California hikes withholding rates

• Kay Bell
• On 6:00 am EST, Tuesday November 3, 2009

Posted Nov. 3, 2009
8 a.m.

Are you a Californian? I am so sorry!

I'm not even going to tease you about the Governator. I live in Texas, where even the folks who like Rick Perry call him Gov. Good Hair.

But from a tax standpoint, you Golden State residents have had it tough of late.

Your state's budget crisis earlier this year meant you got IOUs instead of refunds.

Then, even with Proposition 13 protections, you've encountered the same real property tax issues that have hit other areas that suffered a real estate bubble.

Now you're having more money withheld from your paychecks.

Tax rates steady, withholding increased: That's right. As of Nov. 1, the California tax collector is taking 10 percent more from workers' paychecks.

Technically, says the Controller's Office, it's not a tax increase. Your individual tax rates are still what they were when 2009 began. But as part of the budget patches adopted this summer so California could start paying its bills, the state is taking more money now in withholding so it can continue to make state ends meet.

Yeah, right. Not a tax increase. I feel for you Californians. Semantics don't mean much when you're trying to pay the electric bill or buy groceries and your paycheck is less than it was last week or last month.

But if you can just hang on, say California officials, you'll get any extra withholding next year when you file your state tax return. If you were already going to get a refund based on your withholding, you'll now get a bigger one in the 2010 filing season. If you were going to owe the state, the extra 10 percent withholding will mean you'll owe less.

Don't be an interest-free lender: I do understand why the state is doing this. But I still think it stinks.

Basically, the California Franchise Tax Board is making you give it an interest-free loan of your tax money. That's something that I have ranted about for, well, forever.

My recommendations, pleas, exhortations and commands for the last decade have been don't use Uncle Sam or any state tax revenue office as a forced savings account. Adjust your withholding so that you pay in advance just about what you will owe when you fill out your return. The best idea, in fact, is to end up owing just a tiny amount so the tax collector has to wait on you, not you wait for a refund.

I know it's easy to have the money taken out of your paycheck. I know when you don't have it, you aren't tempted to spend it.

But c'mon folks! You're all adults. You have jobs. That's why you're paying withholding. You can manage your money. I have faith in you.

If you really are worried that you'll overspend any extra paycheck cash, set up a savings account and have those few extra dollars you get from adjusting your withholding directly deposited there instead of sending it to Uncle Sam.

I'm sorry, California readers, that your state lawmakers and tax administrators make it impossible for you to do what's best for you when it comes to payroll withholding. Be sure you let them know what you think about that now and on election day.

But if you're overpaying the IRS via too much in federal withholding, at least you can make a change there right now. That might help offset some of the state tax collection pain you'll be feeling in your next paycheck.

Buzz up!