ELECTRONIC FILING
As of last year, employers were required to deposit federal taxes (including employment tax, excise tax, and corporate income tax) using the Electronic Federal Tax Payment System (EFTPS). If you have not yet enrolled in the system, you may go online to http://www.eftps.gov/ and follow the instructions to set up an account. If you have any questions or difficulties, please call our office for assistance.
California has its own version of e-services which allows employers to manage their payroll tax accounts, file returns, and make payments all online. E-filing returns and making payments electronically for California is not yet mandatory for all employers, but we urge you to begin using the online system before it becomes so. You may enroll in the EDD online system by visiting: http://eddservices.edd.ca.gov/index.html . To sign up for online payments with the Franchise Tax Board, you may visit this link: http://secure.paycalifornia.com/soc/index.htmlclick on California Franchise Tax Board and follow the instructions. Or, you may visit the Franchise Tax Board website at http://www.ftb.ca.gov/, and click on Online Services.
PAYROLL TAX RATES FOR 2012
SDI (State Disability Insurance and Paid Family Leave):
SDI for 2012 is 1% of gross wages capped at $95,585. Total SDI tax withheld is not to exceed $955.85. Amounts are to be withheld from employee’s wages.
SWH (State Withholding):
Please refer to the charts in the 2012 California Employer’s Guide (DE-44). Amounts are to be withheld from employee’s wages.
SUI and ETT (State Unemployment Insurance and Employment Training Tax):
State SUI rates are assigned individually to each employer based on historical data. The EDD has already mailed notification (Form DE-2088) of your 2012 SUI and ETT rates. If you have not received your notification, you may call our office or contact the EDD directly. SUI withholding applies to gross wages limited to $7,000 per employee. The employer pays these taxes. Employers subject to ETT pay .1% of gross wages up to $7,000. Total tax is not to exceed $7.00.
FICA (Federal Insurance Contribution Act):
Calculating FICA tax in 2012 will be a challenge. Please feel free to call our office with any questions you may have. As of the date of this letter, rates are as follows:
2012 (Jan-Feb) Medicare - Social Security - Total
Employee 1.45% 4.2% 5.65%
Employer 1.45% 6.2% 7.65%
Self-Employed 2.9% 10.4% 13.3%
However, employees must keep in mind that if their wages exceed $18,350 in the first two months of 2012, and if the payroll tax reduction is not extended for the remainder of 2012, an amount equal to 2% of those excess wages will be recaptured on their 2012 individual tax return.
2012 (Mar-Dec) Medicare - Social Security - Total
Employee 1.45% 6.2% 7.65%
Employer 1.45% 6.2% 7.65%
Self-Employed 2.9% 12.4% 15.3%
The wage limit for Social Security for the calendar year 2012 is $110,100. There is no wage limit for Medicare. The employee portion is to be withheld from the employee’s wages.
FWH (Federal Withholding):
Please refer to the charts in the 2012 Federal Employer’s Tax Guide Circular E. Amounts are to be withheld from employee’s wages.
FUTA (Federal Unemployment Tax Act):
2012: The standard FUTA rate is 6.0% of gross wages up to $7,000 per employee. Employers in most states receive a “normal credit” of 5.4% against the rate, resulting in a net tax rate of 0.6%. However, some states have taken Federal Unemployment Trust Fund loans to keep their unemployment insurance benefit programs solvent during recent periods of extended high unemployment. As a result, these states (which include California) are facing a .3% reduction to their FUTA credit amount for 2012. Though the final legislation regarding the credit reductions has not been released we are anticipating that it will pass and the credit reduction will stand.
The anticipated FUTA rate for 2012 is 0.9% of gross wages up to $7,000 per employee. The employer pays this tax.
Note regarding 4th Quarter 2011 FUTA Liability: In November 2011, The FUTA credit reduction was passed that retroactively increased the FUTA rate to be beginning of 2011 as follows:
• Wages paid between January 1, 2011 and June 30, 2011 are liable at the rate is 1.1% on the first $7,000.
• Wages paid between July 1, 2011 and December 31, 2011 are liable at the rate is .9% until the employee’s gross reaches $7,000. Limited to a total of $77 per employee for the year.
Any underpaid 2011 FUTA is due by January 31, 2012 with the fourth quarter FUTA deposit. We realize this is confusing; you may feel free to call our office for assistance in calculating the 2011 FUTA liability.
