By: Bryan Schatz, Diana Larson
January 31, 2023
We wish our clients and friends a happy, healthy, and successful 2023. Our January Legal Update highlights some new federal and state laws and amendments taking effect this year that may impact Illinois business owners and individuals. If you are potentially affected by any new law or amendment detailed below, we encourage you to consult with your FVLD counsel to ensure that you are in compliance with, or are taking advantage of, these changes.
NEW FEDERAL LAWS
Inflation Reduction Act
The Act includes a minimum tax on corporations that earn more than $1 billion in profits based on annual income listed in the corporation’s financial statement, rather than the corporation’s taxable income. The Act also levies a 1% tax on the value of stock buybacks that publicly held corporations execute after January 1, 2023.
Other provisions of the Inflation Reduction Act include tax credits incentivizing homeowners to add solar or wind power systems to their homes, rebates for electric vehicle purchases up to a price and income cap and based on the vehicle’s U.S. origins, extended subsidies for health insurance under the Affordable Care Act, and authority for Medicare to negotiate drug prices. Additionally, the Inflation Reduction Act provides $80 billion in funding over ten years to expand IRS compliance through increased audits and other enforcement actions.
Federal and State Tax Changes
For individual tax filers for 2022, in order to account for inflation, the standard deduction increased to $12,950 for single filers and $25,900 for married couples filing jointly. For 2023, the standard deduction will increase to $13,850 for single filers and $27,700 for married couples filing jointly. Income tax brackets also increased for 2022 and 2023 to account for inflation. In Illinois, there is an expanded earned income tax credit.
On the Estate and Gift Tax front, the annual gift tax exclusion for 2023 will increase to $17,000 per recipient, up from $16,000 in 2022. The estate and lifetime gift tax exemption for 2023 will increase to $12,920,000 per individual, up from $12,060,000 in 2022. The historically high estate and lifetime gift tax exemption is still scheduled to sunset at the end of 2025. Keep in mind that this may result in higher taxes for some and there is still time to take advantage of the tax exemption level.
Also of note, the IRS was set to make significant changes to the 1099-K form for the 2023 tax season, but the changes have been postponed to the 2024 tax season. This means that companies required to provide annual 1099-K forms to the IRS and taxpayers will still only be required to report transactions for a payee if (1) the payee exceeded $20,000 and (2) the number of transactions with that payee exceeded 200. Beginning January 31, 2024, the reporting threshold will be lowered to any amount over $600 for one or more transactions. Individuals are still required to track their income.
SECURE Act 2.0
The sweeping Setting Every Community Up for Retirement (SECURE) Act of 2019 created changes to retirement accounts, including the ages for required minimum distributions (“RMDs”). These include changes to age limits for contributions to IRAs, eligibility for part-time employees, and distribution rules for inherited retirement accounts. SECURE Act 2.0, signed into law as part of the budget bill on December 23, 2022, clarifies certain provisions of the original SECURE Act, and makes numerous other changes to existing retirement account rules with implications for individual retirement account holders, as well as for business owners.
Changes for Employers
SECURE Act 2.0 includes a variety of provisions of which employers must be aware. For certain employers with 401(k) or 403(b) plans, automatic enrollment of new employees will be required. There will also be a larger tax credit for employers with up to 50 employees, increasing the tax credit to 100% of qualified start-up costs and providing for an additional credit for five years of up to $1,000 per employee for eligible employer contributions. Additionally, SECURE Act 2.0 deceases administrative burdens by cutting down on paperwork, reducing penalties for certain reporting errors, and consolidating participant notices. The bill also allows employers to match student loan payments and deposit the funds in their retirement account.
Changes for Employees
Employees will experience significant changes to required minimum distributions (“RMDs”), including changing the age at which retirement account owners must begin taking RMDs from 72 to 73, reducing the penalty for failing to take an annual RMD from 50% to 25% of the RMD amount not taken, and changes to the application of annuity payments. Additionally, Roth accounts will be exempt from RMD payments. Employees aged 60-63 years old will also be able to make higher catchup contributions up to $10,000 annually.
