- Days left
Californians like me will see less money in their next paycheck because, like it or not, we're being forced to give an interest-free loan to the financial basket-case of a state we live in. As of November 1, California is withholding 10% more in income taxes from residents' paychecks. The move is expected to reap $1.7 billion that will be used to plug the holes in the state deficit and keep some money in its rapidly-dwindling coffers.

So officially it's not a tax increase. California will repay the extra withholding in April when it calculates tax refunds -- those getting a refund will get a larger one while those who owe taxes will owe less. And state tax officials who say the increase will hardly be felt by workers. A worker earning $51,000 with no dependents and one withholding allowance will see his weekly withholding rate go up $4. (The Sacramento Bee has a chart of withholding increase scenarios for some single and married taxpayers.) Still, with nine weeks left to go in 2009, that $36 could come in handy for a holiday present or a utility bill.



California is the first state to be doing this, but will it be the only one? I called the Federation of Tax Administrators, a research and training group for state tax collectors, to see if this was a trend. Spokesperson Verenda Smith says probably not, unless other states reach the extreme financial brink California is teetering on. "This move is not unheard of in times of extreme budget stress, but it's not a long-term solution."

Smith says this "budget gimmick" certainly won't add any new income to the state treasury. "It's just moving money from one fiscal year to the next. California gains it now but loses it in April, so it nets itself out."

Californians can try dodging this new withholding change by increasing the number of allowances on their employers' withholding forms. While it may not help much this year, it's more important for 2010 and beyond.

While the state's Franchise Tax Board says this increase will apply only for the next two months, don't count on it. California's budget deficit is $7 billion now and expected to keep ballooning, so the legislature is expected to try something -- anything -- to get the money coming in. A state income-tax increase may be inevitable. And let's see if California even has any money left in April to pay back its loan from worker paychecks.

This time, the threat of tax-refund IOUs may become a reality.

Increase your money and finance knowledge from home

Advice for Recent College Grads

Prepare yourself for the "real world".

View Course »

How Financial Planners go Grocery Shopping

Learn to shop smart and save.

View Course »

TurboTax Articles

What is IRS Form 8824: Like-Kind Exchange

Ordinarily, when you sell something for more than what you paid to get it, you have a capital gain; when you sell it for less than what you paid, you have a capital loss. Both can affect your taxes. But if you immediately buy a similar property to replace the one you sold, the tax code calls that a "like-kind exchange," and it lets you delay some or all of the tax effects. The Internal Revenue Service (IRS) uses Form 8824 for like-kind exchanges.

What are ABLE Accounts? Tax Benefits Explained

Achieving a Better Life Experience (ABLE) accounts allow the families of disabled young people to set aside money for their care in a way that earns special tax benefits. ABLE accounts work much like the so-called 529 accounts that families can use to save money for education; in fact, an ABLE account is really a special kind of 529.

What is IRS Form 8829: Expenses for Business Use of Your Home

One of the many benefits of working at home is that you can deduct legitimate expenses from your taxes. The downside is that since home office tax deductions are so easily abused, the Internal Revenue Service (IRS) tends to scrutinize them more closely than other parts of your tax return. However, if you are able to substantiate your home office deductions, you shouldn't be afraid to claim them. IRS Form 8829 helps you determine what you can and cannot claim.

What is IRS Form 8859: Carryforward of D.C. First-Time Homebuyer Credit

Form 8859 is a tax form that will never be used by the majority of taxpayers. However, if you live in the District of Columbia (D.C.), it could be the key to saving thousands of dollars on your taxes. While many first-time home purchasers in D.C. are entitled to a federal tax credit, Form 8859 calculates the amount of carry-forward credit you can use in future years, not the amount of your initial tax credit.

What is IRS Form 8379: Injured Spouse Allocation

The Internal Revenue Service (IRS) has the power to seize income tax refunds when a taxpayer owes certain debts, such as unpaid taxes or overdue child support. Sometimes, a married couple's joint tax refund will be seized because of a debt for which only one spouse is responsible. When that happens, the other spouse is said to be "injured" and can file Form 8379 to get at least some of the refund.

Add a Comment

*0 / 3000 Character Maximum