Childcare payroll tax bringing about $80 million a year; timing leaves about $20 million in general fund at fiscal close

Andrew Stein, chief operating officer at the Department of Taxes, told the Ways & Means Committee the childcare contribution payroll tax is producing roughly $80 to $82 million a year.

"You're looking at about 80 to $82,000,000 from this revenue source," Stein said, noting similar results whether the department measured fiscal-year returns, calendar-year cash receipts or year-to-date cash-in-the-door figures. He said the Joint Fiscal Officeestimate of about $81.9 million was nearly identical to collections.

Why some money sat in the general fund, Stein said, is a timing and data issue: withholding payments arrive continuously but the returns that contain the allocation data come after fiscal-year close. "The last ones were 07/25," he said, describing the quarterly return schedule (due Oct.25, Jan.25, Apr.25 and Jul.25) and adding that without the return data the department cannot automatically shift money into the childcare special fund.

That timing left roughly $20 million more in the general fund and $20 million less in the childcare special fund than would have been expected at fiscal-year close, creating potential statutory transfer complications until the returns were received and reconciliations completed.

Stein said early compliance problems and a payroll-vendor calculation issue helped explain some variation but added that the departmentidentified and corrected most of those gaps through targeted audits and outreach. "We probably identified 50 to a 100 medium to larger withholding taxpayers that needed to adjust some things early on," he said, and characterized the remaining tax gap as modest.

To reduce the year-end reconciliation problem, the Department of Taxes plans a software upgrade to its integrated tax platform. Stein said the department is moving to a newer platform version (4.26) and plans to add a separate payment line so withholding taxpayers can delineate the childcare contribution when they remit payments. "When we do that," he said, the department will be able to move money sooner rather than waiting for returns to reconcile the allocation.

The department expects the payment-line change to be rolled out about a year after the upgrade and said it is likely to take two fiscal years before the $20 million end-of-year issue is materially reduced. The department also emphasized voluntary compliance and said it will perform outreach to withholding taxpayers when the new payment option is available.

The committee did not take formal action on the item; members asked for further documentation and the department offered to circulate the numeric tables presented in the hearing.