Temporary Extension of Employee Social Security Tax Rate Cut

The Employee Social Security rate remains at 4.2% through February 29^th 2012. If an employee’s wages exceeds $18,350 by 2/29/2012, the employee is subject to SS at 6.2%.  The 2% increase on the excess wages will be “recaptured” on the employee’s individual income tax return. While it is anticipated this extension will be further extended through the end of the year, you should monitor this over the next month. Also, the 2012 Social Security Wage Base Limit has been increased to $110,100 annual wages.

Continuation of the FUTA (Federal Unemployment) Reduction

Effective July 2011 the FUTA tax was reduced to .6% for ALL employers, as a result of the AZ SUI Special Assessment Tax.  This will currently continue through 2012; however, there may be an increase to FUTA for Arizona employers that will result in a higher FUTA tax.

AZ State Unemployment Tax Special Assessment and Job Training Tax

Effective January 2012 The Special Assessment Tax for all AZ Employers is now .5% (previously .4% in 2011), and ALL employers are subject to Job Training Tax at .1%. This is in addition to the SUTA (AZ Unemployment) rate.

Arizona Minimum Wage Increase

In Arizona, effective January 1 2012, minimum wage increased from $7.35 per hour to $7.65 per hour.  Tipped employee minimum wage is now $4.65 per hour.

Determine 2012 941 Deposit Frequency Based on the Lookback Period

The Lookback Period for 2012 is Q3 and Q4 of 2010 and Q1 and Q2 of 2011. If your combined liability for the lookback period is less than $50,000, you are considered a monthly filer. If your combined liability is greater than $50,000, you are a semi-weekly depositor. An employer can deposit quarterly only if they did not have a liability greater than $2,500 in the previous quarter, and their total liability will be less than $2500 in the current quarter.

Update State Unemployment Rates for 2012

Recently, all Arizona employers should have received their 2012 Unemployment Rate Determination Notice. Make sure you have updated your SUTA rate.

First, a Quick Summary

For the majority of businesses, you will need to file Form 1099-MISC for $600 or more paid for services performed by non-employees (e.g. independent contractors) that are not a corporation (Box 7 – Nonemployee Compensation), to attorneys1 (Box 7 or Box 14 – Gross Proceeds Paid to an Attorney), and for rent paid over $600 for office rent (Box 1 - Rents).

NOTE: Effective after December 31, 2010, there are new laws in place regarding a Real Estate Professional receiving rental income from real estate and the reporting requirements to provide an information return for payments of $600 or more to any service provider (such as a plumber, painter, or accountant).

You do not need to report amounts paid to a corporation (or if the business is a corporation for tax purposes; e.g. an LLC taxed as an S-Corporation or a C-Corporation). IMPORTANT DISTINCTION: Many people believe that because they are an LLC, they are a corporation. What is important to note is the difference between the legal structure of the company (e.g. LLC) and the tax structure of the company. Unless the company files a 1120S (S-Corporation) or 1120 (C-Corporation), they are subject to receiving a 1099-MISC. In other words, if they report income and expenses on Schedule C, as a partnership, or almost any other way, they should receive a 1099-MISC.

The exemption from reporting payments made to a corporation does not apply to payments made to an attorney.

Before you pay someone more than $600, ask them to complete a Form W-9, Request for Taxpayer Identification Number and Certification. This will give you the company name, address, TIN (Taxpayer Identification Number or Company EIN), and will confirm if you will need to submit a 1099-MISC or it is a corporation (and you do not).

1 If an attorney performed services for your organization, report these payments in Box 7. If the attorney performed services for someone else or a third party, then report payments in Box 14 (e.g. as in a settlement agreement).

Why Do We Have To File?

It’s important to file Form 1099-MISC for a couple of reasons. One is because the IRS uses this information to determine whether the recipient has properly reported the payment as income, so be sure to report each payment in the proper box. Also, the reporting company, or in this case, non-reporting company, faces possible fines if it is determined it should have filed Form 1099-MISC and failed to do so.

What Should I Do?

