The Payroll Tax Holiday Will Last (at Least) Another Two Months

The “payroll tax holiday,” which was scheduled to end on December 31, 2011, was extended by Congress through the end of February. But with partisan politics playing a major role as national elections loom in 2012, the long-term outcome is far from certain.

New “Recapture” Provision     Under the terms negotiated by Congress, the new law also includes a new “recapture” provision, which applies only to employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).     This additional tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax will be payable in 2013 when the employee files his or her 2012 tax return. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS stated it will monitor the situation in case a new law changes the recapture provision.     According to the IRS, it will issue additional guidance as needed to implement the two-month extension. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012, is due April 30, 2012. Two More Provisions in the New Law 1. Emergency federal benefits for the unemployed, which were scheduled to expire on December 31, were extended for two months. 2. Medicare payments to physicians, which were scheduled to be reduced 27 percent after December 31, will not be cut.

For the time being, let’s look at the way things used to be and the way things are now.

The way things used to be: There are two separate components of the federal payroll tax known as FICA (Federal Insurance Contributions Act) tax. The first portion, the 6.2 percent OASDI (Old Age, Survivors and Disability Income) portion, applies to amounts up to the annual “wage base” which is adjusted for inflation. The adjusted wage base for 2011 is $106,800 (increasing to $110,100 for 2012). In addition, the 1.45 percent HI (Hospital Insurance) portion of the tax applies to all wages. Thus, the FICA tax on amounts up to the wage base are taxed at a 7.65 percent rate.

Both the employee and the employer must pay FICA tax. Self-employed individuals effectively pay both shares of the tax, but they may deduct half of the tax payments on the income tax return for the year.

The way things are now: Under a tax law passed last year, the usual 6.2 percent OASDI rate for employees is reduced by 2 percent. A comparable tax break is available to self-employed individuals. However, employers aren’t eligible for any reduction. For employers, the 6.2 percent OASDI tax rate continues to apply to amounts up to the wage base.

The amount an employee saved in 2011 depended on the amount of his or her wages. For example, a worker earning $50,000 saved $1,000 (2 percent of $50,000) for the year. Someone earning $100,000 saved $2,000 (2 percent of $100,000). The maximum savings was $2,136 (2 percent of $106,800).

The payroll tax cut reduction was supposed to be in effect for 2011 only. But toward the end of the year, lawmakers began arguing about extending it for another full year. Political bickering ensued about how to finance the tax cut — through a new tax on wealthy Americans or through spending cuts.

On December 23, finally Congress passed a law extending the payroll tax cut through the end of February. The law is aptly named the Temporary Payroll Tax Cut Continuation Act of 2011.

Congress Will Revisit the Issue Soon

Therefore, if the tax holiday is going to last throughout 2012, Congress will have to take up the issue again when they get back to Washington after the holidays. Absent any new legislation, the OASDI tax rate for employees will revert to the 6.2 percent level on March 1, 2012 on wages up to $110,100.

So be aware that payroll tax withholding could still change in March. Consult with your tax adviser if you have questions about your situation or the impact on your business or organization.

Choosing the Right Legal Form for Your Business

Evaluate Your Choices

Choosing the appropriate legal form for a business is one of the first issues most entrepreneurs face. It is an important decision at the formation stage and also as a business grows. Sole proprietorships are generally the easiest. Corporations offer some different advantages, but often with additional complexity.

This article addresses some of the pros and cons of different types of legal structures for businesses. Even if your enterprise has been in existence for a while, it may be time to review your options. There can be many complexities in determining the best legal structure and a qualified attorney may be of value when evaluating your choices.

At a minimum, consider the following issues when evaluating the business structure decision:

• Number of owners;
• Personal liability of owners;
• Tax treatment;
• Control and management; and
• Capital contributions.

Protecting Your Financial Identity

No one expects it to happen to them. You think you’re careful with financial information, so how could someone steal your identity?

Very little information is needed to steal your identity — just your name, Social Security number, and birth date. Armed with that information, thieves can obtain credit cards, get loans, purchase a car, or apply for a job — all in your name.

