2010 Tax Update

As 2009 comes to a close, we at Wouch, Maloney & Co., LLP extend our wishes for a happy and healthy New Year to you and yours. As always, we will be here for you in 2010 to help you plan for and deal with all of the changes in the tax laws and business climate. We would also like to bring to your attention opportunities to lower your taxes in 2009 and 2010.

Please contact us as soon as possible if you want to take advantage of tax breaks which expire at the end of 2009.

In addition, please view our tax facts update.

Payroll

  1. Social Security Tax and Medicare Tax
    For 2010, the taxable FICA wage limit will remain the same at $106,800. There continues to be no wage limit for Medicare tax for 2010. The withholding rates on both taxes remain the same for 2010; 6.20% for FICA and 1.45 for Medicare. Self-employment taxes for 2010 also remain at 15.3% on the first $106,800 of earnings and 2.9% on earnings above this amount.
  2. Federal Unemployment Tax
    The taxable wage base for federal unemployment tax purposes (FUTA) remains at $7,000 for calendar year 2010. The tax, which is an employer's tax (not withheld), remains at 8 mills (.008) on the first $7,000 of gross wages per employee per year.
  3. Federal Withholding Tax
    There are revised federal withholding tax tables for 2010 to adjust for the effects of inflation. Please see your federal circular "E" or your withholding charts (we have some available if you need them).
  4. Electronic Funds Transfer Requirements

    Federal - Businesses that paid $200,000 or more in aggregate federal employment tax and other tax deposits in the year ended December 31, 2008 are required to make tax deposits electronically starting January 1, 2010. Once required to make tax deposits electronically, businesses are required to deposit electronically for all future years even if aggregate tax deposits decrease below the threshold.

    Pennsylvania - For 2010, any single tax payment of $20,000 or more must be deposited electronically. This requirement applies regardless of the amount of prior year tax liabilities. If you have previously registered for electronic filing because you had made a payment of $20,000, you can still make payments by check if the payment amount is less than $20,000.

    New Jersey - Electronic tax depositing is required for 2010 if your total annual liability for a particular 2009 tax equaled or exceeded $10,000. For example, if you collected $11,000 in NJ sales tax in 2006, you are required to make tax deposits electronically in 2010. If in 2009, you collected $9,000 in sales tax and withheld $5,000 in NJ income tax from your employees' payroll, you are NOT required to deposit electronically (different taxes are not aggregated for NJ). If you are required to deposit electronically, then all taxes (sales tax, withholding tax, corporation income tax, etc.) must be deposited electronically. Please contact us if you require further clarification of these rules.

    All taxing jurisdictions impose penalties for failure to deposit electronically if you are required to do so. Please let us know if you need help getting started.

  5. Pennsylvania Withholding Tax
    The Pennsylvania withholding tax rate remains at 3.07% for 2010. Effective June 1, 2010 employers will be subject to a new deposit schedule based on annual withholding (instead of quarterly as in the past), as indicated below:                        Annual Withholding                           Deposit Schedule
                     Less than $1,200                               Quarterly
                     $1,200 - $4,000                                   Monthly
                     $4,000 - $20,000                                Semi-Monthly
                     $20,000 or more                                 Weekly
    Weekly depositors will need to deposit the employer the employer withholding by Friday for payroll dates that fall on a Saturday, Sunday, Monday or Tuesday. For payroll dates that fall on a Wednesday, Thursday or Friday the deposit will be due the following Wednesday.
  6. Pennsylvania Unemployment Tax & Withholding
    For 2010, the $8,000 taxable wage base per employee remains the same. However, the employee withholding rate for 2010 remains the same at a rate of .8 mills (.0008) from .6 mills (in 2009). Remember, the .0008 rate applies to gross payroll paid in 2010 (the $8,000 limit does NOT apply to the withholding requirement). The amount withheld is remitted along with the employer's share of tax with the quarterly filing of the Pennsylvania UC-2 return.
  7. Pennsylvania Minimum Wage
    The Pennsylvania minimum wage rate remains at $7.25 per hour
  8. New Jersey Unemployment Tax & Withholding
    The wage base for both New Jersey employer unemployment tax and employee tax withholding has been increased to $29,700 per employee for 2010. The combined employee withholding rate has increased to 1.045% for 2010. This increase is to fund the Family Leave Insurance program instituted in 2009.
  9. New Jersey Individual Withholding Taxes
    The New Jersey individual income tax rates were temporarily increased in 2009 for certain higher-income taxpayers. Taxpayers with incomes between $400,000 -$499,999 were subject to 8%, $500,000-$999,999 were subject to 10.25% and $1,000,000 or greater were subject to 10.75%. The individual income tax rates for 2010 will revert back to the rates previously in effect before the temporary increase which ranged from 1.5% to 9.90% based upon income levels.
  10. NJ Minimum Wage
    The New Jersey minimum wage rate remains at $7.25 per hour.
  11. FL Minimum Wage
    The Florida minimum wage rate remains at $7.25 per hour.
  12. Philadelphia Withholding Tax
    Effective for compensation paid on or after January 1, 2009, the withholding tax rate will decrease to 3.9296% (previously 3.93%) for residents of Philadelphia and to 3.4997% (previously 3.50%) for non-residents. Please remember that all Pennsylvania employers are required to withhold Philadelphia wage tax for their employees who are Philadelphia residents.
  13. PA Local Services Withholding
    For 2010, the method of withholding the Local Services Tax (formerly known as the Emergency and Municipal Services Tax) remains the same. This tax is levied by certain (not all) municipalities within the Commonwealth of Pennsylvania. The tax is withheld at a rate of $1 per week (or its equivalent in the case of bi-weekly, semi-monthly or monthly payroll periods). Please contact our office if you are not certain whether your municipality levies a Local Services Tax.

