Employers Likely to Pay More Payroll Taxes in 2012

Many employers likely to pay more unemployment taxes in 2012

Employers in many states are likely to pay more unemployment tax in 2012 than in previous years for a variety of reasons, including: (1) a higher federal unemployment tax (FUTA) rate because of outstanding federal loans; (2) a higher state taxable wage base; and/or (3) a higher state unemployment tax rate and new surcharges.

Alaska. The amount of wages subject to unemployment tax (i.e., the taxable wage base) has increased from $34,600 to $35,800. Unemployment tax rates have also increased.

Arkansas. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Arkansas' failure to repay its outstanding federal unemployment insurance (UI) loans for two consecutive years. Employers now pay an advance interest tax to help the State pay the interest on its federal UI loans.

Arizona. Unemployment tax rates have increased. Employers must pay a special assessment to help the State pay the interest on its federal UI loans.

California. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of California's failure to repay its outstanding federal UI loans for two consecutive years.

Colorado. The taxable wage base has increased from $34,600 to $35,800.

Connecticut. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Connecticut's failure to repay its outstanding federal UI loans for two consecutive years.

Florida. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Florida's failure to repay its outstanding federal UI loans for two consecutive years. The taxable wage base has increased from $7,000 to $8,500. Unemployment tax rates have also increased.

Georgia. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Georgia's failure to repay its outstanding federal UI loans for two consecutive years.

Hawaii. The taxable wage base has increased from $34,200 to $38,800. Unemployment tax rates have also increased, but could possibly be reduced by 2012 legislation.

Idaho. The taxable wage base has increased from $33,300 to $34,100.

Illinois. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Illinois' failure to repay its outstanding federal UI loans for two consecutive years. The taxable wage base has increased from $12,740 to $13,560. The maximum unemployment tax rate has increased. The fund building rate has also increased.

Indiana. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.6% higher than it otherwise would have been because of Indiana's failure to repay its outstanding federal UI loans for three consecutive years. Employers now also pay a solvency surcharge because of the outstanding federal loans.

Iowa. The taxable wage base has increased from $24,700 to $25,300.

Kansas. Unemployment tax rates have increased for employers with negative reserve balances.

Kentucky. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Kentucky's failure to repay its outstanding federal UI loans for two consecutive years. The taxable wage base has increased from $8,000 to $9,000.

Maine. Unemployment tax rates have increased.

Michigan. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.9% higher than it otherwise would have been because of Michigan's failure to repay its outstanding federal UI loans for four consecutive years. Michigan has now repaid the federal UI loans, so employers will not pay a higher federal unemployment tax (FUTA) rate on their 2012 federal return (due in 2013). The taxable wage base has increased from $9,000 to $9,500.

Minnesota. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Minnesota's failure to repay its outstanding federal UI loans for two consecutive years. The taxable wage base has increased from $27,000 to $28,000. The new employer rate has increased. The federal loan interest assessment rate has increased.

Missouri. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Missouri's failure to repay its outstanding federal UI loans for two consecutive years.

Montana. The taxable wage base has increased from $26,300 to $27,000.

Nevada. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Nevada's failure to repay its outstanding federal UI loans for two consecutive years. A new tax rate schedule went into effect on Jan. 1, 2012 that revised the reserve ratio ranges in the 18 tax rate classes. Employers will pay more unemployment tax in 2012 even if their UI benefit experience is similar to what it was in 2011.

New Hampshire. The taxable wage base has increased from $12,000 to $14,000.

New Jersey. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of New Jersey's failure to repay its outstanding federal UI loans for two consecutive years. The taxable wage base has increased from $29,600 to $30,300. Unemployment tax rates increased beginning with the fiscal year that began on July 1, 2011.

New Mexico. The taxable wage base has increased from $21,900 to $22,400. Unemployment tax rates have also increased.

New York. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of New York's failure to repay its outstanding federal UI loans for two consecutive years.

North Carolina. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of North Carolina's failure to repay its outstanding federal UI loans for two consecutive years. The taxable wage base has increased from $19,700 to $20,400.

North Dakota. The taxable wage base has increased from $25,500 to $27,900.