Where do thieves get this information? Many people have their checks printed with their Social Security number, driver’s license number, and birth date. Stealing your mail often results in something with your Social Security number on it. A call to a credit bureau, posing as a prospective landlord, employer, or lender, often yields information. Computer-literate thieves can obtain information over the Internet.

If you are a victim of identity theft, inform the three major credit bureaus so a fraud alert can be placed on your account. That way, no new credit will be issued without first contacting you. Also file a report with the police in case a creditor wants proof of the crime. Make sure to file the Federal Trade Commission’s ID Theft Affidavit, which advises many companies and organizations about the theft.

While you typically won’t have to pay for anything charged by an identity thief, you will have to work to restore your credit and to ensure all fraudulent accounts are closed. That can be time consuming as well as expensive.

SEC Announcement

FCT is pleased to announce the expansion of its SEC practice

FCT is a member of the PCAOB (Public Company Accounting Oversight Board), an organization established by Congress to oversee the audits of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports.

Our firm has been assisting public companies with their annual audits and quarterly reviews for many years, and we have developed a keen set of skills and passion in this discipline.  

We have been a member of the PCAOB since its inception, and are proud to report that we have never received any negative comments on our audit performance nor any criticisms of our Firm’s quality control system resulting from their inspections.

Although we are a local firm, we also are able to service large multi-national organizations due to our affiliation with Nexia International, a global organization comprised of over 150 CPA firms and consultants located in almost every major city around the world.

We will be providing in our biweekly newsletter, articles addressing hot topics and current accounting developments related to public companies.  We always welcome your feedback on relevant issues.  Please send your comments to ronf@fctcpa.com.

Please note that some of the services that we offer our SEC clients are follows:

• 10K AUDITS
• 10Q REVIEW
• REVERSE MERGERS/SHELLS – ASSISTANCE/CONSULTING/AUDITS
• S-1 REGISTRATIONS – ASSISTANCE/CONSULTING/AUDITS

For further information about our firm, please refer to our web site at www.fctcpa.com/SEC

Saving Property Tax Dollars

In Florida, most property owners should have received their property tax assessments from their respective counties by now.

If you believe that your real property or personal property has been assessed too high, you can possibly get a reduction in your property tax bill.

You will have to file a property tax petition with the County Court by approximately mid-September. You should check with your individual County for their exact deadline. There is a small filing fee (usually about $15).

There are specialized companies who we work with, who may handle your case for you, and many will work on a contingency fee which would be a percentage of the tax savings.

If you have any questions, feel free to E-mail or call me at JoelG@fctcpa.com or 954-315-7180. Remember, time is of the essence, since there is a deadline.

Tax Reminders for College Students

It’s That Time Again

With the summer nearly over, many a college student is in the process of getting their bags packed for a new semester at university. Others may be working and returning to college for career purposes. But one thing is for certain – the rising cost of getting an education is making everyone anxious. So, it’s wise to get a handle on the IRS tax benefits and implications of going off to the hallowed halls of college.

Here are just a few items to remember:

1. Don’t Forget Educational Tax Credits – The IRS allows for credits on your income tax through the American Opportunity Credit or Lifetime Learning Credit, but the credits are based on income levels. There’s also a deduction for tuition and fees, but you cannot take the education credit and a deduction for tuition and fees for the same student in the same year. Once you determine whether or not you qualify for both, then you can determine which one would be better to take. Call the IRS and your tax advisor for help and clarification. The credits or deduction can be taken for yourself, your spouse or your dependent. But, be warned – you can’t claim this deduction or credit if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return.

2. Understanding Scholarships and Fellowships – If you or your child is fortunate enough to receive a scholarship or fellowship for higher education (undergraduate and graduate), there are certainly tax issues to consider. According to the IRS, scholarship and fellowship money is tax free if you are a degree candidate at an eligible educational institution and the money is used for qualified education expenses. Qualified expenses are tuition and fees, books, supplies and equipment required for a class. Surprisingly, qualified expenses for scholarships and fellowships DO NOT include room and board.