Sep 16, 2008 5:00 pm US/Pacific
New Calif. Budget May Cut Take-Home Pay By 10%
(CBS 5)
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State Capitol in Sacramento.
There's a political war brewing over 10 percent. That's the additional amount the California state government wants to withhold from taxpayer paychecks to help cover the state budget.
Governor Schwarzenegger said Tuesday he would veto the budget plan, in part because of this extra 10 percent income withholding. If the plan does take effect, there are ways to avoid the paycheck deduction.
For Cable Car Flower Shop employee Rebecca Johnston 10 percent less in her take home amounts to a few bucks a month. She'll get the money in a refund, but like many trying to make ends meet in this tough economy, she's annoyed.
"Maybe we can get a federal stimulus check to pay the state of California," Johnston said.
Chris Clayton, a locksmith, said the extra 10 percent going to Sacramento is money that's not earning interest for his future.
"Since we're not extravagant it's hard to cut on extravagances," he said. "So we'll cut back where we need to and that's savings."
Tax consultant Matthew Whatley said taxpayers do have an option. He's already telling clients if the budget plan does take effect, here's what they need to do after January to avoid giving the state what he calls an interest free loan.
"You need to tell your HR department that you want to increase your exemptions. So if the government is taking 10 percent you need to claim 1 or 2 exemptions more than what you currently have to put you back at the base level where you are paying the right amount of tax," Whatley said. "As such you thwart the state government from taking your money now."
He said the new budget plan would require self employed taxpayers who file quarterly to pay more in the first half of the year. Limited liability corporations or LLC's will also have to prepay an $800-annual tax. So, the changes could hurt small businesses like Solomon Murdoch's flower shop.
"We're not that far from closing up," Murdoch said. "We're just trying to make ends meet. We're working 12 hour days and I have less employees than I've ever had."
Rebecca Johnston is thankful she has a job in this tough economy and as for being forced to help keep the state government afloat she said, "I have a child in public school. I don't want to see his teachers not paid. It's complicated."
Matthew Whatley said if you plan to increase your exemptions to balance out your take home pay, make sure you fill out the right forms. This is a DE4 State form. The W4 records federal tax exemptions and if you increase your exemptions there, you may find yourself owing money to the federal government at tax time.
Finally, Whatley said don't do anything now. Wait until after January, just in case the budget plan does not stick.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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