Payroll Tax Issues In November 2009, you should receive “Your Year 2010 Federal Tax Deposit Requirements” from the IRS, your annual Unemployment Compensation Tax Rate Notice for 2010, and notification from the state if you are required to file unemployment forms and taxes electronically. These notices should be forwarded to your payroll preparer, and a copy to us.
On July 24, 2009, the Federal minimum wage increased from $6.55 to $7.25 with certain states increasing their minimum wage even more, i.e. Florida minimum wage increased to $7.25 on July 24, 2009 for hourly employees and tipped employees increased from $3.77 to $4.23, even though the Federal minimum wage for tipped employees is $2.13 per hour. As of January 1, 2010 these rates will remain the same.
The taxable wage base for Social Security in 2009 was $106,800 and will remain the same in 2010, making the maximum social security tax $6,621.60 (6.2%). Medicare wages are taxed at 1.45% with no limit. Wages paid to a son or daughter under the age of 18 are exempt from social security and RITA taxes. Bonus checks are considered earned income and are subject to payroll taxes, as well as per diem expense reimbursements. The IRS requires employees to track expense reimbursements in excess of federal per diem rates.
IRS maintains a zero tolerance for incorrect W-2s and 1099s. A $50 penalty per incorrect form could be assessed against employers whose forms have mismatched names and social security numbers. You can verify up to five names and numbers by calling the SSA at 1-800-772-6270 or visiting their website at www.ssagov/employer for larger groups.
Employee versus Independent Contractor
Under common-law rules, an individual generally is an employee if the company he works for has the right to control and direct him regarding the job he is to do and how he is to do it. Otherwise, he is an independent contractor. Any individual independent contractor receiving compensation over $600 for the year must be issued a 1099-MISC. In addition, ALL attorneys who received ANY amount of payment must be issued a 1099-MISC.
Increased Code Section 179 expensing
For 2008, the maximum annual expensing amount was $250,000, for purchases not exceeding $800,000; with the American Recovery and Investment Act of 2009 this deduction will extend through December 31, 2009.
Company Provided Vehicles
Employees should be taxed for the personal use of any employer provided vehicle. Specifically, the employee’s gross income on Form W -2 is increased to the extent the fair market value of this benefit exceeds the amount paid, if any, by the employee. This fringe benefit is subject to payroll taxes and should be withheld from the employee’s salary by year-end
2010 Standard Mileage Rates
For the business use of a car, van or truck use 50 cents per mile. When computing deductible medical or moving expenses, use 16.5 cents per mile. You may also deduct 14 cents per mile when providing services to a charitable organization.
Qualified Pension Plan Contribution Limits for 2009 and 2010
There are several employer-sponsored tax-deferred retirement plans that were affected by 2001 legislation, all of which have increased contribution limits. The most common is the 401(k) having a contribution limit of $16,500 for 2009 and will remain the same for 2010. Many of the plans also have “catch-up” contributions for employees age 50 or older.
AGI Limits waived for Roth IRA Conversions
During 2010, IRA’s and other pension accounts may be rolled over to a Roth and defer paying tax until 2011 and 2012.
Personal dependency exemption (Pde) and annual gift exclusion
The Pde for 2009 is $3,650 and will remain the same for 2010. The annual gift exclusion for 2009 is $13,000.
Please keep in mind that we’ve described only highlights and some of the changes in the tax rules. There are many more questions and opportunities for proper tax planning. Please give us a call on how you may be affected by these important tax issues.
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