Home | Newsroom | Industry News | 2012 Additional Rates & Limits

2012 Additional Rates & Limits

To assist our clients in gearing up for 2012, we have provided a list of rates and limits for 2012. This is the second installation of important rates, limits and changes that you should be aware of.

Threshold for Federal Payroll Tax Deposits:  The requirements remain the same.  If you owe $2,500 or less in your reporting period (annual for agricultural [943], quarterly for non-agriculture [941]), you are not required to make deposits and may pay the taxes with the return.  The threshold for depositing federal unemployment tax (940) also remains the same as last year, i.e. $500 at the end of any quarter.

Deposit Frequency:  There is no change for 2012 with regard to the timing of federal payroll tax deposits, though your frequency designation may have changed.  Under the current rules, you are either a monthly or a semiweekly depositor based on the level of total taxes paid during the “look back period.”  It is the employer’s responsibility to verify which schedule they should follow.  Generally, depositing all withheld State Disability Insurance and Personal Income Tax with the Employment Development Department (EDD) using the same schedule required for federal tax deposits will keep you in compliance with state rules. To obtain a recap of the current rules in flowchart format, give us a call at 831.759.6300.

Independent Contractor Reporting - Form 542:  If you are required to file a 1099-Misc on a sole proprietor, Form 542 still must be reported within 20 days of either:

• Entering into a contract which equals or exceeds $600
• When the aggregate payments to an Independent Contractor equal or exceed $600

Independent Contractors:  Please be very careful when paying individuals for services as independent contractors rather than as employees.  The IRS and EDD have been looking very closely at these persons, and in many cases have determined that they should be treated as employees.  The result is a large bill for back taxes, interest and penalties.  For further information regarding the tests that they use in this determination, please contact our office at 831.759.6300.

Business and Agricultural Tax Statements:  The State of California requires that every business, upon written request of the Assessor, shall file a written property statement by April 1st of each year.  Furthermore, businesses owning taxable personal property having an aggregate cost of $100,000 or more are required to file a statement, whether or not requested by the Assessor. Taxable personal property includes furniture, machinery, equipment and supplies used in the course of business or
farming.  Licensed vehicles are generally excluded.

Form W-4:  If you question Form W-4 and/or Form DE-4, because it meets either of the following two conditions: (1) the employee claims more than 10 withholdings or (2) the employee claims exemption from State or Federal income tax withholding and the employee’s usual weekly wages will exceed $200, then you must submit a copy of the form(s) to the Franchise Tax Board. The IRS no longer requires notification. Exempt employees must file a new W-4 with you prior to February 15, 2012.

New Hires:  A reminder when hiring new employees - you must determine employment eligibility under the Immigration Reform and Control Act of 1986.  This includes completing Form I-9, Employment Eligibility Verification Form for each new employee hired.  Keep the completed I-9 on file with that employee’s W-4.  There is no requirement to complete new forms for existing employees; however, employers must use the new form for new hires as well as when their employees require re-verification. All new or rehired employees must be reported to the EDD within 20 days of starting work using Form DE-34.  This requirement is part of a nationwide effort to locate individuals for the purpose of establishing, modifying and enforcing child support obligations.

Form 1099:  Forms 1099 must be filed by January 31, 2012 for any 2011 payments of $600 or more made to non-corporate entities for rents or services rendered.  Form 1099 reporting requirements continue to include payments to incorporated law firms.  Attorney fees should be reported in box 7, or gross proceeds including attorney fees, damage awards and other payments in box 14. 1099’s must also be filed for interest or dividend payments in excess of $10, as well as many other types of payments.

Reimbursements:  When making advances or reimbursements to employees for business expenses, be sure that these payments are part of an “Accountable Plan.”  If not, they need to be included as wages to your employee.  The basic requirements for an Accountable Plan are that the expenses (1) have a business purpose, (2) are documented properly, and (3) unspent amounts advanced are returned by the employee.

Contact Us

If you are unsure how these rates and limits may impact your tax situation, contact Sherrie Isaac, CPA at 831.759.6300, or click here to email Sherrie. In a brief consultation she can assess your situation and determine the best way to proceed.