Welcome to the July edition of the Mize Payroll Newsletter!
Court Ruling on New Overtime Rule
We’ll get started with the status of the new exempt salary thresholds – the salary levels that determine whether an employee is subject to overtime. New thresholds went into effect July 1, 2024 and as expected, resulted in some legal challenges. In one of those lawsuits, State of Texas v. US Dept. of Labor, the court agreed that the US Department of Labor’s overtime rule is “likely unlawful.” The court determined that the new law exceeds the DOL’s statutory authority and focuses more on salary than duties in determining whether an employee can be exempt from overtime pay.
But it’s important to note that this ruling only applies to the State of Texas as an employer and not private employers in the state or any other employers outside of Texas.
We will continue to watch this issue for any further developments and will keep you informed.
Credit Reduction States for 2024
If states have an outstanding Federal Unemployment loan on January of at least two consecutive years as well as on November 10 of the second year, they are subject to a credit reduction on their Federal Unemployment Tax rate until the loan has been paid off. This then affects employers in those states who pay a higher unemployment rate.
For 2024, three states – California, Connecticut, and New York – will likely be subject to this higher federal unemployment rate, along with the US Virgin Islands.
Retirement Plan Distributions Exempt from 10% Withdrawal Penalty
Distributions from qualified retirement plans such as 401(k)’s are generally subject to both ordinary income taxation as well as a 10% withdrawal penalty unless they meet certain exceptions. SECURE 2.0 added two exceptions that took effect January 1, 2024:
Emergency personal expenses. An employee can take a distribution from an eligible retirement plan to meet unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses. Such distributions cannot be taken more than once per calendar year and are limited to a maximum of $1,000. If an individual has an emergency personal expense distribution in any calendar year, that individual cannot have another emergency personal expense distribution during the next three calendar years unless the previous distribution is fully repaid to the plan or the employee’s contributions to the plan are at least equal to the amount of the previous distribution that has not been repaid.
Victims of domestic abuse. If the employee is a victim of domestic abuse by a spouse or domestic partner, they can withdraw the lesser of $10,000 or 50% of the present value of the nonforfeitable accrued benefit under the retirement plan.
More information about retirement plan distribution rules can be found on the IRS website by clicking here.
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