Ohio. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Ohio's failure to repay its outstanding federal UI loans for two consecutive years.

Oklahoma. The taxable wage base has increased from $18,600 to $19,100.

Oregon. The taxable wage base has increased from $32,300 to $33,000.

Pennsylvania. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Pennsylvania's failure to repay its outstanding federal UI loans for two consecutive years.

Rhode Island. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Rhode Island's failure to repay its outstanding federal UI loans for two consecutive years. The taxable wage base has increased from $19,000 to $19,600 for most employers. It has increased to $21,100 for employers who are in the highest unemployment tax rate bracket.

South Carolina. The taxable wage base has increased from $10,000 to $12,000.

South Dakota. The taxable wage base has increased from $11,000 to $12,000.

Utah. The taxable wage base has increased from $28,600 to $29,500. Unemployment tax rates have also increased, but could possibly be reduced by 2012 legislation.

Vermont. The taxable wage base has increased from $13,000 to $16,000.

Virginia. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Virginia's failure to repay its outstanding federal UI loans for two consecutive years. Unemployment tax rates have also increased.

Virgin Islands. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of the Virgin Islands' failure to repay its outstanding federal UI loans for two consecutive years. The taxable wage base has increased from $22,600 to $23,700.

Washington. The taxable wage base has increased from $37,300 to $38,200.

Wisconsin. The tax rate on the 2011 federal unemployment tax return due on Jan. 31, 2012 will be 0.3% higher than it otherwise would have been because of Wisconsin's failure to repay its outstanding federal UI loans for two consecutive years.

Wyoming. The taxable wage base has increased from $22,300 to $23,000.

Capital Gains Rates 2012 v. 2013

The top tax rate on long-term capital gains is currently 15%. That’s why Mitt Romney is spending so much time talking about his tax returns.

That revelation has set off a familiar debate about whether that low rate is appropriate. Often overlooked in these discussions, however, is the fact that the days of the 15% tax rate are numbered. As of this posting, it has only 342 left.

On January 1, 2013, capital gains taxes are scheduled to go up sharply:

First, the 2001 and 2003 tax cuts are scheduled to expire. If that happens, the regular top rate on capital gains will rise to 20%. In addition, an obscure provision of the tax code, the limitation on itemized deductions, will return in full force. That provision, known as Pease, increases effective tax rates on high-income taxpayers by reducing the value of their itemized deductions. On net, it will add another 1.2 percentage points to the effective capital gains tax rate for high-income taxpayers.

And that’s not all. The health reform legislation enacted in 2010 imposed a new tax on the net investment income of high-income taxpayers, including capital gains. That adds another 3.8 percentage points to the tax rate.

Put it all together, and the top tax rate on capital gains is scheduled to increase from 15% today to 25% on January 1. That’s a big jump. If taxpayers really believe this will happen, expect a torrent of asset selling in November and December as wealthy taxpayers take final advantage of the lower rate.

Of course, the tax cuts might get extended for all Americans, including high-income taxpayers. That’s what happened in 2010. In that case, the increase in the capital gains rate will be smaller. Because of the health reform tax, the top capital gains tax rate will increase from 15% to 18.8%. That’s still a notable increase, but would likely set off much less tax-oriented selling this year.

The only way that the top capital gains tax rate remains at 15% will be if the tax cuts are extended for high-income taxpayers and the new health reform tax gets repealed. That’s a key distinction in the election: President Barack Obama opposes those steps, while the GOP presidential candidates favor them (and some candidates would cut the capital gains tax rate even further).

No 1099-MISC if Paid by Credit Card

In the instructions to Form 1099-MISC, the IRS has made it clear that payments made with a credit card, or through any third-party payer, are not reported on Form 1099-MISC. These amounts are now reported on Form 1099-K. Thus, if a business pays a service-provider with a credit card, debit card, gift card, or electronically via a service like PayPal, the payment is not included on a 1099-MISC.

Form 1099-K is new for 2011. The form is issued by a credit card company or other third-party payer (such as PayPal) to payees if the payee has more than 200 transactions and more than $20,000 of gross income paid to them. The 1099-K is not issued by either the buyer or seller.