Before you pay someone, ask them to complete a W-9. If they are a corporation, just keep the W-9 on file for your reference. If they are not and should receive a 1099, enter this into your accounting system to track payments you make to them during the year. If you aren’t sure, please contact us. It’s easier to get this information during the year (before you pay someone) than it is at the end of the year. Again, you can be fined if it is discovered you didn’t report a 1099.

Real Estate Professionals Receiving Rental Income (NEW starting January 1, 2011)

The 2010 Small Business Act provides that a Real Estate Professional receiving rental income from real estate will be required to file 1099's for payments made related to the rental property.

Thus, for payments made after December 31, 2010, Real Estate Professionals that receive rental income from real estate generally are subject to the same information reporting requirements as taxpayers engaged in a trade or business. In particular, Real Estate Professionals receiving rental income making payments of $600 or more to a service provider (such as a plumber, painter, or accountant) in the course of earning rental income are required to provide an information return (i.e. Form 1099-MISC) to the IRS and to the service provider.

If you need help filing your Form 1099's, please contact us for a quote.

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, to the extent this communication (or any attachment) addresses any tax matter, it was not written to be (and may not be) relied upon to (i) avoid tax-related penalties under the Internal Revenue Code, or (ii) promote, market or recommend to another party any transaction or matter addressed herein (or in any such attachment).

Arizona House Bill 2332, signed into law on April 15, 2011, added Arizona Revised Statutes (ARS) section 42-5169, which provides that "if a person stores, uses or consumes tangible personal property subject to tax under this article for a nonbusiness purpose and the tax was not collected by a registered retailer, the individual shall declare the annual amount of tax due under this article on the individual's income tax forms pursuant to section 43-321." Further, ARS section 43-321 now provides that "each return required to be filed under this title shall contain the following…a specific statement of the taxpayer's use tax liability pursuant to section 42-5169." The use tax line item will be included on the 2011 Arizona Forms 140, Form 140PY and Form 140NR.

This means that individuals must report Arizona use tax annually, by making a declaration on the individual’s income tax return, for taxable tangible personal property acquired during the taxable year for use, storage or consumption for a nonbusiness purpose where use tax or sales tax has not been collected by a licensed retailer.

For example, if you made an online purchase for nonbusiness use from a retailer such as Amazon.com and did not pay sales tax, that purchase would be subject to the 6.6% Use Tax.

There are still questions about enforcement, penalties for non-reporting, and how the law will be practically applied. If you have any questions, please do not hesitate to contact us.

The IRS reminds homeowners that they still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits.

The Nonbusiness Energy Property Credit is aimed at homeowners installing energy efficient improvements such as insulation, new windows and furnaces. The credit is more limited than in the past years, but can still provide substantial tax savings.

• The 2011 credit rate is 10 percent of the cost of qualified energy efficiency improvements. Energy efficiency improvements include adding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count.

• The credit can also be claimed for the cost of residential energy property, including labor costs for installation. Residential energy property includes certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel.

• The credit has a lifetime limit of $500, of which only $200 may be used for windows. If the total of nonbusiness energy property credits taken in prior years since 2005 is more than $500, the credit may not be claimed in 2011.

• Qualifying improvements must be placed into service to the taxpayer’s principal residence located in the United States before January 1, 2012.

Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment.

• The credit equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property.

• No cap exists on the amount of credit available except for fuel cell property.

• Generally, labor costs are included when figuring this credit. 

Not all energy-efficient improvements qualify for these tax credits, so homeowners should check the manufacturer’s tax credit certification statement before they purchase. Taxpayers can normally rely on this certification statement which can usually be found on the manufacturer’s website or with the product packaging.
 
Eligible homeowners can claim both of these credits on Form 5695, Residential Energy Credits when they file their 2011 federal income tax return. Because these are credits and not deductions, they reduce the amount of tax owed dollar for dollar. An eligible taxpayer can claim these credits regardless of whether he or she itemizes deductions on Schedule A.

