|There’s change in the air! Both the federal government and the state of California have made changes in payroll withholding in 2009. Your withholding for federal income tax was changed this spring and California implemented their change effective 10/31/09.
What’s it mean to you as a tax payer? California’s Change – Think of it as a one time personal loan of 10% of your current withholding to the state with no interest payable for the next two to six months. This is not a tax rate increase, so you will see a larger refund or lower tax liability in April.
MICHAEL SHAW, CPA, describes the effect as follows:
• For most people who earn approximately $100K in wages and own a home, the 2009 impact is nominal; generally resulting in additional withholding of less than $100.
• For higher wage earners, especially those who receive large bonuses or exercise stock options in the last few months of the year, it would be wise to consult your tax advisor.
• For 2010, the increase in withholding will affect the entire year, and more wage earners will have to struggle with refiguring their withholding allowances, or wait patiently until 2011 for their refund.
Federal Income Tax Change – The 2009 Economic Stimulus Package includes a new tax credit called “Making Work Pay” that will reduce tax liability by as much as $800 for some couples and $400 for singles. Your withholding was increased to reflect this credit regardless of whether you will qualify.
Who won’t be eligible for the “Making Work Pay” credit? And who needs to plan to come up with another $400 – $800 at tax time next April?
• Couples with income greater than $75,000 – $95,000 will have a reduced credit or no credit at all.
• Singles with income greater than $150,000 – $190,000 will have a reduced credit or no credit at all.
• Single people with more than one job.
• Married couples with two jobs.
• Pensioners, although they may qualify for a “Special Credit for Certain Government Retirees” if they are lucky.
If you won’t qualify for the “Making Work Pay” credit, you may want to take a second look at your withholding and possibly set aside more for taxes. And if you have a large portion of your compensation tied to bonuses and stock options, or if your income exceeds $150,000, please consider seeing a Certified Public Accountant.
MICHAEL SHAW, CPA, is a local Mill Valley accountant who shares a practice with his father, Donald Shaw. He has a Masters in Tax from Golden Gate University and a focus on tax compliance and planning for individuals and small businesses.