Herrington MacFarland & McLeod

Recent Tax Issues

Social Security and Medicare Tax for 2011

The 2011 employee tax rate for Social Security is 4.2%.

However, the empoyer tax rate for social security remains unchanged at 6.2%. The 2011 social security wage base limit is $106,800. The 2011 Medicare tax rate for both employers and employees remains unchanged at 1.45%. There is no wage base limit for the Medicare tax.

Employers should implement the 4.2% employee social security tax rate as soon as possible, but not later than January 31, 2011. After implementing the new 4.2% rate, employers should make an ofsetting adjustment in a subsequent pay period to correct any overwithholding of social security tax as soon as possible, but not later than March 31, 2011.

On another note, please be aware that the income tax witholding tables have also been adjusted for 2011 due to the expiration of the Making Work Pay credit on December 31, 2010.

Note:

Congress is current deliberating on whether to extend, expand or eliminate this temporary provision. We will update this page once a decision has been finalized.

FUTA TAX RATE DROPS JULY 1, 2011

June 27, 2011

Congress has announced that the 0.2% FUTA surcharge will not be extended beyond June 30, 2011. Employers have been required to pay a flat rate of 6.2% on the first $7,000.00 of each employee’s annual wages for FUTA. The 6.2% FUTA rate included a temporary 0.2% surcharge that was first added in the 1970’s. The FUTA rate will be reduced from 6.2% to 6.0% effective July 1, 2011. Employers will still receive the 5.4% credit for paying state unemployment on time, reducing the FUTA rate to .6% on wages paid up to the annual FUTA limit of $7,000.00.

This rate change is NOT retroactive to January 1, 2011 but picks up on any tax amounts to be paid after July 1, 2011

The IRS is currently revising Form 940 (Employer’s Annual Federal Unemployment (FUTA) Tax Return) to accommodate the two different FUTA rates for calendar year 2011.

IRS No Longer Mailing Out Forms 941

Beginning in 2011, the Internal Revenue Service no longer mails out Form 941 packets quarterly to taxpayers.

The forms are available for download on the IRS website in PDF format. The forms can be filled in, printed and saved by the use of the Adobe Acrobat Reader software which is available for free download from Adobe.

Here are the links for the current versions of the needed software and forms:

2011 Auto Mileage Rate Change Effective 07/01/2011

The Internal Revenue Service announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

The rate is 55.5 cents a mile for all business miles driven after July 1, 2011 and continues into 2012. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2011. The IRS normally updates the mileage rates once a year in the fall for the next calendar year. "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," said IRS Commissioner Doug Shulman. "We are taking this step so the reimbursement rate will be fair to taxpayers." While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage. The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. However, it decreases to 23 center per mile as of January 1, 2012. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The new rates are contained in Announcement 2011-40 on the optional standard mileage rates. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Disclaimer
The above explanations are for informational purposes only and may not contain all the specifics of the provisions discussed. Clients should contact us to determine if a specific item applies to your situation.

10320 Garland Road, Dallas, Texas
214-320-9888