- 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 »

Managing your Portfolio

Keeping your portfolio and financial life fit!

View Course »

TurboTax Articles

Video: Who Qualifies for an Affordable Care Act Exemption (Obamacare)?

The Affordable Care Act requires all Americans to have health insurance or pay a tax penalty. But, who qualifies for an Affordable Care Act exemption? Find out more about who qualifies for an exemption from the Affordable Care Act tax penalty, how to claim an exemption on your tax return and how the Affordable Care Act may affect your taxes with this video from TurboTax.

Video: How to Claim the Affordable Care Act Premium Tax Credit (Obamacare)

The Affordable Care Act Premium Tax Credit is a new refundable tax credit that can lower your monthly health insurance premiums. If you qualify for the tax credit, you can claim the Premium Tax Credit throughout the year to lower your monthly health insurance premiums, or claim the credit with your tax return to either lower your overall tax bill or increase your tax refund.

Deducting Summer Camps and Daycare with the Child and Dependent Care Credit

If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under age 13 or a disabled dependent of any age, you may qualify for a tax credit of up to up to 35 percent of qualifying expenses of $3,000 for one child or dependent, or up to $6,000 for two or more children or dependents.

What Is Schedule H: Household Employment Taxes

If you hire people to do work around your house on a regular basis, they might be considered household employees. Being an employer comes with some responsibilities for paying and reporting employment taxes, which includes filing a Schedule H with your federal tax return. But even if you have household employees, filing Schedule H is required only if the total wages you pay them is more than certain threshold amounts specified by federal tax law.

Add a Comment

*0 / 3000 Character Maximum