FUTA Rate Change — Surtax Expiration

Unemployment LineEffective July 1, 2011, the FUTA rate will lower from 6.2% to 6.0% on the first $7,000 of wages paid to an employee.

In 1976, the government added a “temporary” 0.2% surtax to FUTA (Federal Unemployment Tax Act) to repay unemployment benefits paid out during the 1973-1975 recession.  Although the “debt” was fully repaid in 1987, the surtax remained in effect until the end of last month.  After being extended eight times over the past 35 years, the House refused to extend any further past this most recent expiration date.   House Ways and Means Committee Chairman Dave Camp (R-MIch) stated, “We need employers paying more salaries, not paying higher taxes.”

 Be sure to run necessary updates within your accounting software (QuickBooks, Peachtree, etc.) to reflect this change.

Click here for the FUTA fact sheet

Special Increase on Standard Mileage Rates

Higher Gas = IncreaseEffective July 1, 2011, the IRS has increased the optional standard mileage rates in recognition of recent gasoline price increases.  IRS Commissioner Doug Shulman commented that “This year’s increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices,” “We are taking this step so the reimbursement rate will be fair to taxpayers,” said Shulman.

 

The 4.5-cent increase applies to business, medical or moving miles driven from July 1, 2011 through December 31, 2011.  The rate for providing services for charitable organizations is set by statute, not the IRS, and therefore remains at 14 cents per mile.

 

For Business Related Travel: 55.5 cents per mile
For Medical or Moving Purposes: 23.5 cents per mile
For Charitable Use: 14 cents per mile

2011 Social Security Changes

This is a handy reference for all subjects relating to your Social Security benefit, and how 2011 changes in tax legislation may affect you.

Click here to read

Payroll Tax Cut in 2010 Tax Relief Act

 

The biggest new tax break for individuals in the recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” is the one-year payroll tax reduction. Under this new provision, which is intended to supplement income and boost economic growth, the payroll tax-which funds Social Security-will be cut by two percentage points during 2011. Here are the details:

 

  • The Social Security payroll tax on individual wages will be lowered to 4.2% in 2011, from the usual 6.2% rate. For an individual with wages of $60,000, that amounts to a $1,200 savings for individuals with an income of $60,000. If the individual gets paid twice a month, it will mean an extra $50 in his or her paycheck starting in January.
  • Self-employed workers will also get the tax break. Their self-employment taxes will be cut from 12.4% to 10.4%.
  • There is no phase-out (i.e., gradual reduction) of the payroll tax reduction for higher income workers. It goes to everyone who works, regardless of income. However, since Social Security taxes apply only to the first $106,800 in earnings in 2011, the benefit for high earners tops out at $2,136.
  • The payroll tax reduction in effect replaces the $400-per-worker tax break included in the 2009 stimulus bill. That break, called the Making Work Pay tax credit, provided a tax credit of 6.2% on the first $6,450 of a worker’s wages but was phased out for workers making more than $75,000 ($150,000 for couples). The Making Work Pay credit, which was billed as a way to stimulate the stalled economy, is widely thought to have had little if any success in that regard, in part because of the small amounts involved-$400 for individuals, $800 for couples. The new law’s payroll tax reduction, by contrast, provides a potentially much bigger tax break for taxpayers (up to $2,136 for individuals, $4,272 for couples). In addition, the benefits of the payroll tax reduction are distributed far differently than they were under the Making Work Pay credit, which was aimed primarily at low and moderate-income workers. For example, an individual making $100,000 in 2011 will be able to keep an extra $2,000 under the payroll tax reduction, but under the Making Work Pay credit (which was phased out for earnings over $75,000), the individuals’s tax break would have been zero.
  • The employer’s share of Social Security tax is not affected; it stays at 6.2%. Thus, the cost of hiring new workers isn’t directly affected by the payroll tax reduction.
  • The tax break only applies for one year, 2011-for now anyway. There will almost certainly be efforts to extend it beyond 2011, and I will keep you apprised of any developments in that regard.
  • The payroll tax reduction will cost the government an estimated $120 billion.
  • The payroll tax reduction will not affect the worker’s future Social Security benefit, because benefits are based on lifetime earnings, not the amount of tax paid by the worker into the Social Security system.

 

I hope this information is helpful. If you would like more details about the payroll tax reduction or any other aspect of the new law, please do not hesitate to call

 Ben R. Loggins
Certified Public Accountant
ben@logginscpa.com

 

 

President Signs Tax Relief Act

 

In addition to extending the Bush tax cuts, providing relief from the AMT, and cutting the payroll tax by two percentage points, the recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” (Tax Relief Act) extends a host of other important tax breaks for businesses and individuals. I’m writing to give you an overview of these key tax breaks that were extended by the new law. Please call our office for detailsof how the new changes may affect you or your business.

