2011-2012 Tax Updates

NOTE: Tax laws are subject to change.

2011 Payroll Update

California is a credit reduction state in 2011. Most employers in the state will need to pay an increase in FUTA taxes. A Schedule A will need to be filed with the Form 940 (FUTA taxable wages multiplied by .003). Please see instructions on the Form 940 Schedule A.

2012 Payroll Tax & Sales/Use Tax Information

For those who prepare payroll, the following is effective January 1, 2012:

Minimum wage remains at $8.00 per hour in California.
Medicare withholding remains at 1.45% for both employees and employers. Social Security tax rate for employers’ remains at 6.2% and for employees remains at 4.2% for until February 29, 2012. The FICA limit is $110,100. Medicare will be charged to the employee and employer for all wages with no upper limit.
FUTA wage limitations remains the same at $7,000 at 0.6%.
All employers are required to notify all of their employees of the Federal Earned Income Tax Credit usually distributed with the W-2 and/or 1099.
HIRE Act Credit-Any worker who qualified the employer for the HIRE credit may also qualify the employer for a credit of up to $1,000 if that worker was retained as an employee for at least 52 weeks. Employers will claim the credit on their 2011 income tax return.
Please watch for your EDD notice for SUI rates, this is employer specific, and will need to be changed in your software.
State disability insurance (SDI) decreases to 1.0% with the limit at $95,585 of wages.

Sales and Use Tax Information

“Qualified Purchasers” in California with $100,000 or more in gross receipts must efile and pay any USE TAX due from purchases to the Board of Equalization by April 15th each year.. Taxpayers that have filed zero returns for three consecutive years will be deregistered.

Income Tax Changes for 2011

MILEAGE RATES: Business mileage rate was 51¢ per mile for 2011 until June 30, 2011. Effective July 1, 2011, the Business Mileage rate increased to 55.5¢ per mile.
Medical and Moving mileage rate was 19¢ per mile until June 30, 2011. Effective July 1, 2011, the Medical and Moving mileage rate increased to 23.5¢.
Charitable mileage rate is 14¢ per mile.
ALL charitable contributions must have a proof of receipt otherwise they may not be deducted.
Educator deduction of $250 extended through 2011.
The election to take an itemized deduction for State and local sales taxes in lieu of the itemized deduction for State and local income taxes is extended through 2011.
The Hope Credit has been renamed the American Opportunity Tax Credit and it was enhanced: first four years of college, $2,500 max, covers tuition, fees and materials, higher phase-out, and up to 40% refundable.
Qualified tuition and related education expenses for higher education can be claimed as an above-the-line deduction for 2011.
Student loan interest deduction extended through 2012.
Social security earnings limit – under full retirement age, $14,160; full retirement age and over, no limit.
An IRA owner, age 70½ or over, can directly transfer tax-free, up to $100,000 to an eligible charitable organization in 2011.
The kiddie tax applies to children who are 19 years old or who are full-time students over age 18 but under age 24 with investment income.
Retirement plan contributions – 401(k) elective deferrals up to $16,500 (plus another $5,500 for those age 50 or older by the end of 2011).
The contribution limit for individual retirement accounts (both traditional and Roth) is $5,000 for 2011. A “catch up” provision permits an additional contribution of up to $1,000 by individuals who are at least age 50 in 2011.
The Mortgage Forgiveness Debt Relief Act of 2007 provides that a taxpayer may exclude from income up to $2 million of qualified principal residence indebtedness for discharges incurred on or after January 1, 2007, and before January 1, 2013.
The deduction on Mortgage insurance premiums has been extended through 2011.
Residential Energy Efficient Property credit enhanced, solar heating, heat pumps, small wind energy property extended through 2016.
Section 179 - Equipment purchases expensing limit for 2011 - $500,000 ($25,000 for qualified SUVs). Total qualified purchases cannot exceed $2 million. The California deduction remains at $25,000 and phases out at $200,000.
Bonus depreciation - Bonus depreciation deduction for qualifying new property applies to property placed in service from Jan. 1, 2011 and an additional 100% bonus first-year depreciation allowance for property acquired and placed in service after Sept 8, 2010 and before Jan. 1, 2012. See below for updated law for 2012.
Mandatory e-filing of individual and estate and trust returns for returns filed by tax return preparers beginning January 1, 2011.
Roth conversions, beginning in 2010, no income limitations, for conversions made in 2010, the income may be spread over the next two years. This was a one-time opportunity. In 2011 or later, the taxpayer must recognize all of the income in the year of conversion.
Defined Benefit 401(k) plans will become available for small business retirement plans.

New Tax Changes – 2012

Key developments for the 2012 tax year include the following:

Business Mileage rate increases to 55.5¢ per mile.
Medical and Moving mileage rate increases to 23¢.
Charitable mileage rate is 14¢ per mile.
For tax years beginning after Dec. 31, 2011, the maximum expensing amount under Sec. 179 is $139,000 and the investment-based phase-out amount is $560,000.
Bonus depreciation – Bonus depreciation deduction is 100% of the cost of NEW property placed in service from Jan. 1, 2011 to Dec. 31, 2011.

Important Information for 1099 Filers

A 1099 must be issued and sent to recipients or the IRS may disallow the deduction. 1099’s are due to the recipients by 1/31/12 and to the IRS by 2/29/12 to avoid penalties. If a 1099-Misc. for services is required to be filed, the payer must also report to the state of CA, EDD, on Form DE 542 within 20 days of paying either $600 or more, or entering into a contract for $600 or more. For all your independent contractors, you must have a W-9 on file, to be used for your 1099 filing.

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