YouTube Videos:

• Cut Your Energy Costs and Taxes English  | ASL Link:

• Form 5695, Residential Energy Credits

House Bill 2619, which imposes a Special Assessment (SA) on taxable wages paid in 2011 and 2012, becomes law (Arizona Revised Statutes § 23-730.01) effective July 20, 2011, but is retroactively effective to January 1, 2011. The DES Unemployment Insurance (UI) Tax Section is responsible for collecting the SA according to the following provisions:

• All employers subject to Arizona UI Tax in 2011 and 2012 are also subject to the SA.
• Reimbursement employers are exempt from the SA.
• “Taxable wages” are the first $7,000 of gross wages paid to each employee in a calendar year.
• The SA rate is 0.40% of taxable wages paid in 2011 (maximum $28 per employee).*
• The SA rate is projected to be 0.60% of taxable wages paid in 2012 (maximum $42 per employee).*
• Payment of the SA for the first three quarters of 2011 is due by October 31, 2011, payable as follows:
• In mid to late September 2011, DES will mail employers statements of the SA amounts they owe, if any, for the first two quarters of 2011.
• Beginning with the third quarter of 2011, SA amounts due are payable with quarterly UI taxes and reported on Line 7, Part C of the Unemployment Tax and Wage Report (form UC-018).
• Employers may include the amount of SA due for the first two quarters of 2011 on their third quarter 2011 report and remit a single payment for all amounts due.
• Alternatively, employers may pay the SA for the first two quarters separately from a report, via the online Tax and Wage System (TWS) at www.azuitax.com or by check or money order.

Arizona is one of more than thirty states that borrowed money from the federal government after their unemployment trust funds were depleted during the economic recession. This enabled the states to continue paying unemployment benefits to eligible claimants as required by federal law. Arizona first borrowed in March 2010 and SA monies collected will be used to repay the loan principal with interest in time to prevent a substantial increase in FUTA taxes. Interest on the loans was waived in 2010 due to a provision in the American Recovery and Reinvestment Act of 2009, but began accruing on January 1, 2011.

*NOTE: HB 2619 grants the DES director authority to determine SA rates and the 2012 rate has not been determined as yet. Once the rate is determined for a calendar year, that rate applies to all four quarters of that year.

Pre-Announcement: The Internal Revenue Service is revising the optional standard mileage rates for computing the deductible costs of operating an automobile for business, medical, or moving expense purposes and for determining the reimbursed amount of these expenses that is deemed substantiated. This modification results from recent increases in the price of fuel. The revised standard mileage rates are 55.5 cents per mile for business use of an automobile and 23.5 cents for use of an automobile as a medical or moving expense. The mileage rate for use of an automobile as a charitable contribution is fixed by statute and remains 14 cents. The revised standard mileage rates apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes on or after July 1, 2011, and to mileage allowances that are paid both (1) to an employee on or after July 1, 2011, and (2) for transportation expenses an employee pays or incurs on or after July 1, 2011.

Announcement 2011-40 will be published in Internal Revenue Bulletin 2011-29 on July 18, 2011.

IR-2011-8, Jan. 24, 2011

WASHINGTON — The Internal Revenue Service today unveiled IRS2Go, its first smartphone application that lets taxpayers check on their status of their tax refund and obtain helpful tax information.

"This new smart phone app reflects our commitment to modernizing the agency and engaging taxpayers where they want when they want it," said IRS Commissioner Doug Shulman. "As technology evolves and younger taxpayers get their information in new ways, we will keep innovating to make it easy for all taxpayers to access helpful information."

The IRS2Go phone app gives people a convenient way of checking on their federal refund. It also gives people a quick way of obtaining easy-to-understand tax tips.

Apple users can download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Android Marketplace to download the free IRS2Go app.

"This phone app is a first step for us," Shulman said. "We will look for additional ways to expand and refine our use of smartphones and other new technologies to help meet the needs of taxpayers."

The mobile app, among a handful in the federal government, offers a number of safe and secure ways to help taxpayers. Features of the first release of the IRS2Go app include:

Get Your Refund Status

Taxpayers can check the status of their federal refund through the new phone app with a few basic pieces of information. First, taxpayers enter a Social Security number, which is masked and encrypted for security purposes. Next, taxpayers pick the filing status they used on their tax return. Finally, taxpayers enter the amount of the refund they expect from their 2010 tax return.

