As part of its attempt to narrow the budget gap, rather than raising tax rates which would have been politically unpopular, the California legislature enacted measures to allow the State to collect income taxes more rapidly. Beginning November 1, 2009, the wage withholding tables will be revised to increase the withholding amounts by 10%. For supplemental wages (i.e., overtime, commissions, retroactive salary increases), the withholding rate will increase from 6.0% to 6.6% and for stock options and bonuses, the withholding rate will go from 9.3% to 10.23%.

Estimated tax payments are also accelerated. In 2009, the quarterly payments (April, June, September and January) are 30%, 30%, 20% and 20%. Beginning in 2010, they will be 30%, 40%, 0% and 30%.

The income tax brackets in California are indexed for inflation. The Franchise Tax Board has just reminded us that this can work both ways. Because the California Consumer Price Index showed a deflation rate of -1.5%, the brackets have been adjusted for 2009 so that the threshold where a taxpayer begins to pay tax at the next higher rate is lower than it was for 2008. The amount of the standard deduction, also inflation indexed, declined as well. For 2009, the standard deduction amount is $7,274 for a joint return, compared to $7,384 for 2008.