a family member wants to enroll in a Qualified Health Plan (QHP), so long as the following criteria are met:

• One or more of the relatives are eligible for a special enrollment period for the QHP, or one or more of the relatives wish to enroll in the QHP during the QHP’s open enrollment period.
• The new QHP coverage begins the day immediately following the end of the cafeteria plan’s coverage.

2023 Limits for Health FSA and Other Benefit Plans

Annual adjustments for inflation were recently announced by the IRS. Over 60 tax provisions were impacted, including contribution limits for Health Flexible Spending Accounts (Health FSAs) and reimbursement limits for Qualified Transportation fringe benefit plans and Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs).

• Annual Health FSA limits increased to $3,050, and the maximum carryover of unused amounts also increased to $610.
• Limits for Qualified Transportation plans and Qualified Parking plans both increased to $300 a month.
• Annual QSEHRA limits increased to $5,850 for individuals and $11,800 for families.
• Annual Excepted Benefit HRA limits also increased to $1,950.

New Workplace Discrimination Poster

The EEOC released an updated poster summarizing the federal laws that prohibit job discrimination and unlawful workplace harassment. Specifically, it notes harassment is a prohibited form of discrimination, clarifies that sex discrimination includes sexual orientation, gender identity, and pregnancy or related conditions, and gives details about equal pay discrimination for federal contractors. While covered employers are required to prominently display the new poster in their workplace(s), Paylocity’s Community feature can help further share the information within an organization.

Additional Information

Get more details on the compliance updates from October here:

• 2022 California Legislative Update
• Social Security Wage Base Increases for 2023
• IRS Final Rules Fix ACA “Family Glitch”
• New Election Change Reasons under Section 125 Cafeteria Plans
• 2023 Health FSA and Other Benefit Limits Announced
• EEOC Releases Updated Workplace Discrimination Poster

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This information is provided as a courtesy, may change, and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney, or Advisor