Federal Speak Out Act
Federal law now prohibits enforcement of any agreement containing a nondisclosure or nondisparagement provision clause that is entered into before an employee is subject to sexual harassment or sexual assault and that may apply to the employee’s later claims of sexual harassment or sexual assault. This does not mean that an employer and employee cannot settle claims of sexual assault or harassment with an agreement containing these provisions. Any settlement agreement containing these provisions would be executed after the employee was subject to the sexual harassment or sexual assault, and the provisions could therefore not be subject to this new proivision. This law also pairs with the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, enacted earlier in 2022, which prohibited enforcement of pre-dispute arbitration agreements, and class/collective action waivers for sexual assault and sexual harassment disputes (prior FVLD newsletters have additional information). Additionally, the Speak Out Act does not preempt state laws which may provide for greater protection for employees. Illinois is among those states with additional and greater protections for employees regarding the disclosure of sexual assault and sexual harassment claims. For additional information, please see prior FVLD newsletters that cover relevant Illinois laws and Chicago ordinances.
Federal Pregnant Workers Fairness Act and Breaks for Nursing Mothers
This new law requires employers to provide reasonable accommodations for “known limitations” of “qualified” pregnant workers. A “qualified” pregnant worker is one who can perform the essential functions of the job (with or without a reasonable accommodation), but has an inability to perform an essential function for a temporary period of time, the essential function could be performed in the near future, and the inability to perform the essential function can be reasonably accommodated. A “known limitation” is a physical or mental condition that is related to pregnancy, childbirth, or a related medical condition that has been communicated to the employer. Under the act, an employer must arrive at a reasonable accommodation for a pregnant worker through the interactive process used under the ADA, and an employer is prohibited from requiring a qualified employee to take leave (paid or unpaid), if a reasonable accommodation can be provided. Additionally, the Fair Labor Standards Act was amended to provide protections for nursing mothers. Employers must now provide a reasonable break time for a lactating worker to express milk, in a room that is not a bathroom, shielded from the view of others, and free from the intrusion of co-workers.
Proposed Elimination of Non-Competition Provisions
The Federal Trade Commission (FTC) recently published a notice of proposed rulemaking that would deem non-competition provisions a method of unfair competition. As a method of unfair competition, employers would be prohibited from including a non-competition provision in an employment agreement, or requiring that a separate non-competition agreement to be executed as a condition of employment (or work as an independent contractor, agent, or volunteer). Additionally, employers would be required to rescind existing non-competes, and notify all employees subject to those provision that the provision has been rescinded. The rule would not apply to franchisee-franchisor agreements or agreements for the sale of a business. The FTC has invited the public to comment on the proposal by March 10, 2023.
NEW ILLINOIS LAWS
Illinois Constitutional Amendment 1
Amendment 1 provides workers with a broad right to collectively bargain and prohibits any laws or ordinances that would bar an employee from automatically joining a union upon employment. The Amendment is broader than federal statutes, such as the National Labor Relations Act, because it provides that Illinois workers can collectively bargain to “protect their economic welfare and safety at work.”
Minimum Wage Increase
As part of a law signed in 2019, the minimum wage in Illinois increased to $13 per hour effective January 1, 2023. The minimum wage will increase by an additional $1 per hour in each of 2024 and 2025.
Amendments to the Family Bereavement Leave Act
Illinois substantially amended the previously-titled Child Bereavement Leave Act (which only covered the loss of a child) and provided significant new protections for employees dealing with the loss of a family member. Now titled the Family Bereavement Leave Act, the law requires up to two-weeks unpaid bereavement leave for the loss of a “covered family member.” A “covered family member” is expansively defined and includes a “child, stepchild, spouse, domestic partner, sibling, parent, mother-in-law, father-in-law, grandchild, grandparent, or stepparent.” Additionally, bereavement leave is not limited to time off for a “loss.” It now covers time off: attending the funeral, making arrangements necessitated by a death, time spent grieving a death, and mourning caused by a miscarriage, unsuccessful artificial insemination, failed adoption match, a failed surrogacy arrangement, a diagnosis which negatively affects pregnancy and fertility, or a still birth. Taken together, this amendment significantly expands protections for grieving employees.
