CA Reports on Median Income for 2009

The California statewide median income for all personal income tax returns decreased to $34,079 (5.1 percent below 2008), while the median income listed on joint returns decreased to $65,025 (5.7 percent below 2008) according to state statistics. The four Bay Area counties of Contra Costa, Marin, San Mateo, and Santa Clara have led California for 38 years in reported highest median incomes. California taxpayers filed 15.3 million 2009 state income tax returns reporting $1.08 trillion in adjusted gross income, a 2.9 percent decrease from 2008 figures. Adjusted gross income is total income increased or reduced by specific adjustments, before taking the standard or itemized deduction. Marin County had the highest median income for joint returns at $108,465, a decrease of 8.6 percent from 2008. San Mateo County ranked second with $95,176, Santa Clara County ranked third with $94,209, Contra Costa County ranked fourth with $85,942, and Alameda County ranked fifth with $83,886. Los Angeles County taxpayers filed 25.5 percent of all 2009 income tax returns in California. They reported median incomes of $30,112 for all returns, and $56,438 for joint returns, ranking 34th and 27th, respectively for all counties. The largest percentage gain in median income for all counties was 7.5 percent, reported in Alpine County.

California Payroll Tax Reporting Changes

The quarterly payroll tax forms filed with the Employment Development Department are changing effective with the filing of your first quarter 2011 forms. The new forms to be aware of are the DE 9 and DE 9C. These two forms replace the quarterly form DE 6 and the annual form DE 7. Each quarter employers will prepare a reconciliation similar to what was done on the year end reconciliation. The state believes that this new quarterly reporting will allow the EDD and employers to recognize discrepencies more quickly. This will help you receive refunds faster but will also help the EDD find shortages sooner. If you prepare your own payroll in house you may want to check with your accounting software provider to ensure that your system can handle the forms. For those of you using Quickbooks, it appears that your software will be updated if you are current on your support contract. As a reminder your first quarter returns are due on April 30th.

CA Mandatory e-Pay Penalty Reminder

Just a reminder that beginning January 1, 2011 the California Franchise Tax Board began enforcing the mandatory e-pay penalty. The penalty applies to personal income taxpayers whose tax liability is greater than $80,000, or who make an estimated tax or extension payment that exceeds $20,000 for taxable years beginning on or after January 1, 2009. Once either of these conditions is met, all payments regardless of the type, amount, or tax year must be remitted electronically. Electronic payment methods include Electronic Funds Withdrawal (EFW), Web Pay, or credit card. There is a one percent penalty of the amount paid unless the failure to pay electronically was for reasonable cause and not willful neglect. For those that are not required to e-pay you can voluntarily pay your taxes electronically but you must first complete and submit an application to the FTB to get approval.

Franchise Tax Board Auditing Head Of Household Returns

Sacramento - The Franchise Tax Board (FTB) announced mailing more than 135,000 review letters to taxpayers who claimed the “Head of Household” filing status on their 2009 state tax return.

Taxpayers who do not qualify will have their tax reassessed at either a single or married-filing-separate filing status. Nearly 29,000 taxpayers who used this status last year did not meet its requirements and were issued more than $31 million in tax assessments.

Each year FTB reviews tax returns of taxpayers who claim the Head of Household filing status because the qualifications are commonly misunderstood. The status generally results in lower tax liabilities for unmarried taxpayers who care for a dependent. To qualify, the taxpayer must provide care for more than one-half of the year and pay more than one-half the cost of maintaining their home. The qualifying person must be related to the taxpayer and meet the requirements to be a qualifying child or relative. More than 2 million California taxpayers use this filing status each year.

FTB advises taxpayers who receive an audit letter to respond promptly by completing the enclosed questionnaire. Failure to respond could result in a tax assessment and penalty. Questionnaires can be submitted by any of these methods:

• Respond electronically at ftb.ca.gov. Use HOH Audit Letter Web Response page.
• Respond by fax at 866.223.8195.
• Respond by mail using the pre-addressed envelope provided with the audit letter.

FTB provides the following tools on its website to assist taxpayers:

• Head of Household “self-test.”
• Answers to frequently asked questions.
• Publication 1540, “CA Head of Household Filing Status,” in English and Spanish.

New Home Tax Credits Available

From the California Franchise Tax Board (FTB):

The 2010 New Home/First Time Buyer tax credits are available for taxpayers who purchase a qualified principal residence on or after May 1, 2010, and before January 1, 2011. Additionally, these tax credits are available for taxpayers who purchase a qualified principal residence on or after December 31, 2010, and before August 1, 2011, pursuant to an enforceable purchase agreement executed on or before December 31, 2010. The purchase date is defined as the date escrow closes.