FEDERAL AND STATE TAX DEPOSIT REQUIREMENTS
Under the federal deposit rules, an employer’s deposit status is determined by the tax liability from the annual “look back” base period of July 1, 2010 through June 30, 2011. In general, employers must deposit federal income tax withheld and both the employer and employee Social Security and Medicare taxes monthly or semi-weekly with the following exceptions: If tax liability is less than $2,500 for the entire quarter, pay with the quarterly return. If an employer accumulates tax liability of $100,000 or more, deposit the next business day. If this happens the employer becomes a semi-weekly depositor for the remainder of the calendar year and the following calendar year.
• MONTHLY – If the accumulated tax liability is less than $50,000 for the annual look back base period, employers are required to deposit employment taxes on payroll checks issued during the month by the 15th day of the following month. This method will also be used for any new employers since their look-back period is considered to be zero.
• SEMI-WEEKLY – If the accumulated tax liability is greater than $50,000 for the annual look-back base period, employers are required to deposit employment taxes on payroll checks issued on Wednesday, Thursday, or Friday by Wednesday of the following week. Deposit employment taxes on payroll checks issued on Saturday, Sunday, Monday, or Tuesday by Friday of the same week. Please note: the term semi-weekly used by the Internal Revenue Service does not mean every two weeks. Please refer to the specific deposit days above.
• FUTA – Calculate FUTA quarterly for deposit purposes. If the FUTA tax liability for a quarter is $500 or less, the amount may be carried forward and added to the liability in the next quarter. If the FUTA tax liability for any quarter is over $500 (including the amounts carried over from earlier quarters) the tax must be deposited using the EFTPS system. Do not combine this payment with the Federal Withholding and Social Security Taxes. The payment is due by the last day of the first month that follows the end of the quarter.
• SUI, ETT, SDI, AND STATE WITHHOLDING - In general, SDI and state withholding deposits should be made on the same day as the federal deposit. SUI and ETT deposits are due quarterly. However, for normal quarterly depositors, if more than $350 of State withholding has been accumulated by the end of a quarter, then a deposit must be made by the 15th of the first month that follows the end of the quarter. Recently California has made it mandatory for some employers to make deposits by EFT. Mandatory EFT depositors will be notified by the EDD by October 31, prior to the year of mandatory EFT participation. Employers not depositing by EFT should use tax deposit coupons (Form DE88) and submit them directly to the Employment Development Department. All state tax payments due must be indicated on tax deposit coupons.
Once again, if you are using the Form DE88 coupon, we do strongly urge you to sign up and begin depositing by EFT before the state makes it mandatory for all employers (see page 1 of this letter).
Employers are required to furnish each employee, semimonthly or at the time of each payment of wages, an itemized statement showing gross wages earned, total hours worked by the employee, all deductions, net wages earned, inclusive dates of the period for which the employee is paid, the employee's name and Social Security number, the name and address of the legal entity that is the employer, and all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate (from California Labor Code, section 226). Visit http://www.leginfo.ca.gov/calaw.htmlto view the full text of the Labor Code.
HIRING
Employers are required to keep certain documentation on file for each new employee hired. This documentation includes Immigration and Naturalization Service Form I-9 and an Employee’s Employment Eligibility Verification Form. Additionally, each new employee must complete the 2012 Form W-4. All employers are required to report new hires on form DE34, California New Employee Registry, within 20 days of their start-of-work date. If you have any questions you may contact our office or the New Employee Registry Hotline at (916) 657-0529.
For current employees, the Form W-4 currently on file remains in effect until the employee submits a new one. Any employees who claimed “exempt” from withholdings must file a new Form W-4 each year by February 15.
Employers can claim a maximum $1,000 increase to the general business credit for certain retained workers hired after February 3, 2010, and before 2011.
REPORTING
All employers who pay wages subject to income tax withholding (including withholding on sick pay and supplemental unemployment benefits) or Social Security and Medicare taxes must file a quarterly Form 941, Employer’s Quarterly Federal tax Return.
Sole proprietors filing Form 941 for business employees, may include taxes for household employees on the Form 941. Otherwise, Social Security, Medicare taxes, and income tax withholding for household employees must be reported on Schedule H (Form 1040), Household Employment Taxes.
The Division of Labor Standards Enforcement has useful information on their website and is a good resource for general labor code information. Their website is: http://www.dir.ca.gov/dlse.
Employers may be required to withhold a different amount of California Personal Income Tax (PIT) on supplemental wages and bonuses that you give to your employees. Please contact our office if you have any questions about the withholding requirements.
INDEPENDENT CONTRACTORS
There have been many recent changes to the rules regarding independent contractors. If you have independent contractors that work for you on a regular basis we recommend that you contact our office for additional details.