The following changes in the Federal and California payroll tax regulations will be effective on January 1, 2012. We are pleased to provide this summary of payroll regulations and welcome any questions that you may have.
FEDERAL TAXES
1. FICA: Social Security and Medicare:
a. SOCIAL SECURITY: The rate per employee is 4.2% (0.042) on wages up to $110,100. This rate is scheduled to increase to 6.2% on March 1, 2012, subject to congressional action.
b. SOCIAL SECURITY: The rate for employers is 6.2% (0.062) on wages up to $110,100 for a maximum tax of $6,826.20.
c. MEDICARE: The rate is 1.45% (0.0145) for both employees and employers on all wages. There is no upper wage limitation on Medicare tax.
2. Self-Employment Tax:
The rate is 13.3% (0.133) on self-employment net income up to $110,100. On all self-employment net income over $110,100 the rate is 2.9% (0.029).
3. FUTA (Federal Unemployment):
The rate for employers is 0.6% (0.006) on wages up to $7,000 per employee.
CALIFORNIA TAXES
1. SDI (State Disability Insurance):
The rate per employee is 1.0% (0.01) on a taxable wage limit of $95,585, for a maximum tax of $955.85.
OTHER ITEMS
1. Automobile Expense Reimbursements: The IRS standard mileage rate for automobile expense reimbursements or deductions is 55.5 cents per mile.
2. Retirement plans: 401(k) and 403(b) --The maximum employee contribution is $17,000; the maximum for participants aged 50 or over is $22,500. SIMPLE--The maximum employee contribution is $11,500; the maximum for participants aged 50 or over is $14,000.
3. California employers are required to report new and rehired employees within 20 days of the hire date.
4. Remember to always obtain a completed Form W-9 from all service providers before paying them.
5. All businesses are required to report to the EDD those service providers for whom they must file a Federal Form 1099-MISC. The required information must be reported within 20 days of accumulating payments totaling $600 or more to each service provider. PLEASE DO NOT WAIT UNTIL YEAR END.
6. All California businesses are required to file an annual Business Property Tax Statement if they have personal property in excess of $100,000 or if they receive a form from their county assessor.
7. Every person who engages in business within the City of Los Angeles is required to obtain the necessary Tax Registration Certificate(s) and to pay the business tax or to obtain an exemption. For other cities, please call us or contact your city government for registration and reporting requirements.
Recent changes in the payroll tax laws have broadened the groups of employees that are eligible under either Federal or California payroll and health care related tax savings programs.
If you are interested in pursuing any of the payroll related tax programs described below, please contact us.
1. New Jobs Credit (California) - An employer will qualify for the credit if:
Each qualified full-time hourly employee is paid wages for not less than an average of 35 hours per week.
On the last day of the preceding taxable year, they employed a total of 20 or fewer employees (full time and part time).
There is a net increase in qualified full-time employees compared to the number of full-time employees employed in the preceding taxable year. For taxpayers who first commence doing business in California during the taxable year, the number of qualified full-time employees employed in the preceding year would generally be zero, unless certain special rules apply.
2. Small Business Health Care Credit (Federal)
The credit is generally available on a sliding scale to small employers who pay at least half of the premiums for single health care coverage for their employees. Smaller companies with ten or fewer full-time equivalent (FTE) employees who are paid average annual wages of $25,000 or less will receive the maximum credit.
The credit is completely phased out for employers who have 25 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the actual number of employees, companies that use part-time workers may qualify even if they employ more than 25 individuals.
3. Enterprise Zone Hiring Credit Tax Credit (California)
This credit was established to stimulate development in selected “enterprise” areas. If you hire an employee to work in the Zone who is from an economically disadvantaged family, a dislocated worker, qualified veteran, or a public assistance recipient, you may qualify for a State Hiring Tax Credit over a five-year period. The maximum benefit is based on 150% of the current minimum wage.
Other payroll related news-
Beginning with the 2011 W-2 forms, employers will have the option of including in the W-2 form of each employee the aggregate cost of applicable employer-sponsored group health coverage that is excludable from the employee’s gross income (excluding the value of contributions to flexible spending arrangements). For 2012 W-2 forms, the filing will no longer be optional, but will be mandatory.
