2012 Tax Changes for Businesses

Time for Change

2012 Tax Changes for Businesses

There have been quite a few changes made in the tax code for 2012 that you will find listed below.

Payroll Tax Cut

The Middle Class Tax Relief and Job Creation Act of 2012 extended a 2 percentage point payroll tax cut to the end of 2012. This effectively lowers the social security tax withholding rate to 4.2 percent from the normal 6.2 percent. Workers can expect to receive larger paychecks as long as this continues to be in use.

If you happen to be self employed your social security tax rate has been lowered from 12.4 percent down to 10.4 percent. This 10.4 percent is applied to the first $110,100 of wages and self employment income that is generated by an individual.

To learn more about the payroll tax cut check out:

Payroll Tax Cut Temporarily Extended into 2012

Cell Phones Provided by an Employer

If your employer provides you with a cell phone, there are certain times that the value of that cell phone will be exempt from the income that you receive. If the phone is provided primarily for non-compensatory business reasons then the value of the phone would not be included in the employee’s income.

Non-compensatory Business Purposes

Some examples of what constitutes non-compensatory business purposes include:

A need by the employer to contact an employee at all times in case of a work related emergency
A need by the employee to speak to clients outside of the normal work schedule and happen to live in a different time zone
A need by the employee to speak to clients when the employee is not located in the office

Work Opportunity Credit Expansion

In November, the 3% Withholding Repeal and Job Creation Act was signed into law, this law amended the work opportunity credit and gives employers the ability to take a larger credit than in prior years for hiring certain qualified veterans.

The work opportunity tax credit gives employers the ability to get a tax credit against a percentage of qualified first year wages up to $6,000 per employee for hiring specific types of employees. This can vary depending on the type of employee that you actually hire.

For example, if you were to hire a qualified veteran you would be able to take a tax credit up to $12,000 of qualified first year wages instead of $6,000.

Usually you would be able to take 40% of the first year wages, this would allow an employer to take a maximum tax credit of $2,400 or $6,000 first year wages times 40%.

Remember that depending on the type of employee you hire will determine the maximum amount of income you will be able to use for the tax credit. If you would have hired a qualified veteran, you would have a maximum credit of $4,800 of $12,000 of qualified first year wages times 40%.

Be aware that the credit actually drops down to 25% if the employee works at least 120 hours by less than 400 hours for the employer.

To learn more about the work opportunity credit expansion check out:

Small Businesses & Self Employed Expanded Work Opportunity Tax Credit Available for Hiring Qualified Veterans

Withholding on Government Contractors

The 3% Withholding Repeal and Job Creation Act was signed into law in 2011 and basically discontinues the requirement to withhold 3% on government contractor’s payments.

Annual Employment Return Regulations Changed

Employers that request to take part in the Form 944 program must ask permission from the IRS before they can actually file Form 944. Understand that once you are given confirmation by the IRS to begin filing Form 944, you will not be permitted to file Form 941 until the IRS notifies you that your filing requirements have changed and you may begin filing Form 941. This can happen if you ask permission to file Form 941 or the IRS determines that you are not eligible any longer to file Form 944.

2012 Standard Mileage Rates

55.5 cents per mile for all miles of business use is the standard rate that was announced for both transportation and travel expenses. If you use an automobile to render services free of charge to a charitable organization the standard mileage rate falls to 14 cents per mile.

Tax Free Parking for Employees

In 2012 the employee may exclude up to $240 per month that the employer pays for the employees parking.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.

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