December 2007

Dear Client:

It is time to update your payroll files and review your records for Form 1099 requirements.

The 2008 payroll wage bases and withholding rates are as follows:

Best wishes for a happy and prosperous 2008.

Tate, Propp, Beggs & Sugimoto
An Accountancy Corporation

Attachment

SELF-EMPLOYMENT TAX

A tax of 15.3% is imposed on net earnings from self-employment. This rate consists of a 12.4% component for old age, survivors, and disability insurance (OASDI) and a 2.9% component for Medicare. For 2008 the maximum earnings base is $102,000 for OASDI. There is no earnings base for Medicare. One-half of the tax is deductible in computing adjusted gross income on the individual income tax return.

FEDERAL AND STATE REQUIREMENTS FOR DEPOSITS

If an employer's federal income tax withholding and FICA liability is $50,000 or less during the look-back period, the employer is categorized as a monthly depositor. For the year 2008, the look-back period is July 1, 2006 to June 30, 2007. When the tax liability is greater than $50,000, the employer is designated a semi-weekly depositor. Once a depositor's status is determined, that status remains the same for an entire calendar year. Therefore, a semi-weekly depositor will continue that status even if the annual payroll taxes diminish below $50,000. Also, an increasing payroll tax situation will not change a monthly depositor's status to semi-weekly until the following calendar year. However, in all cases, if an employer has total employment taxes of $100,000, the next-day rule will apply IMMEDIATELY. Use the following rules as appropriate:

W-2 PENALTIES

The IRS will penalize employers for each mismatched W-2. Mismatched W-2s are those where the name and social security number do not match IRS files. Social Security Administration will verify social security numbers at no charge by calling (800) 772-6270. Online verification is available to employers who register with the Social Security Administration. Go to www.socialsecurity.gov/bso/bsowelcome.htm to register. A $50 penalty per mismatched W-2 will be assessed.

IRS requires employers who file 250 or more W-2s to file electronically. Penalties will be assessed for failure to file appropriately.

FORM 1099

Form 1099 needs to be hand-delivered or mailed first-class to the payee by January 31, 2008, and must be sent, along with transmittal Form 1096 for each different type of Form 1099, to the Internal Revenue Service by February 29, 2008. The State of California does not require a copy of Form 1099. Be sure the correct taxpayer's identification number is on the form. In the case of individual persons doing business, be sure the individual's name, not business name, is listed first. The "Account Number Box" – is required by the IRS to have a unique account number unique to each payee (not a social security or tax ID number) if you have multiple accounts for one recipient for same type of information return. Also, the IRS requires the payer's telephone number on all 1099s. The completion of a Form W-9 by the recipient will preclude penalty situations for erroneous taxpayer's identification information. The regulation exempting corporations will not apply to payments made to attorneys, law firms, or medical corporations. Remember, payments to employees such as Christmas bonuses, unaccounted for reimbursements or allowances for travel and car expenses should not be reported on a Form 1099, but should be included on the Employee's Form W-2 Wage and Tax Statement.

MINIMUM WAGE

California minimum wage becomes $8.00 per hour effective January 1, 2008 with the exception that in San Francisco the minimum wage of $8.50 per hour remains unchanged.

FEDERAL STANDARD MILEAGE RATE

For the year 2008, the federal standard mileage rate increases to 50.5¢ per mile.

NEW HIRE REPORTING

All California employers are required to report the name, address and social security number of all newly hired or rehired employees. This information must be sent to the California Employment Development Department within 20 days of hire or rehire.

INDEPENDENT CONTRACTOR REPORTING

All California businesses are required to report  independent contractors on Employment Development Department Form DE-542.  An independent contractor is an individual who is not an employee and who receives compensation or executes a contract for services performed. The obligation to report occurs 20 days from either 1) entering into a contract for $600 or more, or 2) when payments of at least $600 have been made. The Employment Development Department (EDD) reporting form is Form DE-542. Please contact us if you have additional questions or require forms. You can also visit the EDD Web Site at www.edd.ca.gov or call EDD at 916-657-0529 for information.

ELECTRONIC FEDERAL TAX PAYMENT SYSTEM (EFTPS)

Employers who had at least $200,000 in aggregate federal tax liability or elected to make deposits using EFTPS will be subject to EFTPS deposit requirements. When an employer is subject to EFTPS deposit requirements, ALL federal tax deposits must be made via electronic transfer (employment tax, corporate income tax, excise tax, etc.) and are included in aggregate for the federal tax computation for determining deposit requirements. Allow either one to two days for processing depending upon the EFTPS method. Employers may voluntarily enroll. Many find using EFTPS to be easier and more convenient. Enrollment forms (Form 9779) can be obtained by calling (866) 528-0687, online at www.eftps.gov, or by calling our office for assistance.

CALIFORNIA NOTICE FOR ELECTRONIC FUNDS TRANSFER

The State of California's contracted bank for processing EFT transactions will change on January 1, 2008, from Union Bank of California to Bank of America.  Automated Clearing House (ACH) credit filers remitting EFT payments with a settlement date of January 1, 2008 and after, must contain EDD's new bank account number and routing transit number in the entry detail record. Union Bank of California will return all transactions that settle on or after January 1, 2008.
Go to www.edd.ca.gov or call EDD at (916) 654-9130.

CALIFORNIA PAID FAMILY LEAVE (PFL)

The PFL program is funded through worker contributions to the disability insurance program.   Employees have a one week wait period, but then may be eligible for six weeks paid family leave.  Please contact EDD at (916) 657-0529 for specifics as to what constitutes family, qualifying health conditions, benefit duration and coordination with other programs.

NEW FORM 1-9 REQUIRED

Employers are required to start using the new Form I-9 effective December 27, 2007. Failure to do so will be subject to applicable penalties.  The new form has the revision date of  06/05/07 in the lower right hand corner.

We anticipate and look forward to serving you in the coming year.

Tate, Propp, Beggs and Sugimoto