Federal and California Tax Rates and Fees

ALLEN M. LEE, A PROFESSIONAL LAW CORPORATION

(Updated May 13, 2010)

I. Business Entities

A. C Corporations

1. Federal taxes

a) Income Taxes

Personal service corporations are subject to a flat tax of 35% regardless of their income.

b) Accumulated Earnings Tax

In addition to the regular tax, a corporation may be liable for an additional 15% tax on accumulated taxable income in excess of $250,000 ($150,000 for personal service corporations).

2. CA State Taxes

a) California charges C corporations, as well as S corporations, LLCs and limited partnerships, a minimum annual franchise tax of $800, payable to the Franchise Tax Board.

b) California imposes an 8.84% flat tax on C corporations. Bank and Financial C-Corporations are taxed at 10.84%.

B. S Corporations

1. Federal taxes. S corporations are treated as pass-through tax entities, meaning that the profits or losses of the corporation pass through the business and are reflected and taxed on the individual tax returns of the shareholder, rather than being reported and taxed at a separate business level.

2. CA state taxes. An S corporation is taxed on its net income at a rate of 1.5 percent, with a minimum tax of $800. Financial S corporations are taxed at a rate of 3.5%.

C. Limited Liability Companies

1. Federal taxes. LLCs can elect to be taxed as a pass through entity (partnership taxation) or a corporation (corporate taxation). As a pass through entity, the profits or losses of the LLC pass through the business and are reflected and taxed on the individual tax returns of the members, rather than being reported and taxed at a separate business level. If the LLC elects corporate tax treatment, it will then be taxed at the applicable corporate tax rates.

2. CA state taxes.

a) California imposes on LLCs, as well as C corporations, S corporations and limited partnerships, a minimum annual franchise tax of $800, payable to the Franchise Tax Board.

b) California imposes on LLCs an additional “gross receipts fee,” which is essentially a tax based on the LLC's total income from all sources derived from or attributable to the state of California, and includes the cost of goods sold.

II. Payroll Taxes

A. Federal Payroll Taxes

1. Federal Unemployment (FUTA) Tax. For 2010, the FUTA tax rate is 6.2%. This tax applies to the first $7,000 paid to each employee as wages during the year. Generally, you can take a credit against your FUTA tax for contributions to state unemployment funds up to a maximum 5.4% of taxable wages.

2. Social Security Tax (FICA). The employee tax rate for social security is 6.2%. The employer tax rate for social security is also 6.2%. Total, this is 12.4%. The 2010 wage base limit is $106,800, for a maximum of $6,621.60.

3. Medicare Tax. The employee tax rate for Medicare is 1.45%. The employer tax rate for Medicare tax is also 1.45%. Total, this is 2.9%. There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax.

B. CA Payroll Taxes

1. Unemployment Insurance (UI). The UI taxable wage limit for 2010 is $7,000 per employee, per year. The UI tax rate for new employers is 3.4 percent for up to three years. The UI rate schedule in effect for 2010 is Schedule "F+", which provides for UI contribution rates from 1.5% to 6.2%.

2. Employment Training Tax (ETT). The 2010 ETT rate is 0.1 percent (.001) of the first $7,000 per employee, per year.

3. State Disability Insurance (SDI). The 2010 SDI tax rate (which includes Disability Insurance and Paid Family Leave) is 1.1 percent. SDI taxable wage limit is $93,316 per employee, per year, for a maximum of $1,026.48.

III. Self-employment tax (SE Tax)

This is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. The self-employment tax rate is currently 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance). Only the first $106,800 of the individual’s combined wages, tips, and net earnings are subject to any combination of the 12.4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax. All net earnings of at least $400 are subject to the Medicare part of SE tax.

IV. Other Federal

A. Personal Income Tax Rate Schedules

B. Federal Long-Term Capital Gains and Qualifying Dividends

For taxpayers in the 10% or 15% bracket--0%

For taxpayers in higher brackets--15%

Tax on unrecaptured Sec. 1250 gain--25%

Capital gain rate on collectibles--28%

C. Standard Deductions

Married filing joint and surviving spouses $11,400

Heads of Household 8,400

Single individuals 5,700

Married, filing separate 5,700

Additional standard deduction for aged and blind--$1,100 each ($1,400 if individual is unmarried and not surviving spouse)

Last updated May 13, 2010.

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (650) 254-0758, Fax: (650) 967-1851, Email: allen@allenmlee.com, Internet: www.allenmlee.com.