New Tax for D.C. Employers Would Fund Paid Family Leave

October 20, 2015

The D.C. Council has proposed legislation that would provide most D.C. workers 16 weeks of paid leave after the birth or adoption of a child, to recover from an illness, to recuperate from a military deployment, or to tend to an ill family member.  The benefits would be funded by a new tax on employers, similar to a state unemployment tax.  The legislation, if it passes, would make the District the most generous jurisdiction in the nation when it comes to paid family leave benefits.

According to the legislation (the Universal Paid Leave Act of 2015), employees working at least 50% of the time for a District employer would be eligible for 16 weeks of paid leave.  Employees making up to $52,000 a year would receive 100% of their pay.  Employees who earn more than that would be eligible for $1,000 a week plus 50 percent of their additional income, up to a maximum of $3,000 per week.  Residents of the District employed by the federal government can opt into the system for a small fee.

D.C. employers would fund the family leave coverage through a payroll tax.  Although the tax is structured somewhat similar to an unemployment tax, there are two key differences that many employers could find controversial.  First, instead of a flat rate applying to all wages paid by an employer, the tax rate increases for highly paid employees.  Secondly, there is no taxable wage-base for the proposed tax.  The tax brackets are as follows:

  • Employers pay nothing for employees earning less than $10,000 a year;
  • Employers would pay 0.5% for employees earning between $10,000 and $19,999 a year;
  • Employers would pay 0.6% for employees earning between $20,000 and $49,999 a year;
  • Employers would pay 0.8% for employees earning between $50,000 and $149,999 a year; and
  • Employers would pay 1.0% for employees earning $150,000 or more a year.

It seems likely that some form of the legislation will pass, as the initial version of the proposal is supported by half of the Councilmembers.  The proposal is arguably somewhat in contrast to recent legislation in the District that reduced income tax rates for businesses in the District.  Still, some proponents of the bill claim that the legislation, if enacted, will make the District even more competitive.

If you have any questions about the proposal or any other D.C. tax issues, please contact your Aronson tax advisor or Michael L. Colavito, Jr. at 301.231.6298.