Post by scorpion42 on Jun 23, 2009 13:32:11 GMT -7
Net Worth
- Kathleen Pender
State cuts tax exemptions for kids
Tuesday, June 23, 2009
California parents beware: Those little tax deductions running around the house are now worth less (in a strictly financial sense, of course).
Net Worth
To help balance its budget, California has reduced the state tax credit for dependents.
The change will increase a family's California taxes for 2009 by about $210 per dependent compared with 2008.
A family with one dependent that normally gets a state-tax refund will get back $210 less when they file their 2009 return next year. A family that normally owes money will have to pay $210 more. Multiply that by two or more dependents, and it really adds up.
This may come as a shock to parents who have been too busy shuttling between soccer games and viola lessons to keep up with the state's budget fiasco. The Franchise Tax Board is trying to get the word out, so families can prepare.
At issue is the exemption you get for each person listed on your tax return. The credit reduces your tax bill dollar for dollar. (The exemption credit phases out for couples with more than roughly $326,400 in adjusted gross income and singles with more than $163,200. This column applies to those under the limit.)
The change essentially takes us back to where we were before 1998.
Before then, the credit was the same for adults and dependents. But in 1998, when the state was awash in cash, it roughly tripled the amount for dependents.
In 2008, the exemption was $99 for each adult and $309 per dependent.
Now that the state is swimming in red ink, it decided to take away that gift to families and set the dependent credit equal to the adult amount for 2009 and 2010. So the dependent credit will shrink from $309 to roughly $99. (The credit is indexed for inflation; the final amount for 2009 will be announced later this summer.)
If you are in this boat and would rather not face a big tax bill early next year, you could pay more state tax this year, either by increasing the amount withheld from your paycheck or - if you are self-employed - by making bigger estimated quarterly tax payments.
To increase your withholding, file a new Form DE 4 with your employer. (This is the state version of the federal Form W-4.) You can get one at work or download it at links.sfgate.com/ZHLJ.
You don't have to do this now. The Franchise Tax Board will not slap you with an underpayment penalty that results from this change on your 2009 taxes. But it could for 2010.
If you don't increase your withholding, make sure you're saving enough to pay the tax next year, says Gina Rodriquez, Sacramento bureau chief with Spidell Publishing, which provides education and research to tax professionals.
Tax rates raised
At the same time it slashed the dependent credit, the state also raised all tax rates by one-quarter of 1 percent.
A married couple with $100,000 in taxable income that paid $4,689 in California income tax last year would pay $4,939 next year - a difference of $250.
The state sent new tax-withholding tables reflecting this change to employers in April. Employers should have started using them in May.
Many employees will have been underwithheld for the first four months of the year. That means a slightly bigger tax bill (or smaller refund) when they file their 2009 taxes.
Again, states won't penalize people for underwithholding that results from this tax change. So if you don't have dependents, there's probably no need to file a new Form DE 4 because of the change in the tax rates.
Just to be clear: The new withholding tables do not account for the decrease in the dependent credit. Parents who want to avoid that tax shock should consider filing a new DE 4.
Cash for clunkers
In case you missed it: Congress approved the cash for clunkers bill last week. President Obama is expected to sign it. I answered some questions about it in my blog on Friday and Monday. You can read about it at www.sfgate.com/blogs/ pender.
Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com.
This article appeared on page C - 1 of the San Francisco Chronicle
www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/06/23/BUN418BJU3.DTL
- Kathleen Pender
State cuts tax exemptions for kids
Tuesday, June 23, 2009
California parents beware: Those little tax deductions running around the house are now worth less (in a strictly financial sense, of course).
Net Worth
To help balance its budget, California has reduced the state tax credit for dependents.
The change will increase a family's California taxes for 2009 by about $210 per dependent compared with 2008.
A family with one dependent that normally gets a state-tax refund will get back $210 less when they file their 2009 return next year. A family that normally owes money will have to pay $210 more. Multiply that by two or more dependents, and it really adds up.
This may come as a shock to parents who have been too busy shuttling between soccer games and viola lessons to keep up with the state's budget fiasco. The Franchise Tax Board is trying to get the word out, so families can prepare.
At issue is the exemption you get for each person listed on your tax return. The credit reduces your tax bill dollar for dollar. (The exemption credit phases out for couples with more than roughly $326,400 in adjusted gross income and singles with more than $163,200. This column applies to those under the limit.)
The change essentially takes us back to where we were before 1998.
Before then, the credit was the same for adults and dependents. But in 1998, when the state was awash in cash, it roughly tripled the amount for dependents.
In 2008, the exemption was $99 for each adult and $309 per dependent.
Now that the state is swimming in red ink, it decided to take away that gift to families and set the dependent credit equal to the adult amount for 2009 and 2010. So the dependent credit will shrink from $309 to roughly $99. (The credit is indexed for inflation; the final amount for 2009 will be announced later this summer.)
If you are in this boat and would rather not face a big tax bill early next year, you could pay more state tax this year, either by increasing the amount withheld from your paycheck or - if you are self-employed - by making bigger estimated quarterly tax payments.
To increase your withholding, file a new Form DE 4 with your employer. (This is the state version of the federal Form W-4.) You can get one at work or download it at links.sfgate.com/ZHLJ.
You don't have to do this now. The Franchise Tax Board will not slap you with an underpayment penalty that results from this change on your 2009 taxes. But it could for 2010.
If you don't increase your withholding, make sure you're saving enough to pay the tax next year, says Gina Rodriquez, Sacramento bureau chief with Spidell Publishing, which provides education and research to tax professionals.
Tax rates raised
At the same time it slashed the dependent credit, the state also raised all tax rates by one-quarter of 1 percent.
A married couple with $100,000 in taxable income that paid $4,689 in California income tax last year would pay $4,939 next year - a difference of $250.
The state sent new tax-withholding tables reflecting this change to employers in April. Employers should have started using them in May.
Many employees will have been underwithheld for the first four months of the year. That means a slightly bigger tax bill (or smaller refund) when they file their 2009 taxes.
Again, states won't penalize people for underwithholding that results from this tax change. So if you don't have dependents, there's probably no need to file a new Form DE 4 because of the change in the tax rates.
Just to be clear: The new withholding tables do not account for the decrease in the dependent credit. Parents who want to avoid that tax shock should consider filing a new DE 4.
Cash for clunkers
In case you missed it: Congress approved the cash for clunkers bill last week. President Obama is expected to sign it. I answered some questions about it in my blog on Friday and Monday. You can read about it at www.sfgate.com/blogs/ pender.
Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com.
This article appeared on page C - 1 of the San Francisco Chronicle
www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/06/23/BUN418BJU3.DTL