The federal Department of Labor has recently announced the list of states that were “credit reduction states” for federal unemployment tax (FUTA) purposes in 2011. What does that mean?

Basically, it means that those states borrowed money form the federal unemployment tax pool, then did not repay the funds. Now I’m hearing, “So what? How does that affect me?”

If you were an employer during 2011 in any of those states (AR, CA, CT, FL, GA, IL, IN, KY, MI, MN, MO, NC, NJ, NV, NY, OH, PA, RI, VA, WI, or VI), you will probably pay more FUTA when you file your 2011 Form 940 at the end of January. The additional tax, called the credit reduction amount,  will run between .3% and .9% of eligible wages, and is reported on Schedule A of Form 940. (That’s a maximum of $21 to $63 per employee.)

A number of states are making this list for the first time in many years, so be sure to double-check with your payroll company if your business has employees in any of the above states.)

Today is the first mailing day of the New Year. It won’t be long before the postal carrier starts delivering those pesky little tax forms – 1099s, W-2s, and the like.

Do yourself (and your tax preparer) a big favor – get a file folder or large envelope, and put it in a place where you open your mail. After reviewing the documents for accuracy, simply put them into the folder and forget about them until it’s time to take your information to your preparer. (Of course, it there’s something on the forms that is wrong, follow up with the issuer first – and soon.) That way, all those forms will be in one place – and you won’t have to search through stacks of mail to find them.

If you’re really organized, tape a list of last year’s tax document issuers (banks, employers, customers, etc.) to the front of the folder or envelope – and check them off as the new forms arrive. It’ll make it easier to figure out what may be missing!

And don’t forget – make an appointment with your tax preparer as early as possible, so that there will be enough time to prepare and review an accurate return.

I’m sure you’ve heard in the news that just before Chrismas, Congress finally passed, and the President signed, a two-month extension of the payroll tax cut that was enacted earlier this year. That means that at least for two months the employee social security withholding rate will remain at 4.2% (instead of 6.2% that the employer pays). Who knows what will come in March – whether it will be re-extended or repealed.

One item in the law that the news hasn’t really covered may affect many businesses normal practice as it relates to employees and yearly bonuses. The law has a “recapture” provision that applies to employees that earn more than $18,350 during the first two months of 2012 (that’s one-sixth of the $110,100 social security wage base this year.) The new rule imposes an extra 2% income tax on the excess wages earned during the two month period. The tax doesn’t affect withholding and payroll; it’ll be applied when the affected employees file their 2012 income tax return.

The main reason I’m bringing this to your attention is that many businesses pay bonuses to employees in the early part of the year, based on the previous year’s results. Presuming they will be paid more than the maximum for that two-month period, they would only have 4.2% social security withheld – but when they file their 2012 return, they’ll pay 2% more income tax on the excess earnings. Don’t have a clue how THAT’s going to be reported; IRS is to issue regulations on how to deal with it later. But unless Congress acts to extend the cut for a longer period, and to repeal this recapture provision too, W-2s are likely going to be harder to prepare for 2012!

Of course, there’s not much time before calendar year-end, but you may want to discuss the possibility of timing the bonus in 2011 – to avoid the recapture issue.Call me if you have any questions.

…to be generous! Many of us use the opportunity of the holidays to clean out our closets, and to donate gently-used items to deserving charities. In most cases, that generosity can result in a tax deduction – if you follow the rules.

If you’re donating clothing and household items, they must be in good used condition or better – no torn jeans unless that’s how they looked when you purchased them! Get a receipt from the charity, but don’t be surprised if they don’t assign a value to the donated items – or even itemize them. It’s up to you to make a list (and check it twice) of what you’re donating, and to estimate its fair market value at the time of the gift. There are resources available to help you with that – a good one is ItsDeductibleOnline.com – or go through the thrift shop to compare prices. Remember, if you’re ever audited, you’ll need some documentation of your valuation methodology. If the year’s total noncash donations exceed $500, you’ll need even more documentation – just ask your CPA or other tax provider what the rules are.

But don’t let tax law or benefits rule your decision – the gift should come from the heart, even while IRS gives you some lovely tax benefits for being generous.

Did you pay any noncorporate vendor more than $600 for services in 2011? If so, you may be required to issue them a Form 1099-MISC in January. Beware – the reporting requirements have changed this year – if you paid them via credit card, don’t include that payment in the reportable total. That’s because there’s a new form (1099-K) that will be filed by credit card companies and other third-party payment services (such as PayPal, etc.) to report your credit card payments.

If you receive a Form 1099-K, be sure to let your tax preparer know about it – there may be disclosures to make that will avoid “matching” issues with the IRS.