 

Individual tax relief

 

The following tax breaks for individuals that expired at the end of 2009 have been retroactively reinstated by the Tax Relief Act and extended through 2011:

 

  • The election to take an itemized deduction for State and local general sales taxes instead of the itemized deduction permitted for State and local income taxes.
  • The above-the-line deduction for qualified higher education expenses.
  • The $250 above-the-line tax deduction for teachers and other school professionals for expenses paid or incurred for books, certain supplies, equipment, and supplementary materials used by the educator in the classroom.
  • The increased contribution limits and carryforward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes.
  • The provision that permits tax-free distributions to charity from an Individual Retirement Account (IRA) of up to $100,000 per taxpayer, per tax year. Individuals also will be allowed to make charitable transfers during January of 2011 and treat them as if made during 2010.
  • The look-thru rule for certain regulated investment company (RIC) stock in determining the gross estate of nonresidents.
  • The increase in the monthly exclusion for employer-provided transit and vanpool benefits to equal that of the exclusion for employer-provided parking benefits.

 

In addition, the new law extends for an additional year (i.e., through 2011) the rule allowing premiums for mortgage insurance to be deductible as qualified residence interest.

 

Business tax relief

 

On the business side, the following business tax breaks that expired at the end of 2009 have been retroactively reinstated and extended through 2011 by the Tax Relief Act:

 

  • The research and development credit.
  • 15-year writeoffs for qualified leasehold improvements, and restaurant buildings (and certain improvements to such restaurant buildings).
  • 7-year writeoffs for certain motorsports racetrack property.
  • The employer wage credit for activated military reservists.
  • The active financing exception from the Code’s Subpart F rules for a controlled foreign corporation predominantly engaged in the conduct of a banking, financing, or similar business.
  • Look-through treatment of payments between related controlled foreign corporations.
  • The Indian employment credit.
  • The new markets tax credit.
  • Accelerated depreciation for business property on an Indian reservation.
  • The railroad track maintenance credit.
  • The special expensing rules for certain film and television productions.
  • The mine rescue team training credit.
  • The election to expense advanced mine safety equipment.
  • Expensing of environmental remediation costs.
  • The deduction allowable for domestic production activities in Puerto Rico.
  • The American Samoa economic development credit.
  • The rules exempting from gross basis tax and from withholding tax the interest-related dividends and short-term capital gain dividends received from a RIC by certain foreign persons (extended to apply to tax years of a RIC beginning before 2012).
  • The inclusion of a RIC within the definition of a “qualified investment entity” under the provisions of the Foreign Investment in Real Property Tax Act as codified in. Code Sec. 897.
  • The enhanced deduction for contributions of food and book inventories, and computer equipment for educational purposes.
  • A liberal rule for S corporations making charitable donations.
  • The special rules for interest, rents, royalties and annuities received by a tax-exempt entity from a controlled entity.
  • Empowerment zone tax incentives.
  • Renewal community tax incentives.
  • Tax incentives for investments in the District of Columbia.
  • The work opportunity credit (extended for four months (through the end of 2011)).
  • Qualified zone academy bonds.

In addition, the new law extends for an additional year (i.e., through 2011) the temporary exclusion of 100% of gain on the sale of certain small business stock.

 

 

Energy provisions

 

The following energy provisions were extended by the Act (through 2011):

 

  • The credit for manufacturers of energy-efficient new homes.
  • Incentives for biodiesel and renewable diesel.
  • The credit for refined coal facilities.
  • Excise tax credits and outlay payments for alternative fuel and alternative fuel mixtures.
  • The special rule to implement FERCs and State electric restructuring policy.
  • Suspension of the limitation on percentage depletion for oil and gas from marginal wells.
  • Grants for specified energy property in lieu of tax credits.
  • Provisions related to alcohol used as fuel.
  • The energy efficient appliance credit.
  • The credit for energy-efficient improvements to existing homes.
  • The 30% investment tax credit for alternative vehicle refueling property.

 

 

Disaster relief provisions

 

The following disaster relief provisions are extended through 2011:

 

  • New York Liberty Zone tax-exempt bond financing.
  • Increased rehabilitation credit for structures in the Gulf Opportunity Zone.
  • Low-income housing credit rules for buildings in Gulf Opportunity Zones.
  • Tax-exempt bond financing for the Gulf Opportunity Zones.
  • Bonus depreciation deduction applicable to specified Gulf Opportunity Zone extension property.

 

I hope this information is helpful. If you would like more details about these changes or any other aspect of the new law, please do not hesitate to call. 

Ben R. Loggins
Certified Public Accountant
ben@logginscpa.com