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Friday, Nov. 06, 2009

The Stockton Record: Creative tax collecting

This week California workers started making bigger interest-free loans to the state government.

The state did this by upping state income tax withholding by 10 percent as part of the Legislature's solution to the $42 billion budget deficit.

It's not a tax increase, state officials say, it's more like a cash advance. Taxpayers will get the money back when they file their income tax return (every cent of which also is an interest-free loan). But that doesn't mean it won't feel like a tax increase.

A single wage earner making $51,000 a year with no dependents will see a $4.06 increase in weekly state income tax withholdings, according to state officials. A couple earning $145,000 a year with no dependents will notice a $16.90 increase in weekly withholdings.

For the 2009 tax year, the increase won't mean much. There are only two months left.

But it will take a bigger bite out of taxpayers' income after that. The stepped-up withholding goes on indefinitely.

That means next year that $51,000 a year single wage earner will loan the state an extra $211.12 and the $145,000 a year couple will make an extra $878.80 loan. Interest free.

There probably is a way around this: wage earners can adjust their withholding by changing the number of dependents they claim on their W-4 form filed with their employer.

Or, as the IRS says on that very form: "Consider completing a new Form W-4 each year and when your personal or financial situation changes." Even that won't stop all of this: starting in February -- again as part of the budget deal hatched last February -- taxpayers will be hit with a personal income tax rate increase of 0.25 percent lasting through the end of 2010. Starting Jan. 1, taxpayers will be required to pay 70 percent of their estimated taxes during the first six months of the calendar year. That's up from 60 percent.

And if you pay quarterly taxes, there also are changes: tax filers making estimated payments will pay 30 percent in the first quarter, 40 percent in the second, nothing in the third and 30 percent in the fourth.

If all this strikes you as a bookkeeping game at taxpayers' expense, that's because it is. It also is just one more indication of how state lawmakers keep dancing around the budget problem rather than dealing with it.