California Governor signs budget trailer bills including revenue acceleration provisions
As expected, Gov. Arnold Schwarzenegger signed the state budget passed by the California Legislature, including two budget trailer bills that increase personal income tax withholding, accelerate the installment payments for personal income and corporation franchise and income taxes, retroactively revise the estimated tax underpayment penalty to conform the application of withholding credits to the revised estimated tax installment percentages, and generally conform to federal backup withholding provisions.
Withholding. A.B. 17 increases payroll withholding by 10%, effective for wages paid after October 31, 2009. Similarly, withholding on supplemental wages increase from 6% to 6.6% effective for supplemental wages paid after October 31, 2009. For stock options and bonus payments that constitute wages paid after October 31, 2009, the withholding rate increases from 9.3% 10.23%.
Estimated tax payments. The law also increases the second quarterly estimated tax payment from 30% to 40%, eliminates the third quarterly installment, and increases the fourth quarterly installment from 20% to 30%, applicable to installments due for each taxable year beginning after 2009. Adjustments would also be made to the installment percentages due in instances in which the estimated tax payment threshold is reached after the first quarterly installment due date.
Withholding credits. The law revises the estimated tax underpayment penalty provision that credits the amount of withholding against the estimated tax payments due. Under current law, withholding payments are applied equally against the quarterly estimated tax payments. If enacted, this bill would revise the amount of withholding payments to be applied to the estimated tax payments due to reflect the applicable percentage of estimated tax payments required to be paid, as discussed above. Consequently, applicable to amounts withheld on wages beginning after 2008, withholding payments would be applied at 30%, 30%, 20%, and 20%, and beginning with the 2010 tax year, withholding payments will be credited quarterly at percentages equal to 30%, 40%, 0%, and 30%.
Backup withholding. A.B. 18 requires payors to withhold 7% from specified reportable payments. This would generally conform to the federal backup withholding provisions. However, California's requirements would apply to rents, prizes and winnings, compensation for services, including bonuses, and other fixed or determinable annual or periodic gains, profits, and income, but would not apply to payments of interest and dividends or any release of loan funds made by a financial institution in the normal course of business. The California backup withholding provision would apply to payments made after 2009.
Finally the Franchise Tax Board (FTB) could require a payor of income to furnish the name, address, Social Security number, or other taxpayer identification of the recipient of such income for withholding purposes. Currently, a payor is only required to supply the name and address of the payee. ( A.B. 17 and A.B. 18, Laws 2009, Fourth Special Session, applicable as noted above.)
Reprinted with permission. © CCH
(Submitted July 30, 2009)
<p>California Governor signs budget trailer bills including revenue acceleration provisions As expected, Gov. Arnold Schwarzenegger signed the state budget passed by the California Legislature, including two budget trailer bills that increase personal income tax withholding, accelerate the installment payments for</p>
California Governor signs budget trailer bills including revenue acceleration provisions
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