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State Increases Income Tax Withholding

State Increases Income Tax Withholding to Boost State Coffers

POSTED: 5:24 pm PST November 2, 2009
UPDATED: 8:47 am PST November 3, 2009

The next time you get your pay check you'll notice a little less money as the state is now holding more of your income. It's not a new tax, but rather more of an interest free loan.

Starting Nov. 1, the state increased the amount of money withheld in your paycheck by 10-percent.

It was part of the budget package approved back in February, but it collects no additional tax revenue as it just gives the state the money earlier.

"Everyone is pay as you go in the state of california so when they earn their wages they pay a bit into it so they meet their tax responsibility and that has been increased by ten percent," said Brenda Voet, spokesperson for the California Franchise Tax Board.

It's an increase devised by state lawmakers to help cover the state's finances during the difficult economy, but it isn't a tax increase rather a $1.7 billion loan as the money is supposed to be returned to taxpayers as part of your tax refund or a reduced tax bill.

"What this is doing is taking a little more out of each paycheck to make sure you meet your obligation on April 15th," Voet said.

"Desperate people think of desperate things to do," says Michael Turnipseed, Executive Director of the Kern County Taxpayers Assoc., who doesn't believe the measure will help the state budget mess. "It's just a way for the state to try and speed up cash flow because their kitty is dry and they're doing everything possible to pay their bills and not have to do IOUs, and this just another trick somebody thought of."

The increase won't have a huge effect for the rest of this year, but it might down the road and it has no expiration date.

The impact depends on what you make and what you withhold from your paycheck. A single wage earner making $51,000 a year with no dependents will lose $4.06 a week, while a couple earning $145,000 a year with no dependents will lose $16.90 a week.

But the Franchise Tax Board says you can minimize such losses by altering your withholding allowances.

"It's a good time to talk to your human resource department or payroll department and determine the amount of withholdings that can be taken out of each pay check," Voet said.

You can also figure out what you will lose by going to the Franchise Tax Board's website, where they have a chart breaking down the income withholdings. You can find that information here: http://edd.ca.gov/Payroll_Taxes/Rates_and_Withholding.htm

The only tax increase instituted by the legislature and governor is a temporary quarter percent income tax increase which expires at the end of 2010.
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