Vermont enacts new withholding tax for child care
The Vermont Child Care Contribution tax is set to take effect July 1, 2024. Vermont will be the first state to mandate withholding for child care purposes.
Published: August 21, 2023 | by Rena Pirsos, Legal Editor at Brightmine
Beginning July 1, 2024, employers and employees in Vermont will be liable for a new Child Care Contribution withholding tax. Vermont will be the first state to mandate withholding for child care purposes.
Vermont’s legislature passed the bill creating the new withholding tax after overriding a veto from Gov. Phil Scott, who said raising revenue for child care from taxes and fees “should be a last resort, not a first step.”
The wages against which the tax will be withheld will be wages subject to federal income tax withholding. The contribution rate will be 0.44 percent of each employee’s covered wages. Employees will pay 25 percent of this rate, or 0.11 percent, with employers paying the remainder. Employers will be responsible for the full amount of any unpaid contributions.
Self-employed individuals — sole proprietors or partner owners of an unincorporated business, sole members of a limited liability company or sole shareholders of a corporation — will pay 0.11 percent on their self-employment income.
Employers will remit the contributions as if the contributions were withheld income taxes, according to the following schedule:
- Employers that reasonably expect to withhold more than $9,000 during the calendar quarter must deposit semiweekly.
- Employers that reasonably expect to withhold more than $2,500 but less than $9,000 during the calendar quarter must deposit monthly.
- Employers that reasonably expect to withhold up to $2,500 during the calendar quarter must deposit quarterly.
An open question is whether employers will be required to count the child care contributions toward these withholding limits. It is anticipated that Vermont will revise its quarterly reconciliation return, Form WHT-436, to reflect this new withholding requirement.
Employers will be able to deduct their portion of the payroll tax contribution as an expense when filing their taxes, but some shifting between wage and non-wage compensation could occur.
The withheld child care contributions will be transferred to a dedicated Child Care Contribution Special Fund, to be administered by Department of Children and Families and the Department of Taxes, and may be used to expand subsidies in the state’s Child Care Financial Assistance Program. This program provides financial assistance to Vermont residents for child care, based on a family’s income.
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About the author
Rena Pirsos, JD
Legal Editor, Brightmine
Rena Pirsos has more than 30 years of experience in legal publishing. At Brightmine, she covers topics related to payroll, including income and employment tax withholding, depositing and reporting; taxation of employee compensation and benefits; wage payments; child support and garnishment order compliance; and international payroll issues.
Rena holds a Juris Doctor degree from Hofstra University School of Law and a Bachelor of Arts degree in psychology and French literature from Fordham University’s College at Lincoln Center. Prior to joining Brightmine, she was managing editor for the American Payroll Association and developed and co-authored many of its core publications. In earlier years, she was managing editor of the UCC Law Journal and Banking Law Journal at Warren Gorham Lamont/Thomson Professional Publishing, and a legal editor for Thomson Reuters’ Payroll Guide, Prentice Hall’s guides to federal, state and local income tax, and CCH/Wolters Kluwer Federal Securities Law Reports.