CA Withholding Change - CA Borrow from Employee Implementation

[Medlin Software, Dennis]

CA EDD has posted the formula/tables reflecting 10% increase in withholding (no increase in tax liability) to take effect on paychecks dated Nov 1, 2009 or later.

Let the allowance adjustments begin!

[jainen]

>>no increase in tax liability<<

Sure, and then issue our refunds in the form of I.O.U.s again like they did this year. Balance the budget by stealing from the working class--but at least they can say they aren't raising taxes!

[Medlin Software, Dennis]

Personally, I never get a withholding refund from CA or Fed as I make sure to withhold only enough to avoid penalty... No tax preparer is likely to advise that as clients seem to shop for the biggest refund.

Funny money is all it is, delay a civil servant payroll for one day to shift the pay amount to the next fiscal year, increase employee withholding but not liability, juggle the percentage of deposits to front load the tax year, etc.

[Wayne Brasch]

Personally, I never get a withholding refund from CA or Fed as I make sure to withhold only enough to avoid penalty... No tax preparer is likely to advise that as clients seem to shop for the biggest refund.

Funny money is all it is, delay a civil servant payroll for one day to shift the pay amount to the next fiscal year, increase employee withholding but not liability, juggle the percentage of deposits to front load the tax year, etc.

Medlin Accounting,

I have always advised my clients that, in my opinion, it would be better for them to try to break even when they file their personal tax returns. I always offer to get with them several time a year, by any means they choose, to modify their Federal and State withholdings so that they accomplish that. Most of them, though, don't want to do that-they want to get the BIG refunds. It seems to make them feel as if they beat the government. We know, of course, that is their money in the first place and they have only let the government use their money for several extra months. My Wife and I usually owe IRS just a small amount and get a small refund from GA. They just about each year offset each other.

Wayne Brasch

[Medlin Software, Dennis]

Good information Wayne. I do read here how many clients people refund shop. It seemed reasonable to speculate if one gets clients because of the refund they can help obtain, it may not be in their interest to "reduce" the refund by letting the taxpayer use their money as earned.

I have no problem paying taxes owed, it is a good thing to have earned enough to owe taxes... I do try to delay payment as long as possible. If the law is deposit same as last year's liability or be within $400 of current liability, I will do whatever is the minimum to avoid penalty. I think of it as an interest free loan, being the same as paying utility bills on the due date instead of months in advance. I just never "got" using withholding as a savings(?) plan. If one is so bad at money management they cannot make their own savings deposits (in an interest bearing account - even at today's rates), they should probably be using a personal money manager.

Since I have the ability to do so, I have little or no withholding until December, and withhold what is needed in December. A decent part of my income is in December anyway, but I even used to do this when I was an hourly employee. There is one caution to doing this, I did get a lock in letter a year or two ago because of no withholding on a decent amount of earnings. Since my employer knows of my strategy, it was not embarrassing to me, and a 5 minute phone call to a live person at the IRS cleared up the issue. The IRS rep saw I paid on time, had no penalties, and cleared the lock without even inquiring as to my withholding strategy.

[ed_accountant]

Sounds like California is pushing the problem forward..

[jainen]

>>If one is so bad at money management they cannot make their own savings deposits (in an interest bearing account - even at today's rates), they should probably be using a personal money manager.<<

I have always opposed this loud rant about "giving the government an interest free loan." I find it simplistic and frankly insulting. In most cases refunds are a relatively minor element in taxation, especially over the short time frames involved. Maximum yield is only one of many important investment goals, and substantial withholding is a perfectly valid and respectable technique. It is an easy and effective way to control risk, guarantee the preservation of capital, and avoid management costs while optimizing cash flow for whatever personal purposes may apply. I trust that my clients understand their own financial circumstances, and respect anybody's right to do whatever they want with their own money.

[Medlin Software, Dennis]

Jainen,

I can see your point, but it also supports mine. People have the right to do what they want with their earnings. Increasing withholding with no tax increase (and not even trying to pretend it is not a budget gimmick) is wrong.

That is why I am so strongly for willingly rendering what is due, but basing it on actual calculations of liability, not an arbitrary "marital status", "allowance" etc. I have no problem with withholding a certain amount in case something changes, but hearing about thousands of dollars in refunds when the person may need a refund loan to pay a bill is silly.

I may be biased because I have to follow all the state and territory withholding methods, as there are some CRAZY methods in use... CA is creeping higher on the list.