How Does Your 529 College-Savings Plan Stack Up?

Now that the holidays are well behind us, it’s time to start to saving for college again.

If you resolved to save more consistently for your children’s college education this year, or you’re planning to deposit gifts from grandparents, here’s a handy new resource: Savingforcollege.com recently updated its 529 fee study to reflect fee and expense changes among what are called “direct-sold” 529 plans. Those are the ones that individuals can invest in on their own, rather than through investment advisers.

The study points out the lowest- and highest-cost investment options in each plan.

So-called 529 plans are state-sponsored accounts for college savers in which earnings are tax-free as long as they’re used to pay for qualified higher-education expenses. As of Sept. 30, the 529 industry managed almost $135 billion in assets, up 5% from almost $128 billion at the same time last year, according to Financial Research Corp. in Boston.

Of course, understanding the fees is only part of the picture. You’ll also want to consider performance.

Financial-data firm Morningstar tracks 529 plan performance with an annual ranking. In its latest one, released in late 2011, Plans in six states earned its analysts’ “top” rating, including five from the previous year—Alaska, Maryland, Nevada, Ohio and Virginia—and Utah.

Rhode Island’s Collegeboundfund was the only plan tagged with a “bottom” rating in 2010, but it moved up in 2011 to “below average” after adding low-cost index funds from Vanguard Group (though they are available only to state residents).

http://pmaadvisors.com/investment_advisory.php

IRS Releases Taxpayer Guide to Identity Theft

What is identity theft?

Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes.

How do you know if your tax records have been affected?

Usually, an identity thief uses a legitimate taxpayer's identity to fraudulently file a tax return and claim a refund. Generally, the identity thief will use a stolen SSN to file a forged tax return and attempt to get a fraudulent refund early in the filing season.

You may be unaware that this has happened until you file your tax return later in the filing season and discover that two returns have been filed using the same SSN.

Be alert to possible identity theft if you receive an IRS notice or letter that states that:

• More than one tax return for you was filed,
• You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return, or
• IRS records indicate you received wages from an employer unknown to you.

What to do if your tax records were affected by identity theft?

If you receive a notice from IRS, respond immediately. If you believe someone may have used your SSN fraudulently, please notify IRS immediately by responding to the name and number printed on the notice or letter. You will need to fill out the IRS Identity Theft Affidavit, Form 14039.

For victims of identity theft who have previously been in contact with the IRS and have not achieved a resolution,please contact the IRS Identity Protection Specialized Unit, toll-free at 1-800-908-4490

How can you protect your tax records?

If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost/stolen purse or wallet, questionable credit card activity or credit report, etc., contact the IRS Identity Protection Specialized Unit at 1-800-908-4490.

How can you minimize the chance of becoming a victim?

• Don't carry your Social Security card or any document(s) with your SSN on it.
• Don't give a business your SSN just because they ask -- only when required.
• Protect your financial information.
• Check your credit report every 12 months.
• Secure personal information in your home.
• Protect your personal computers by using firewalls, anti-spam/virus software, update security patches, and change passwords for Internet accounts.
• Don't give personal information over the phone, by fax, through the mail or on the internet unless you have initiated the contact or you are sure you know who you are dealing with.

_____________________________________________________________________

ID Theft Tool Kit

Are you a victim of Identity Theft?
Contact the IRS at 1-800-908-4490

Please Fill out the IRS Identity Theft Affidavit:
Form 14039

Please write legibly and following the directions on the back
of the form that relate to your specific circumstances.

Credit Bureaus:

Equifax
www.equifax.com
1-800-525-6285

Experian
www.experian.com
1-888-397-3742

TransUnion
www.transunion.com
1-800-680-7289

Other Resources:

Federal Trade Commission
FTC toll-free identity theft helpline:
877-ID-THEFT (1-877-438-4338)

Visit the Internet Crime Complaint Center (IC3)
to learn more about their internet crime prevention tips.

