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Investment Planning |
California Residents: Tax Law Changes
In an effort to reduce California's ongoing budget deficit, significant tax law changes are in effect. Here's a summary of tax law changes in the 2009-2010 California Budget that affect the 2009 tax filing period and tax planning for 2010.
Higher Wage Withholding Rates
The withholding rate increased for "supplemental wages," such as bonuses and commissions, paid on or after November 1, 2009. Supplemental wages vary from one payroll period to another based on factors other than the amount of hours worked. Withholding increased from 9.3% to 10.23% on stock options and bonuses, and from 6% to 6.6% on other additional wages such as sales awards, commissions, overtime, and vacation pay.
Accelerated Estimated Tax Payments
Until now, estimated payments were due in equal quarterly installments. For tax year 2010, the required estimated payment schedule is 30% for the first quarter, 40% for the second quarter, and 30% for the fourth quarter. The third quarter estimated payment is eliminated.
Electronic Payments
All state of California tax payments made after January 1, 2009, must be paid electronically if an individual's installment payment exceeds $20,000 or total tax liability surpasses $80,000 for years 2009 and beyond. Failure to pay electronically will result in a 1% penalty applied to the amount paid.
Higher Income Tax Rates
For tax years beginning on or after January 1, 2009, through December 31, 2010, individual income tax rates increased by 0.25%. The income tax rate for top tax bracket single filers earning over $1 million jumped from 10.3% to 10.55% in 2009. The increase applies to resident and nonresident individuals, taxable estates and trusts, and regular and alternative minimum tax rates.
Sales and Use Tax Rate
The state sales and use tax rate increased by 1% as of April 1, 2009, effective through June 20, 2011.
Vehicle License Fee
The state Vehicle License Fee increased from 0.65% to 1.15% for most vehicles, effective May 19, 2009, through June 30, 2011.
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.