What Is the CO PFML Tax Category in Accounting?
Understand the CO PFML tax category in accounting, including its placement, contributions, withholding, and annual adjustments.
The Colorado Paid Family and Medical Leave (CO PFML) tax is a significant new measure for employers and employees, reflecting a growing trend in state-level social insurance programs. This tax funds paid leave for family or medical needs, supporting workforce participation while addressing personal challenges.
Placement in Chart of Accounts
Integrating the Colorado Paid Family and Medical Leave (CO PFML) tax into a company’s chart of accounts requires precise planning for accurate financial reporting. Effective in 2024, this tax necessitates dedicated accounts to track both employer and employee contributions. A liability account is typically created to record amounts withheld from employees’ paychecks and the employer’s share of the tax, ensuring proper allocation for state remittance.
Additionally, businesses establish an expense account to capture the employer’s portion of the tax, categorizing it as part of payroll expenses. Separating these amounts allows companies to assess the financial impact of the tax and streamline budgeting and planning. The expense account also clarifies obligations and expenditures in financial statements.
Employer and Employee Contribution Categories
The CO PFML tax requires contributions from both employers and employees. In 2024, the total contribution rate is 0.9% of an employee’s wages, split equally at 0.45% each. Employers with fewer than 10 employees are exempt from the employer portion but must still manage employee contributions. Contributions apply only to wages up to the annual cap of $160,200, consistent with the Social Security wage base.
Employees should understand how these deductions affect their net pay, as contributions are automatically withheld from gross wages. These deductions appear on pay stubs, ensuring transparency about contributions to the state program.
Paycheck Withholding and Reporting
Effective paycheck withholding and reporting under the CO PFML tax system requires integration into payroll systems. Employers must calculate contributions accurately and include them as itemized deductions on employee pay stubs.
Collected funds must be remitted quarterly to the Colorado Department of Labor and Employment, alongside detailed reports of total wages paid, employee contributions, and the employer’s share. Maintaining accurate records and meeting submission deadlines is critical to avoid penalties.
Adjustments in Annual Tax Documents
At year-end, businesses must reconcile CO PFML tax amounts withheld with actual remittances, addressing any discrepancies due to payroll errors or changes in employee status.
When preparing financial statements under Generally Accepted Accounting Principles (GAAP), businesses must ensure liabilities tied to CO PFML are accurately reflected on the balance sheet. This includes verifying that accrued liabilities match year-to-date contributions and recording prepaid amounts as assets. Additionally, businesses should account for CO PFML expenses on their income statement, as these costs may affect net income and tax liabilities.