July 31, 2023
Vermont law imposes new childcare tax to be paid by employers and employees effective July 1, 2024
On June 20, 2023, the Vermont House and Senate overrode Vermont Governor Phil Scott's veto of H. 217 which, effective July 1, 2024, imposes a new childcare tax of 0.44% on wages and 0.11% on self-employment income. The tax will be administered by the Vermont Department of Taxes (Department).
The additional revenue will be used to fund increased access to quality childcare services and afterschool and summer programs across Vermont.
Employers with one or more employees are subject to the childcare tax.
Under the law, covered employers are required to pay 100% of the childcare tax and may withhold up to 25% from employees' taxable wages. Taxable wages are those wages subject to federal income tax under IRC Section 3401.
Covered employers are required to remit the childcare tax to the Department under the same rules that govern the payment of Vermont state income tax withholding.
In Governor Scott's veto letter, he explained that organic revenue growth could provide funding for priorities like childcare and noted that "we cannot ask Vermonters to shoulder the burden of new and higher taxes, fees and penalties."
Ernst & Young LLP insights
Businesses will need to decide if they will deduct up to 25% of the childcare tax from employees' wages, and notify employees of the percentage of tax, if any, that will be withheld.
Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor