Childcare payroll tax collections lag initial forecast; staff says catch-up and compliance still possible

Tom Kivett, staff member, told the Ways & Means Committee that early childcare payroll tax collections are below the forecast and that timing and compliance issues likely explain much of the shortfall.

A member noted a roughly $5 million shortfall relative to staff projections for the childcare payroll tax. Kivett said the incomplete series and filing timing are major factors: "Q1, there should have been a liability due at the end of October and then we get money that has actually come in where people check the boxes for the childcare tax and it's, you know, 18,000,000 instead of 23,000,000." He emphasized there is only one completed quarter so far and that January–March filings and corporate returns could bring payments that will retroactively cover earlier liabilities.

Kivett said tax administration has been working on outreach and compliance, but the department was surprised at the early shortfall. He told the committee the timing of employer payroll cycles, year‑end reconciliations and corporate return deadlines (many in March) mean collections may look low in early quarters and later pick up. Staff and members said it is possible some of the theoretical childcare tax revenue will carry into the next fiscal year before reconciliation is complete.

Why this matters: the childcare payroll tax was modeled into current forecasts; an unexplained shortfall or a political decision about how to allocate any late payments could affect how surplus funds are treated in the general fund and policy choices later this year.