2009 Tax Update

We would like to bring to your attention some tax changes for 2009 at both the federal and state levels.

• Payroll
• Corporate
• Federal

In addition, please view our tax facts update.

Payroll

1. Social Security Tax and Medicare Tax
   The taxable wage base for the social security portion of the tax has been increased to $106,800 for 2009. The withholding tax rate remains at 6.20%. There continues to be no wage limit for the Medicare component of the tax for 2008. The withholding tax rate for Medicare remains at 1.45%. The self employment tax rate continues at 15.30% on the first $106,800 of earnings for 2009 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 2009. 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 2009 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, 2007 are required to make tax deposits electronically starting January 1, 2009.

   Pennsylvania - For 2009, 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 2009 if your total annual liability for a particular 2008 tax equaled or exceeded $10,000. For example, if you collected $11,000 in NJ sales tax in 2008, you are required to make tax deposits electronically in 2009. If in 2008, 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 2009.
6. Pennsylvania Unemployment Tax & Withholding
   For 2009, the $8,000 taxable wage base per employee remains the same. The employee withholding rate for 2009 remains the same at a rate of .6 mills (.0006). Remember, the .0006 rate applies to gross payroll paid in 2009 (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. PA Minimum Wage
   Effective July 1, 2008, the minimum wage rate is $7.15 per hour. On July 24, 2009, the minimum wage rate will increase from $7.15 to $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 $28,900 per employee for 2009. The combined employee withholding rate has increased to 1.015% for 2009. This increase is to fund the newly instituted Family Leave Insurance program. 
   
   Family Leave Insurance is 100% employee funded. Its purpose is to provide a paid leave of up to six weeks for employees caring for sick family members, newborn or newly adopted children. Mandatory employee withholding begins January 1, 2009. Family Leave benefits will be available to covered employees beginning July 1, 2009. The withholding rate for 2009 is 0.09% on taxable wages of up to $28,900 (max. contribution = $26.01). The employer will withhold the contributions from employee's wages and submit with their Form NJ-927 (Employer's Quarterly Report).
9. New Jersey Individual Withholding Taxes
   The New Jersey individual income tax rates remain the same for 2009. The tax rates now range from 1.50% to 9.90% based upon income levels.
10. NJ Minimum Wage
    The New Jersey minimum wage rate remains at $7.15 per hour for over half of 2009. On July 24,2009, the minimum wage rate will increase from $7.15 to $7.25 per hour. Pennsylvania employers of New Jersey residents should use the applicable Pennsylvania minimum wage rate discussed previously.
11. FL Minimum Wage
    Effective for wages paid after December 31, 2008, the State of Florida has raised its minimum wage rate to $7.21 per hour. On July 24, 2009, the minimum wage rate will increase from $7.21 to $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 3.93% (previously 3.98%) for residents of Philadelphia and to 3.5000% (previously 3.5392%) 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 2009, 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 State of Pennsylvania. Effective for compensation paid on or after January 1, 2008, the tax is to be withheld at a rate of $1 per week (or its equivalent in the case of bi-weekly, semi-monthly or monthly payroll periods) instead of the one-time withholding of the total amount from one paycheck. 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 2009 tax year. The capital stock tax rate has decreased from 2.89 mills (in 2008) to 1.89 mills in 2009. This tax is being phased out and will no longer be in effect in 2011.
2. New Jersey Corporate Taxes

   The New Jersey corporate income tax rate remains 9% for 2009 with an additional 4% surtax. The 4% surtax is based on the amount of NJ corporation income tax, it is not an additional 4% tax on income. Corporations with taxable income of $100,000 or less are taxed at reduced rates.

   The NJ minimum tax amounts range from $500 to $2,000 depending on gross receipts. 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 2008. 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 2008. This tax break is set to drop back to $133,000 in 2009. The deduction is phased out once total asset purchases become greater than $800,000 for 2008. The phase-out threshold is set to decrease to $500,000 for 2009.
2. Taxpayers may immediately deduct 50% of the cost of qualified new business property placed in service between January 1, 2008 and December 31, 2008, when calculating their depreciation expense. Unfortunately, Pennsylvania and New Jersey do not recognize the additional deduction. Therefore, for state purposes, assets on which Federal bonus depreciation was taken must be depreciated using normal depreciation rates.
3. Individual filers who use the standard deduction will also be able to deduct a portion of their real estate taxes for the 2008 and 2009 tax years. The deduction is limited to the lower of the actual taxes paid or $500 ($1,000 for joint filers).
4. A tax credit for qualifying investments in energy conserving property which expired for year 2008 has been reinstated for property placed in service in 2009. The overall $500 credit consists of two parts, a $200 maximum for items such as exterior doors, windows, insulation, and certain roofs, and a $300 maximum for such items as qualifying heat pumps or furnaces. Purchases of energy efficient appliances (washers, refrigerators, dishwashers, etc) do not qualify for the 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 $46,200 for single filers and $69,950 for joint filers.
6. Effective January 1, 2009, the standard mileage rate for the business use of a car is 55 cents per mile. The standard mileage rate for 2008 had been 50.5 cents for the months of January through June and 58.5 cents for the months of July through December.
7. For 2008, the expanded "kiddie tax" will take full effect. The "kiddie tax" taxes the unearned income of dependent children at the parent's tax rate. The tax applies to dependent children who are under age 19 and to full-time students under age 24 who have earned income that does not exceed one-half of the child's support.