Vermont Enacts New Child Care Payroll Tax

With the enactment of HB 217, Vermont created a new payroll tax to fund its Child Assistance Program, which subsidizes child care costs for certain families.  

The details: 

Effective July 1, 2024, the payroll tax will be 0.44% of an employee’s covered wages.  Covered wages consist of all wages and benefits that are subject to federal income tax withholding.

“Covered employers” are required to pay a minimum amount equal to 75% of the required 0.44% payroll tax for each “covered employee.”

Covered employers are defined as a person or entity who employs one or more covered employees and is required to withhold Vermont income tax from wages paid to their employees.

Covered employees are defined as individuals who receive payments with respect to services performed for an employer from which the employer is required to withhold Vermont income tax.

Under HB 217, employers are allowed to deduct 25% of the tax, or 0.11% from employee’s wages. If employees are under withheld, the employers is responsible for the full amount of any unpaid employee contributions.

Employers are required to remit the employee and employer contributions to the Vermont Department of Taxes (VDOT), in the same manner as employees income tax withholding.

Self-employed individuals are required to pay 0.11% of their self-employment income and remit to the VDOT at the same time and in the same manner as their estimated Vermont withholding income tax.  

Next steps:

·       Effective July 1, 2024, Vermont covered employers must remit to the VDOT 0.44% of covered employee wages to the “Child Care Contribution Fund.”  Employers have the option to withhold 0.11% of employee wages to offset the employers 0.44% obligation. 

·       ADP TotalSource will be processing the Vermont childcare payroll tax as a 0.44% employer contribution charged to the employer.

·       You must contact ADP TotalSource to withhold the optional employee deduction of 0.11% of wages. Contact your ADP TotalSource Payroll Advisor to request employee deductions for the Vermont childcare payroll tax. 

·       Employee deductions will be processed as a crediting deduction. After deductions are set up, your invoice and billing information will continue to show a 0.44% charge for the employer contribution and the .11% deduction from employee wages will be credited back to you.  

·       ADP TotalSource will remit the childcare payroll tax to the VDOT. 

Have questions?