Corporate

  1. Pennsylvania Corporate Taxes
    The Pennsylvania corporate income tax rate remains unchanged at 9.99% for the 2010 tax year. Although the capital stock tax rate was due to decrease in 2009, legislation was enacted during 2009 which maintains the 2008 rate of 2.89 mills for years 2009, 2010 and 2011. The phase out of the capital stock tax is set to resume in 2012 with gradual rate decreases.
  2. New Jersey Corporate Taxes
    The New Jersey corporate income tax rate remains unchanged at 9% for 2010 with an additional 4% surtax. The surtax is based upon the amount of NJ corporation income tax incurred by a company; it is not an additional 4% tax on income. Corporations with taxable income of $100,000 or less are taxed at reduced rates.

    The calculation of the NJ minimum tax amount remains unchanged. The amount ranges from $500 to $2,000 depending on gross receipts. The 4% surtax also applies to the minimum tax. Taxpayers with NJ gross receipts less than $100,000 qualify for the $500 minimum tax, while taxpayers with NJ gross receipts of $1 million or more pay the $2,000 minimum tax. The following is a table summarizing this tax:

New Jersey Gross Receipts Minimum Tax
Less than $100,000 $500
Equal to or greater than $100,000, but less than $250,000 $750
Equal to or greater than $250,000, but less than $500,000 $1000
Equal to or greater than $500,000, but less than $1,000,000 $1500
Equal to or greater than $1,000,000 $2000

The carry-forward period for NJ Net Operating Losses has been extended from 7 years to 20 years for losses incurred in tax years ending after June 30, 2009.

Federal Income Tax Changes

Several Federal tax acts were signed into law during 2009. The primary purpose of the new laws was to stimulate the economy and encourage energy conservation through the use of various tax deductions and credits. Potential tax saving opportunities from these new laws is discussed below .

  1. Up to $250,000 of certain new business property may qualify for a direct write-off, instead of depreciation, for 2009. This tax break is set to drop back to $134,000 in 2010. The deduction is phased-out once total asset purchases become greater than $800,000 for 2009. The phase-out threshold is set to decrease to $530,000 for 2010.
  2. Taxpayers may immediately deduct 50% of the cost of qualified new business property placed in service between January 1, 2009 and December 31, 2009 when calculating their depreciation expense. Unfortunately, Pennsylvania and New Jersey do not recognize the additional bonus depreciation deduction. For state income tax purposes, assets on which Federal bonus depreciation was taken must be depreciated using normal depreciation rates.
  3. The five-year carryback period of net operating losses (NOLs) has been extended to include 2009 NOLs and expanded to apply to most businesses. This change also provides an opportunity for those taxpayers who were not able to qualify for the five-year carryback period in 2008 to elect to do so now.
  4. A tax credit for qualifying investments in energy conserving property which expired for year 2008 has been reinstated and expanded for property placed in service in 2009 and 2010. The overall $1,500 credit (previously $500) consists of 30% of the costs associated with the materials and installation of energy efficient exterior doors, windows, qualifying heat pumps, central air conditioners, water heaters, or furnaces. Taxpayers are still eligible to take advantage of this credit even if the $500 lifetime maximum was previously utilized. Purchases of energy efficient appliances (washers, refrigerators, dishwashers etc.) do not qualify for this credit.
  5. Congress enacted an expanded "AMT patch" to insulate middle-income taxpayers from AMT. The Alternative Minimum Tax (AMT) was originally designed to insure that wealthy individuals could not completely avoid paying income tax; however, over the years, millions of taxpayers with moderate incomes have been forced to pay AMT. Nonrefundable personal credits, including the dependent care credit and education tax credit, may now be used to reduce the AMT liability. Also, the AMT exemption amounts were temporarily increased to $46,700 for single filers and $70,950 for joint filers.
  6. Effective January 1, 2010, the standard mileage rate for the business use of a car is 50 cents per mile. This is a decrease from the 55 cents per mile rate in effect for year 2009.

    DO NOT FORGET THESE ADDITIONAL SAVINGS OPPORTUNITIES

      -- The $100,000 income limit on the conversion of Traditional IRAs to Roth IRAs has been eliminated effective for taxpayers beginning after December 31, 2009. Previously excluded high-income taxpayers may now be eligible to convert their traditional IRAs to Roth IRAs. For the tax year 2010 only, the tax on the conversion may be deferred over a two year period. Once converted, no income tax will ever be due again on withdraws. We can help you determine if a conversion is right for you.

      -- Do you have any outstanding Pennsylvania tax obligations? You may be eligible for a significant reduction of your balance through the Pennsylvania Tax Amnesty Program. The Department of Revenue will waive 100% of the penalties and 50% of the interest due if the tax and remaining interest are paid during the dates of the program (April 26, 2010 to June 18, 2010). Amnesty is available to businesses and individuals for all tax types administered by the Department. Please contact us to determine how this program can help you or your business.

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