Report Phishing:

Report suspicious online or emailed phishing scams to:
phishing@irs.gov
For phishing scams by phone, fax or mail call 1-800-366-4484

For more information, visit:
IRS.gov/identitytheft
IRS.gov/phishing

_____________________________________________________________________

The IRS does not initiate contact with taxpayers by email
to request personal or financial information.

California Governor's Budget Relies on Voters to Raise Taxes

Taken from taxanalysts.com:

California Gov. Jerry Brown (D) on January 5 proposed a fiscal 2013 budget that relies on voters approving increases in the sales and individual income taxes to prevent $5.4 billion in cuts to education and public safety.

"Because we're going to assume that we're going to get the temporary income tax and the temporary sales tax, we have to put in some trigger cuts or the budget wouldn't be balanced, wouldn't be financeable," Brown said in a press conference.

On December 5, Brown filed a ballot initiative calling for a half-cent increase in the state sales tax rate and new individual income tax rates and brackets for those making more than $250,000. 

Asked if he planned to cut the education funding levels required by Proposition 98 if voters reject his tax increase ballot initiative, Brown said that he wouldn't have to and that funding requirements decline with tax revenues. Proposition 98, approved by voters in 1988, requires the state to spend about 40 percent of the budget on K-12 education and community colleges.

Without the tax increases, the Proposition 98 funding mandate would decline by over $4.8 billion -- about the cost of three weeks of instruction -- according to budget summary documents. Brown's budget proposal includes other trigger cuts, such as $200 million each from the University of California and California State University, and $125 million from the courts, "the equivalent of court closures of three days per month."

Lawmakers may want to find other last-ditch cuts, according to a news story in The Sacramento Bee. The newspaper quoted Senate President Pro Tem Darrell Steinberg (D) as saying he agreed with the need for trigger cuts, but that his colleagues would want to "debate, discuss and analyze what those trigger cuts should be."

Contractors may now operate as LLCs

The Contractor State License Board is now authorized to issue a contractor’s license to an LLC. (FTB Tax News, January 2012, SB 392 (Ch. 10-698))

Generally, LLCs are not allowed to be used for certain businesses subject to professional licensing requirements. However, as is now the case for contractors, amendments to the law allow specific businesses with licensing requirements to form and operate as LLCs.

Nearly 1 in 8 High-Income Taxpayers Audited, IRS Reports

According to the IRS's annual enforcement and service results report released January 5, 12.48 percent of individuals with incomes of $1 million and higher were audited in fiscal 2011, compared with 8.36 percent in 2010. 

That compares with 3.93 percent of individuals with incomes between $200,000 and $1 million who were audited in fiscal 2011 (3.1 percent in 2010) and 1.02 percent of individuals making less than $200,000 (1.04 percent in 2010).

Big corporations are under increased scrutiny as well. Corporations with assets of $10 million or more were audited 17.64 percent of the time in fiscal 2011, compared with 16.58 percent of the time in 2010. Corporations with assets of less than $10 million were audited 1.02 percent of the time in 2011, compared with 0.94 percent of the time in 2010.

Yet the IRS started 2012 with about 3,000 fewer enforcement personnel than it had a year earlier, mainly due to hundreds of millions of dollars in budget cuts, said Steven Miller, IRS deputy commissioner for services and enforcement, during a January 5 conference call announcing the report. Total enforcement staff is down from more than 52,000 in late 2010 to about 49,000 in 2012, Miller said.

The IRS enforcement budget was $55.2 billion in 2011, down from $57.6 billion in 2010. The drop was due in part to the expiration of the estate tax in 2010, Miller said.

Benson S. Goldstein, senior technical manager at the American Institute of Certified Public Accountants, said that increased enforcement revenues -- up from $33.8 billion in 2001 -- came with essentially flat or declining staff levels.

Goldstein said the IRS's increased use of correspondence audits (1.17 million in fiscal 2011 compared with 529,241 in 2001) highlights its more resource-efficient tools for capturing increased enforcement revenues.

Practitioners and taxpayers may have a rougher time with correspondence audits, because those audits typically run on tighter deadlines than field audits and collecting and mailing or transmitting IRS-requested documents takes time, Goldstein said, adding that the more labor-intensive field audits tend to be more time-efficient.

