2006 Tax Updates

Tax Updates to keep your prepared for 2006.

2006 Payroll Tax Information

For those who prepare payroll, the following is effective January 1, 2006:

  • Minimum wage remains at $6.75 per hour.
  • FICA and Medicare withholding remains at 7.65% (6.2% for FICA and 1.45% for Medicare) for both employees and employers.  The FICA wage limit is increased to $94,200.  Medicare will be charged to the employee and employer for all wages with no upper limit.
  • State disability insurance (SDI) changes to 0.8% with the limit increasing to $79,418 of wages.   *Please watch for your EDD notice for SUI rates.
  • FUTA wage limitations are $7,000 at 0.8%.

New Tax Changes

  • A vehicle donation is limited to the amount that the vehicle was sold for by the charity beginning in 2005.
  • Business mileage rate for 2005 is 40.5¢ from 1/1-8/31/05.  From 9/1-12/31/05, the mileage rate is 48.5¢.  The mileage rate for 2006 44.5¢.
  • Mileage rate for medical and moving expense deductions is 15¢ per mile.
  • Self-Employed health insurance is 100% deductible.
  • Equipment purchases expensing limit for 2005 is $105,000 (2006 - $108,000).  Total qualified purchases cannot exceed $420,000. The California deduction remains at $25,000 and phases out at $200,000.  SUV’s under 14,000 GVW purchased after 10/22/04 are limited to a Federal $25,000 section 179 deduction.
  • Maximum wages subject to social security tax in 2005 is $90,000.
  • Social security earnings limit – under age 65, $12,000; 65 and over, no limit.
  • The California Teacher Retention Credit is still suspended for 2005.
  • Tax relief act for the victims of Hurricane Katrina contains 21 separate tax provisions for tax breaks for both victims and those assisting/contributing to the relief operations.

Important Information for 1099 Filers

If a form 1099-Misc. for services is required to be filed, the payer must report on Form DE 542 to EDD within 20 days of paying either $600 or more or entering into a contract for $600 or more.    Keep a copy of these DE 542’s and W-9 forms on file.  1099 forms are due to the recipients by 1/31/06 and to the IRS by 2/28/06 to avoid penalties.

** For those who need it, our Federal I.D. Number is 77-0457760 **