California employees’ paychecks will be a bit slimmer, just as holiday shopping season begins.
All California employees are facing a 10 percent increase on income tax withholding with Bill ABX4 17, effective Nov. 1. All California employees who have their state income tax withheld will be affected by the increase. Bi-weekly employees will first notice the tax increase when they receive their Nov. 25 paychecks.
Under the tax increase, a single employee with no dependents, who makes an annual salary of $51,000, will see roughly $16 less in their paycheck each month. Married employees with two dependents and an annual salary of $145,000 will have an additional $67.60 cut from monthly paychecks.
The bill aims to accelerate revenue for the state and increase tax compliance. It will generate around $1.7 billion for California’s $7 billion budget deficit. The surplus money will be available to the state’s government for a limited time however, as the increased withholding will be paid back in April 2010 for employees.
Brenda Voet, a spokeswoman for California’s Franchise Tax Board, said that the temporary tax may stimulate employees to review their tax forms and update them.
“This is a really good opportunity to look to see if people should adjust the amount of withholding,” Voet said.
If someone were to get married or have a baby, they could submit this new information on their tax forms and have less of their salary withheld, Voet said.
In addition to the 10 percent increase, income tax payments will be accelerated. If an employee pays quarterly estimated income taxes, they will now begin their payments in January 2010. Those who pay quarterly estimated income taxes will also pay 70 percent, instead of the previous 60 percent, of their taxes during the first half of the year.
The new income tax law may spur some Californians to improve regulations on their tax forms, but unpopular feelings are brewing about the additional 10 percent increase.
“The amount will be refunded,” said Pari Velji, director of tax reporting and compliance for UC Davis. “But immediately the employee has less disposable income.”
In a season full of gifts, travels and decorations, a small amount of money withheld can seem much larger. Velji worked with the UC Davis Payroll Department to notify all UC Davis employees of the tax increase.
“The responses to our announcement [about the tax increase] indicate that generally employees are not in support of the increase,” Velji said.
Steve Poizner, state insurance commissioner and Republican gubernatorial candidate, staunchly opposes the new tax increase. He pledged, if elected, to cut income taxes, along with corporate and sales taxes, 10 percent. Poizner’s plan stems from his belief that tax cuts will please taxpayers and convince them to stay in California while promoting California’s competitiveness.
“We’ll never be able to afford anything until we have a healthy economy again,” Poizner said at Riverside Convention Center address.
Although the tax increase is meant to help the current budget deficit, the income netted so far from tax hikes is one billion dollars lower than what California legislature previously expected. Governor Schwarzenegger and the California state legislature are now at the helm of their sixth session to balance the state’s budget.
The current tax increase follows on the heels of other tax hikes put into play by the state earlier this year. Sales tax grew one percent and the license fee for vehicles became 1.15 percent of a car’s value, a fee almost double of what it had been formerly.
As a foreshadowing of the present increase, in February, California’s income tax rose one quarter of a percent for every tax bracket for 2009 and 2010.
Velji said that although the tax increase will end by 2011, he wonders if the short-term ramifications of the tax are worthwhile.
“I think it puts an undue burden on the employees when they are also dealing with the furlough situation,” Velji said.
KELLEY REES can be reached at city@theaggie.org.