These tax credits are limited to the smaller amount of five percent of the purchase price or $10,000 for a qualified principal residence. Taxpayers must apply the total tax credit in equal amounts over three successive tax years (maximum of $3,333 per year) beginning with the tax year in which the home is purchased. The tax credits cannot reduce regular tax below tentative minimum tax (TMT). The tax credits are nonrefundable and the unused credits cannot be carried over.

The total amount of allocated tax credit for all taxpayers may not exceed $100 million for the New Home Credit and $100 million for the First-Time Buyer Credit.

Haiti Donations Deductible for California

From the California Franchise Tax Board Tuesday:

The Franchise Tax Board (FTB) announced today that a new state law allows taxpayers to immediately deduct their donations made to provide relief for the January 12 Haitian earthquake.

"This is welcome news for Californians who are supporting earthquake recovery efforts in Haiti," said State Controller and FTB Chair John Chiang.

Charitable deductions are normally taken on a tax return the following calendar year. The new law gives donating taxpayers the added option to claim the deductions immediately on their 2009 returns instead of waiting to claim it on their 2010 returns.

To claim the charitable deduction on the 2009 tax return, both individuals and businesses must have made the Haitian-relief contributions to qualified charities before March 1, 2010. Only cash contributions such as those made by text message, check, credit card or debit card qualify. The contributions must be made specifically for the relief of victims in areas affected by the January 12, 2010, earthquake in Haiti.

The new legislation, Assembly Bill 347 (Stats 2010, Ch. 8), conforms to similar federal law (Haitian Relief Bill H.R. 4462; P.L. 111-126).

Information on the federal law is available in our previous post here.

Free Webinars on California Withholding

The California Franchise Tax Board if offering free webinars about employer's withholding requirements, including changes that became effective in January of this year. To view descriptions, times, and register for a free webinar, click here.

Accelerated California Estimated Taxes Required

In an effort the keep cash coming into the state coffers, the legislature included in the most recent budget a provision requiring taxpayers who make estimated tax payments to pay more upfront. This applies to both individual and corporate taxpayers. Taxpayers may be required to make estimated tax payments if their withholding will not cover their tax liability. For federal tax purposes, the payments must be paid in four equal quarterly installments. Starting in 2009 with the state's fiscal challenges, California began to require a higher percentage of the payments in earlier quarters. Starting in 2010, it is accelerating required payments even more, to the following schedule:

Quarter	% due
1st quarter	30%
2nd quarter	40%
3rd quarter	0%
4th quarter	30%

If you are required to make estimated tax payments, be sure to reference these new requirements.

Tax Credit for New Jobs

Yesterday, the California Franchise Tax Board (FTB) posted answers to Frequently Asked Questions about a new tax credit that is available starting with the 2009 tax year. Here are some facts about the credit:

• A new tax credit of $3,000 for each additional full-time employee hired is available to small businesses with 20 or less employees beginning January 1, 2009.
• The credit is not subject to the 50% limitation for business credits.
• The total amount of credit available to be claimed by all taxpayers is capped at $400 million.
• The credit must be claimed on a timely filed original return received by the Franchise Tax Board on or before a cut-off date specified by the Franchise Tax Board.
• Taxpayers claiming the credit on an original return received by the Franchise Tax Board after the cut-off date is met will be notified that the credit has been denied.
• Taxpayers that have been denied the credit as a result of the $400 million cap being reached will not be assessed an underpayment of estimated tax or underpayment of tax penalty to the extent the underpayment was created or increased by the disallowance of this credit.

An employer will qualify for the credit if:

• Each qualified full-time hourly employee is paid wages for not less than an average of 35 hours per week.
• On the last day of the preceding taxable year, they employed a total of 20 or fewer employees.
• Each qualified full-time employee that is a salaried employee was paid compensation during the year for full-time employment within the meaning of Section 515 of the Labor Code.
• There is a net increase in qualified full-time employees compared to the number of full-time employees employed in the preceding taxable year. For taxpayers who first commence doing business in California during the taxable year, the number of qualified full-time employees employed in the preceding year would be generally be zero, unless certain special rules apply.

An employer may not claim the credit for those employees who are any of the following:

• Certified as a qualified employee in an enterprise zone or targeted tax area.
• Certified as a qualified disadvantaged individual in a manufacturing enhancement area.
• Certified as a qualified disadvantaged individual or qualified displaced employee in a local agency military base recovery area.
• An employee whose wages are included in calculating any other credit allowed.

More information is available on the FTB website.

California SDI amounts for 2010

California announced that the State Disability Insurance (SDI) rate for 2010 will remain the same as the prior year at 1.1%. However, the the taxable wage limit and corresponding maximum amount increase as follows:

	2009	2010
Taxable wage limit	$90,669.00	$93,316.00
Maximum SDI amount	$997.36	$1,026.48

For January, please be sure to update your payroll programs to reflect the changes!

