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| Greetings,
This tax season update deals with the new changes in California taxes. My apologies if this e-mail does not pertain to you if you. A Federal update will follow shortly. |
| California finally passes a budget
A mixed bag of taxes and benefits |
| Early this morning, the California legislature finally passed a budget package, after removing some tax increases and adding some goodies. The budget package, which covers the state's 2008-09 and 2009-10 fiscal years, is awaiting the Governor's signature. The Governor is expected to sign it, after he line-item vetoes about $600 million of various expenditures.
The tax changes include:
- Sales and use tax rate increase by 1%, starting April 1, 2009;
- Increase in the personal income tax rates by 0.25% or 0.125% depending on federal stimulus revenue;
- Dependent exemption credit decrease to the same amount as the personal exemption credit, for the 2009 and 2010 taxable years;
- Vehicle license fee increase by 1% and vehicle registration fee increase by 0.15%, starting May 19, 2009;
- New homebuyer credit;
- Tax credits for the entertainment industry;
- Tax credit for small businesses (under 20 employees) hiring new employees; and
- Single sales apportionment factor.
Missing from the final package is:
- Gas tax increase (originally included in the assembly version but removed in the final version);
- 5% surtax (originally included in the assembly version but removed in the final version);
- Sales tax on services (discussed and included in earlier versions of the bill); and
- Withholding on independent contractors (which had been under serious consideration).
Hopefully this will get the State on track to issue refund checks within the 30 day window that they have announced.
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| New Rules for California Estimated Tax Payments
Individuals
As the result of legislation enacted last year, there is a new California estimate payment requirement beginning on or after January 1, 2009. This new law changed the percentage amount for estimated tax installment payments from four equal installments of 25 percent of the required annual amount to installments of 30 percent of the required annual amount for each of the first two installments and 20 percent of the required annual amount for the last two installments.
The new law did not change withholding requirements, therefore, wage earners do not need to change their withholding to address the change to the percentage amount for estimated tax installment payments, so long as the total amount of tax owed with the return for 2009 or 2008, after being reduced by credits and taxes withheld for the applicable year, is less than $500 ($250 in the case of a married individual filing separately). This $500 threshold was increased this year. In previous years the threshold was $200.
Unlike an estimated tax installment payment, which must be paid in an amount required by the law to avoid an underpayment penalty for a particular installment, taxes on wages do not need to meet the percentages for estimated tax installment payments to avoid the penalty for underpayment of estimated taxes. Taxes withheld on wages can vary substantially over the year and withholding can be increased at anytime during the year to meet the less-than-$500-owed threshold and avoid the penalty. If, however, taxes withheld for a taxable year and credits for a taxable year do not reduce taxes owed to less than $500 for the current year or the prior year, then a taxpayer may need to make estimate payments, paid in the required installments, to avoid the penalty for underpayment of estimated tax.
In addition, there are new rules for estimated tax penalties. For 2009, withholding, credits and estimated tax payments must be 90% of your 2009 tax or 100% of your 2008 tax (110% of 2008 tax for taxpayers with 2008 adjusted gross income (AGI) in excess of $150,000 ($75,000 for married/RDP filing separately), but less than $1 million. ($500,000 if married/RDP filing separately).
For tax years beginning January 1, 2009, these rules do not apply for taxpayers with 2009 California AGI equal to or greater than $1 million ($500,000 for married/RDP filing separately). These taxpayers must pay in 90% of their current year tax in order to avoid a penalty.
Since the underpayment penalties for high-income taxpayers can be considerable, it is imperative that you contact us to calculate your quarterly estimated taxes during the year if these rules are going to affect you.
Corporations |
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For taxable years beginning January 1, 2009, corporations must accelerate their estimated payments and pay 30% of their estimated tax liability on each of the first 2 vouchers and 20% on each of the last 2 vouchers. The first payment must be a minimum of $800.
LLCs
LLCs will be required to pay the fee twice in 2009. For taxable years beginning on or after January 1, 2009, the fee is due on the 15th day of the sixth month of the taxable year - June 15, 2009 for calendar year taxpayers. That means that an LLC will owe the 2009 annual tax of $800 on April 15, 2009, the 2008 annual fee of $800 on April 15, 2009 and the 2009 annual fee of $800 on June 15, 2009.
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| Mandatory Electronic Payments
For large payments, but anyone can do it |
All payments made by an individual on or after January 1, 2009, regardless of taxable year or amount, must be remitted to the Franchise Tax Board electronically once the individual either:
Meets a single estimated tax or extension payment greater than $20,000 for a taxable year beginning on or after January 1, 2009, or
Files an original return with a tax liability greater than $80,000 for a taxable year on or after January 1, 2009.
These payments may be made by:
- Web pay on the Franchise Tax Board website
- e-Pay with the tax return
- Credit card
- Telephone (available approximately July 2009.
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Please contact my office if you have any questions about any of the above matters. I will try to keep my tax season updates to a minimum to avoid clogging your inbox.
Sincerely,
Linda Heineman
Linda L. Heineman, CPA |
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