Constrained resources -- including a 2.5 percent overall cut included in Congress's last continuing budget resolution in December -- mean the IRS will have to further prioritize its activities. The budget will have an impact on enforcement efforts, Miller said, adding that the IRS "will continue to focus resources on the higher end of the income spectrum."

Return preparer training, competency testing, and continuing education will also get increased attention, along with refund fraud and identity protection efforts, Miller said. More than 740,000 individuals have registered under the IRS's return preparer program, he said.

The e-filing rate rose to 77 percent through fiscal 2011, compared with 69 percent the previous year. That's closing in on the Service's goal of 80 percent of returns being e-filed in fiscal 2012.

Court now grants John Doe summons sought in gift tax enforcement initiative

After previously refusing to do so, a district court has now granted IRS permission to issue a John Doe summons to the California Board of Equalization (BOE) as part of a gift tax enforcement initiative to detect transfers of real property between nonspouse relatives that weren't reported on gift tax returns.

Observation: IRS will now get the information from California. Previously, it requested and received comparable information from Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington, and Wisconsin. Thus, individuals who transferred real property to nonspouse family members should make sure that required gift tax returns were filed and file amended returns if they weren't.

Gift tax background. The gift tax is imposed on the transfer of money or other property by gift. (Code Sec. 2501(a)) The first $13,000 of gifts of a present interest made annually by a donor to each donee is excluded from the amount of the donor's taxable gifts. (Code Sec. 2503(b))

For gifts made and decedents dying after 2010, the gift tax is integrated with the estate tax under a “unified” rate schedule that imposes a single tax on transfers during life and at death which effectively imposes no tax on gifts unless the total amount of taxable gifts for any such year and all prior years exceeds $5 million (indexed for inflation after 2011). This is achieved through a unified credit. For gifts made after 2012, the amount exempted from the gift tax will be $1 million. (Code Sec. 2505)

Any individual who makes gifts to any one donee during a calendar year which aren't fully excluded under the $13,000 annual exclusion must file a gift tax return. A return must be filed even if no tax is payable. (Reg. § 25.6019-1(f)) But, no return is required to report a qualified transfer for educational or medical costs, most charitable transfers, or a transfer that qualifies for the marital deduction, except that a return must be filed to make a qualified terminable interest property (QTIP) election. (Code Sec. 6019, Reg. § 25.6019-1(a))

The period of assessment doesn't close for a gift made in a calendar year ending after Aug. 5, '97, unless the gift is adequately disclosed on a gift tax return. (Code Sec. 6501(c)(9)) Transfers reported on a gift tax return as transfers of property by gift are considered adequately disclosed if the return (or a statement attached to it) provides certain information including: 

• A description of the transferred property and any consideration received by the transferor; 
• The identity of, and relationship between, the transferor and each transferee; and 
• Unless the donor submits an appraisal meeting the requirements of Reg. § 301.6501(c)-1(f)(3), a detailed description of the method used to determine the fair market value of the property transferred, including any financial data (for example, balance sheets, etc. with explanations of any adjustments) that was utilized in determining the value of the interest, any restrictions on the transferred property that were considered in determining the fair market value of the property, and a description of any discounts, such as discounts for blockage, minority or fractional interests, and lack of marketability, claimed in valuing the property. (Reg. § 301.6501(c)-1(f)(2)) 

Background on summonses. IRS may examine books, papers, records or other data for purposes of ascertaining the correctness of any return, making a return if none has been made, determining the tax liability of any person, and collecting that liability. (Code Sec. 7602(a)(1)) IRS may issue a summons to the taxpayer or other persons it feels may be able to assist in determining the taxpayer's tax liability. (Code Sec. 7602(a)(2))

IRS may serve a John Doe summons under Code Sec. 7609(f) after a court proceeding in which it establishes that: 

• the summons relates to the investigation of a particular person or ascertainable group or class of persons; 
• there is a reasonable basis for believing that the person, group, or class may fail or have failed to comply with any internal revenue provision; and 
• the information sought from the examination of records and testimony (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources. 

 For more information, please contact us:  http://pmaadvisors.com/contact_us.php