California lawmakers are voting on their new budget plan today, and the San Francisco Gate posted a new article taking a look at the proposed budget. According to their article, the State would “increase the amount withheld from employee paychecks by 10 percent, speed up estimated tax payments, and begin withholding state income tax from certain payments - such as interest, dividends and gambling winnings”. Although the plan has a lot of critics, it is expected to help close the state’s budget gap.
These maneuvers will not increase tax revenue by more than a token amount. They will simply bring revenue that normally would be paid in the fiscal year that begins July 1, 2010, into the current fiscal year, which ends June 30, and thereby help "balance the budget."
And what about the hole in next year's budget? The state could fill it by stealing from the next year.
"It's a gimmick," says Gina Rodriquez of Spidell Publishing, which provides information to tax professionals.
Here's a closer look at how this would impact taxpayers. Remember that the state's fiscal year ends June 30 but the tax year ends Dec. 31:
-- Starting in October, employers would have to increase the amount withheld from employee paychecks for state taxes by 10 percent. If you were having $50 withheld, starting in October you would have $55 deducted.
When you file your 2009 tax return, you would owe less or get a bigger refund than you would if this change did not take place.
People could prevent or reverse the withholding increase by filing a new Form DE 4 with their employer. But the state figures most people won't, because they're lazy or busy or like getting a big tax refund.
This move would accelerate $1.7 billion of personal income tax receipts into 2009-10, mainly through increased withholding in January through June. Any excess revenue collected during that period would not have to be refunded until taxpayers file their 2010 returns in early 2011, which falls into next fiscal year.