California Governor announces 5 new stimulus projects

Governor Arnold Schwarzenegger’s California Recovery Task Force announced this month that $53 million in American Recovery and Reinvestment Act (Recovery Act) funding has been allocated by the California Transportation Commission (CTC) to five additional transportation projects in California, located in:

• San Luis Obispo County
• Santa Barbara County
• Santa Clara County
• Alpine County
• Inland Empire

A comprehensive list of all projects that received allocations of this funding is available here.

Governor Signs Four Critical Bills for CPAs

Glen Thomas, who is on the statewide CalCPA Society Accounting Education Committee (AEC), has been working very hard over the past three years with fellow members for the passage of SB 819. According to the CalCPA:

After 33 years, California is no longer the problem child when it comes to CPA licensing. Sunday night, Gov. Schwarzenegger signed SB 819 into law, which will require all California CPAs licensed after 2014 to have 150 hours of college education prior to licensing. CPAs licensed prior to 2014 will be grandfathered in as substantially equivalent. California should now be considered a substantially equivalent state, likely easing mobility for California CPAs providing services in other states that have adopted the new mobility provisions consistent with the Uniform Accountancy Act. Those provisions allow out-of-state CPAs to provide temporary services in those states without notifying the board of accountancy or paying a fee. This is a really big step for California CPAs. "While some of the details of the bill remain to be worked out, the passage of this legislation is historic and at long-last puts California CPAs on a level playing field with CPAs from other states who have been considered substantially equivalent for years," says CalCPA CEO Loretta Doon. "We owe a tremendous debt of gratitude to our government relations team lead by Bruce Allen and Jeannie Tindel, and Paul Regan, our Government Relations Committee chair.” Doon also praised the multitude of members from students to seasoned partners who participated in CalCPA’s grassroots efforts. Those members met with legislators in their district offices, and in the Capitol, to discuss the importance of substantial equivalency and other key legislation. Additionally, the governor signed AB 138, which requires mandatory peer review for CPA firms. The peer review requirement will start in 2010, but firms don't have to provide their peer reviews until the 2011 renewal for firms with the last digits 1-33. The new law will use a phased in implementation over a three-year period. Also signed into law were AB 117, which requires license status disclosure for inactive CPAs, and AB 129, which reinstates a taxpayer privilege provision. Visit CalCPA's website to learn more about these important new laws that will pave the way for the future of the profession in California.

New Use Tax Registration Requirements

The California State Board of Equalization (BOE) announced that thousands of California qualified purchasers are now required to register with the BOE and file use tax returns by April 15 of each year, reporting all purchases subject to use tax from the previous calendar year, beginning with purchases made during the 2009 calendar year. A qualified purchaser is a business that meets all of these tests:

• Is not required to hold a seller’s permit with the BOE;
• Is not required to be registered or otherwise register with the BOE;
• Is not a holder of a use tax direct payment permit; and
• Receives at least $100,000 in gross receipts per year from business operations.

The BOE has begun notifying 184,000 businesses of this requirement by letter.

More information is available on the BOE website

Worker's Comp rates likely to rise

From the Sacramento Bee: Get ready for another round of workers' compensation insurance premium increases next January. An influential group controlled by the insurance industry Wednesday recommended a 22.8 percent rate increase. The Workers' Compensation Insurance Rating Bureau of California, in arguing for the higher rates, said rising medical costs are largely the reason. The findings are advisory but generally set the pattern for the industry. Insurers raised rates nearly 10 percent on average in July after the bureau called for a 23.7 percent increase. Rates generally are set twice a year, in January and July. Workers' comp is a hot-button issue for many employers and is often blamed for the state's reputation as an expensive place to do business. Backlash against sky-high premiums prompted the Legislature to overhaul the system twice, in 2003 and 2004, and rates are about 60 percent lower than in 2003. But as rates have begun to creep back up, economic development officials from states such as Nevada have been pointing to workers' comp costs in their efforts to lure companies from California.

Recovery Funded Ultra-Low Interest Loans

Here's an excerpt from a press release yesterday from the Office of the Governor: Public Energy Efficient and Renewable Energy Projects Eligible The California Recovery Task Force today announced that one percent interest loans funded through $25 million in American Recovery and Reinvestment Act (Recovery Act) funds are available for eligible public energy efficient and renewable energy projects in California. Available through the California Energy Commission, the loans will help local jurisdictions stimulate their economies and job growth while investing in energy efficiency and reducing greenhouse gas emissions - all in a cost effective manner. Cities, counties, special districts, public schools, colleges and universities, public care institutions, and public hospitals are eligible to apply. For more information and criteria about low interest loan programs or other energy-related Recovery Act funding and programs go to the California Energy Commission’s Recovery page at http://energy.ca.gov/recovery/index.html

FTB Notices sent to Head of Household Taxpayers

Last week, the Franchise Tax Board (FTB) sent more than 140,000 audit letters to pre-selected individuals who used the “Head of Household” (HOH) filing status on their 2008 state tax returns.

