California takes bigger chunk out of paychecks, will other states follow suit?

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.

What is a CPA (Certified Public Accountant)?

A CPA (Certified Public Accountant) is an accounting professional licensed and credentialed by a state or territory to offer accounting services, including tax preparation, to the public.

Read More

Brought to you by TurboTax.com

How to File an Amended Return with the IRS

If you've made an error on a tax return you already filed or simply come across new information, such as a tax deduction or credit you now realize you qualify for, file an amended tax return to make the correction. The Internal Revenue Service (IRS) knows the tax code is complex, and that people make mistakes. The process for filing an amendment is straightforward. Simply file Form 1040X, Amended Tax Return, along with the corrected or additional documents you did not originally file with your return.

Read More

Brought to you by TurboTax.com

2018 Tax Reform Impact: What You Should Know

Congress has passed the largest piece of tax reform legislation in more than three decades. The bill went into place on January 1, 2018, which means that it will affect the taxes of most taxpayers for the 2018 tax year.

Read More

Brought to you by TurboTax.com

10 Things You Won't Believe Are Taxed

From Fantasy Football to cancelled debt, here are 10 things taxed by the IRS that might surprise you.

Read More

Brought to you by TurboTax.com
Read Full Story
Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.