Amendments to the One Day Rest in Seven Act
Amendments taking effect this year under the One Day Rest in Seven Act require an employer to provide an employee with an additional 20-minute meal break for certain shifts. Thus, if an employee works a 12-hour shift, that employee is entitled to two, 20-minute meal breaks. The amendments also make clear that an employee must receive at least one 24-hour rest period for every seven consecutive day period. Previously, the statute provided that one day of rest must occur every calendar week, which resulted in some employees working many days in a row, but scheduled over separate calendar weeks. Certain classes of employees are exempted under the Act.
Additionally, the amendments updated the civil penalties section and increased the amounts of the civil penalties under the Act, which are broken down by the size of the employer and the type of the offense. Employers are also now required to post, in a conspicuous place, a notice summarizing the requirements of the Act, and an outline for the process to file a complaint for a violation of the Act. The notice is available on the Illinois Department of Labor website.
Protection of Characteristics Historically Associated with Race
The Illinois Human Rights Act now protects additional characteristics—specifically, those including hair styles and hair textures that are associated with race—from discrimination in the workplace. The statute specifically lists hairstyles such as braids, locks, and twists.
Latex Glove Ban
As the title of this law implies, latex gloves are now prohibited for use in Illinois by food service workers, EMS professionals, and health care professionals working with individuals who cannot communicate whether they have a latex allergy. The law does allow certain exceptions including if there is a crisis affecting a food service establishment, healthcare facility, or EMS-service’s ability to source non-latex gloves.
Protecting Food and Retail Business from Unauthorized Use of Their Marks
Third party delivery services (e.g., GrubHub, UberEats, Doordash, etc.) are prohibited from (i) using the name, likeness, trademark, or IP of a business, and (ii) arranging or providing pickup or delivery services from that business, without prior written consent. Additionally, third party delivery services cannot require that the business indemnify the service (or its drivers) for any accidents caused when picking up or delivering the purchased items. The law also provides businesses with the right to sue the third party delivery service for violations for actual damages or $5,000 (whichever is greater), and for equitable relief.
Protection Against Housing Discrimination Based on Source of Income
Illinois has now enacted protections—by amending the Illinois Human Rights Act—to prevent certain forms of discrimination in housing. Specifically, the protections provide that a landlord or homeowner cannot discriminate against a renter, applicant, or resident based on his or her “sources of income.” Under the amendments, all forms of lawful sources of income must be treated equally, providing protection to those who receive government assistance, child support, and other forms of non-employment income and rely on those sources of income to pay rent.
Electronic Powers of Attorney for Healthcare
Illinois amended the statutory short form power of attorney to require healthcare providers to accept executed, electronic healthcare power of attorney forms. An authorized agent may also show a healthcare provider an executed, electronic power of attorney from his or her electronic devices.
Chicago employers need to be sure to abide by the amendments to the Chicago Human Rights Ordinance. This includes two hours of annual mandatory training of all employees (including bystander training) and one hour of management/supervisor training by June 30, 2023. FVLD covered this in our June 2022 newsletter.
This Legal Update is not comprehensive of all new laws or regulations that may affect you or your business(es). This Legal Update serves to provide an overview for information purposes only. It is general in nature and is not intended to constitute legal advice or to take into account all of the exceptions, exemptions, and nuances that may apply to you or your business. Certain laws that we do not mention, including new federal laws and new laws in other states, may nonetheless affect you or your business. You should consult with your legal and other advisors about the entire legal landscape that may impact you or your business.