The latest gimmick of the legislature goes into effect on Monday, November 2nd for California wage earners. California income tax withholding has been increased by 10%. The goal of the increase is to have more money coming into state coffers. Taxpayers will get larger refunds (or owe less tax) but the state will be able to use that money in the meantime.
It’s just another accounting gimmick to “balance” the state’s budget. Of course it would have been better for the legislature to just cut more programs but that would require guts, something lacking in Sacramento.
There is a way for state wage-earners to get around this increased withholding: submit a Form DE-4 to your employer. You don’t want to change your federal withholding (we’ll assume that’s accurate) but you don’t want the state withholding dollars to change. If you submit a DE-4 your employer will adjust solely your state withholding allowances.
Here’s what to do. You will need your current paystub (it will show the number of allowances you claim). You will also need to look at the new table of withholding published by the EDD.
Let’s assume you’re married, paid weekly, claiming 2 allowances, and your pre-tax salary is $1848.00 per week. From page 6 of the table, we find that your state income tax withholding will be $78.28. From your last paystub, look at what your California withholding was. Let’s assume it was $73.50. We look on the same row of the table and find that $74.10 is the closest to the old withholding; that occurs at Married, with 4 allowances. So that’s what could be filled out on the DE-4.
Taxpayers do need to take care that they don’t underwithhold. You also do not want to exceed 9 allowances without discussion with a tax professional. That said, there is absolutely nothing illegal about matching your withholding to what you need withheld rather than what the state wants you to have withheld. Indeed, a refund means you’ve given an interest free loan to the government.
My hope is that California starts looking at real solutions to the state budget rather than gimmicks. Unfortunately, that’s about as likely as snow in Irvine.
