Payroll and Information Returns 2008 (For Your Bookkeeper)

Vollmer, Daniel, Gaebe & Grove, LLP provides payroll tax compliance and consulting services to many of our clients. The rules in this area are complex and change frequently.

To assist our clients and their bookkeeping and payroll staff in complying with these rules, we prepare the following annual summary of payroll related information.

We hope you and your staff find this information helpful. If you have any questions, or wish to discuss your specific situations, please contact us.

State Reporting requirements exist for all businesses to report all individuals who are Independent Contractors and who perform more than $600 of services per year. Use Form DE 542, available from the Employment Development Department at www.edd.ca.gov or call (916) 322-2835. Penalties may be assessed for failure to comply.

Employers are required to deposit federal income tax withheld and FICA liability under a monthly, semi-weekly, or $100,000 one day rule. The Internal Revenue Service will notify the employer annually of its deposit status based on its previous deposit history. The monthly deposit rule requires employment taxes to be deposited by the 15th day of the following month. Semi-weekly depositors are required to deposit employment taxes on Wednesdays or Fridays, depending on which day wages are paid. The $100,000 one day rule requires a deposit the day after an accumulated employment tax liability exceeds $100,000.

Beginning with returns for calendar year 2006, some employers with small payrolls, including government employers, will file Form 944, Employers Annual Employment Tax Return, instead of filing Form 941 each quarter. Generally if you have annual liability of $1,000 or less for withheld income tax, social security and Medicare tax, you are affected by this change in filing requirement and you will be notified by the IRS early in the year. California requires a deposit when state income tax withholding exceeds $350 for monthly depositors or $500 for semi-weekly depositors.

Taxpayers whose total federal deposits of employment tax, excise tax and corporate income tax during the calendar year 2006 exceeded $200,000 are required to deposit all depository taxes by Electronic Funds Transfer (EFT) during 2008. Penalties for not complying will be assessed beginning January 1, 2002. California follows the same requirements; however, the threshold is $20,000 of total payroll related deposits.

Federal Unemployment (FUTA)(Employer) net tax rate for 2007 is 0.8% on the first $7,000 of subject wages and 2008 is expected to remain the same. Special rules apply to agricultural employers.

State Disability Insurance (SDI) tax rate for employees is 0.6% (includes the Paid Family Leave Tax) on the first $83,389 of subject wages for 2007 and 0.8% (includes the Paid Family Leave Tax) on the first $86,698 of subject wages for 2008.

State Unemployment Insurance (Employer) the rate schedule in effect for 2008 provides UI contribution rates from 1.5% to 6.2%. The taxable wage limit is $7,000 per employee. The UI rate for new employers is 3.4% for up to three years.

Household Wages paid for domestic services may be subject to employment taxes. Withholding of federal and state income taxes is generally not required. For 2007, wages are subject to FICA taxes when they exceed $1,500 annually and subject to FUTA taxes when they exceed $1,000 annually. State payroll taxes may be required if wages exceed $750 in a calendar quarter.

Worker's Compensation Insurance Coverage for most employees is mandatory in California. Review your policies with your servicing insurance agent for proper coverage.

Information Returns (Form 1099) are required for certain types of payments of $600 or more ($10 for certain interest paid) per year made by a trade or business (including farmers) to an unincorporated entity. Penalties apply to (1) not filing or late filing of an information return, (2) not including a payee's identification or social security number on an information return, or (3) not providing copies of information returns to payees. Magnetic media filing requirements apply if you have 250 or more W-2's or 1099's. If the payee fails to furnish the proper name and number, a 28% withholding requirement will apply.

Employment Eligibility Verification (Form I-9) is required of all employees and must be retained by all employers for the Immigration and Naturalization Service. Penalties may be assessed for failure to comply.

State Reporting requirements exist for all employers to report all new employees on form DE 34 to the EDD. Penalties may be assessed for failure to comply.