The HOH filing status generally provides a lower tax assessment for unmarried taxpayers who cared for a dependent for over half the year and paid more than half the cost of maintaining their home. Taxpayers who do not qualify will have their tax reassessed at either a single or married-filing-separate filing status. More than 2 million California taxpayers use the HOH filing status each year.

FTB advises taxpayers who received an audit letter to promptly submit a completed questionnaire by using any of these methods:

• Go to FTB’s website ftb.ca.gov and use the HOH Audit Letter Web Response page. Taxpayers will need their Social Security number and the “FTB ID number” listed at the top of the questionnaire letter.
• Fax pages 3 and 4, and any supporting information to 866.223.8195.
• Mail the questionnaire using the pre-addressed envelope provided with the audit letter.

Failure to respond could result in a penalty. FTB provides an HOH “self-test,” answers to many frequently asked questions, and Publication 1540, “CA Head of Household Filing Status,” in English and Spanish on its Website at ftb.ca.gov. Feel free to contact us for additional information.

Where is all of Obama’s stimulus money going?

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act (ARRA). The Act explicitly lists the following five purposes of the Act:

• To preserve and create jobs and promote economic recovery.
• To assist those most impacted by the recession.
• To provide investments needed to increase economic efficiency by spurring technological advances in science and health.
• To invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits.
• To stabilize State and local government budgets, in order to minimize and avoid reductions in essential services and counterproductive state and local tax increases.

Federal, state, county, and city resources are now dedicated to ARRA opportunities (all of the websites noted below use the term "opportunities" to describe projects funded by ARRA).

Federal business opportunities are available at FBO.gov, which provides extensive search options to find Federal contracts. A simple search for California opportunities as of today resulted in 160 projects that many of our clients may be interested in bidding on. Opportunities that are funded by ARRA are noted as such.

California's governor and the city of San Francisco have created dedicated agencies and websites that provide information about the impact of ARRA. Contra Costa County and local cities have also added links and information to their existing websites about ARRA opportunities.

Governor Schwarzenegger has created the California Recovery Task Force, which will be tracking ARRA funds. The Task Force's website provides information so that Californians can access the stimulus money. The site includes information on how to bid for contracts, apply for grants, and get some tax relief . We highly recommend that you check out this site.

San Francisco's Office of Economic and Workforce Development provides information for small businesses owners. Its website is jam-packed with business assistance information such as tax credits and incentives, construction development in the pipeline, neighborhood revitalization projects, and workforce development. The site has links to other city resources that may be helpful to you and your business.

Contra Costa County has expanded its website to provide information about ARRA. For the most part, the site encourages you to search for local opportunities at FedBizOpps.gov and Grants.gov. However, we found that individual cities in Contra Costa County, such as Walnut Creek, are predominately displaying RFPs for ARRA projects on their homepages, rather than making you go search for them.

If you become aware of other resources that provide local ARRA opportunities, please email them to lsilva@ty-llp.com and we will get them posted for all of our readers to explore.

California issues IOUs

California taxpayers who are waiting on refunds will continue to wait. The Franchise Tax Board has announced: "all requests for direct deposit of a State income or franchise tax refund will be issued as a paper registered warrant." If you receive a registered warrant in lieu of payment, the State Treasurer will not redeem it for cash until it matures on October 2, 2009. However, some banks will accept registered warrants as cash, so you may be able to deposit it into a bank account (and let the bank deal with redeeming the warrant in October). FAQs about registered warrants are available on the State Controller's website.

CA home buyer credit going, going...

As we posted in March and April, California offered a tax credit for new home purchases between March 1, 2009 and February 28, 2010. (More info on the credit is available on our website.) The credit is first-come, first-served. As predicted, the money is running out fast -- and may actually have run out. The FTB updated their website today with the following information: "We have reached $100 million in new home credit applications. Because many of these are duplicates, revised, or invalid, we plan to receive 12,000 applications. This will ensure we have more than enough valid applications to allocate the full $100 million. These additional applications will be subject to the availability of remaining credits." As of Wednesday, the FTB had received10,633 applications claiming $102,638,616. Builders have asked the state to increase funding for the credit. We'll see how that goes.

FTB mails notices about e-pay

The FTB has announced the latest installment in the ongoing saga of mandatory electronic payment for certain individuals. If you meet the threshold for e-pay, you will likely receive a letter in the mail notifying you of the mandatory e-pay (here's a sample letter). You do not need to take any action in response to this notice. Starting next year, you'll need to make tax payments electronically (here's info on how). If you have a few minutes to kill and are interested in the ongoing saga of mandatory e-pay, you can visit our previous posts from November, January, and April.