For people who e-file, the refund function of the phone app will work within about 72 hours after taxpayers receive an e-mail acknowledgement saying the IRS received their tax return.

Get Tax Updates

Phone app users enter their e-mail address to automatically get daily tax tips. Tax Tips are simple, straightforward tips and reminders to help with tax planning and preparation. Tax Tips are issued daily during the tax filing season and periodically during the rest of the year. The plain English updates cover topics such as free tax help, child tax credits, the Earned Income Tax Credit, education credits and other topics.

Follow the IRS

Taxpayers can sign up to follow the IRS Twitter news feed, @IRSnews. IRSnews provides the latest federal tax news and information for taxpayers. The IRSnews tweets provide easy-to-use information, including tax law changes and important IRS programs.  

IRS2Go is the latest IRS effort to provide information to taxpayers beyond traditional channels. The IRS also uses tools such as YouTube and Twitter to share the latest information on tax changes, initiatives, products and services through social media channels. For more information on IRS2Go and other new media products, visit www.IRS.gov.

The Internal Revenue Service announced it plans a Feb. 14 start date for processing tax returns delayed by last month’s tax law changes. Taxpayers affected by the delay include those claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction.

The IRS needed the extra time to update its systems to accommodate recent tax law changes without disrupting other operations tied to the filing season. The delay followed the Dec. 17 enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which extended a number of expiring provisions including the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.

We'll begin processing returns once the IRS confirms it is prepared to accept them.

If you have any questions, please visit www.irs.gov or give us a call.

The IRS has announced that the business standard mileage rate for transportation expenses paid or incurred beginning January 1, 2011, will be 51 cents per mile, up from the 50 cents-per-mile rate in effect during 2010.

The mileage rate may be used to compute the deductible cost of operating a passenger car (also vans, pickups, or panel trucks) for business purposes. It may also be used by employers that elect to use the "cents-per-mile" valuation method for purposes of determining the amount that needs to be imputed to an employee's income for personal use of certain company-owned or leased non-luxury vehicles.

In addition, the 2011 standard rate for miles driven for medical or moving purposes will increase to 19 cents per mile, up from the 16.5 cents-per-mile rate in effect during 2010.

Finally, the standard mileage rate for operating a passenger car for charitable purposes, which is set by law, will stay at 14 cents per mile in 2011.

Passage of the “Health Care and Education Tax Credits Reconciliation Act of 2010”, signed by President Obama on March 30, 2010, completes a massive overhaul of the nation’s health insurance and health delivery systems, including making law the “Patient Protection and Affordable Care Act” with several modified provisions of the original package approved by the House. While the Reconciliation Act involves several changes which will fundamentally alter the health care landscape for individuals and employers, there are some more common provisions that will have a more immediate impact.

The Patient Protection Act, as amended by the House Reconciliation Act, modifies the definitions of qualified medical expenses for health FSAs, HSAs, and HRAs to conform them to the definition used for the medical expense itemized deduction. The significant part of this excludes any over-the-counter medicines prescribed by a health care professional from being reimbursed (exceptions include insulin, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays, and deductibles). The health care package also caps health FSA contributions at $2,500 per year after 2012, which is indexed annually for inflation after 2013. The Patient Protection Act, as amended, also increases the additional tax on nonqualified distributions from health savings accounts (HSAs) from 10 percent to 20 percent and from Archer MSAs from 15 to 20 percent.

For tax years beginning after December 31, 2010, an employer must disclose on each employee’s annual Form W-2 the value of the employee’s health insurance coverage sponsored by the employer. This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported is not considered taxable income.

Also, effective March 30, 2010, the general exclusion for reimbursements for medical care expenses under an employer-provided accident or health plan is extended to any child of an employee who hasn’t attained age 27 as of the end of the tax year. To quality, the child must be eligible to be claimed as a dependant for tax purposes.

There are several other matters that impact businesses and individuals. More information can be found on the IRS web site:

http://www.irs.gov/newsroom/article/0,,id=220809,00.html?portlet=6