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04 November 2009

Update 11 January 2010: The tool associated with this post is no longer valid for determining the effects of altering the withholding allowances on a California Form DE-4.

Burning Money As of 1 November 2009, income tax paying Californians discovered they have a new problem with their state government. Even though the state of California jacked up its state income tax rates earlier in the year, the state's spending has remained out of control while the state's income tax collections have fallen because of the ongoing economic recession. To make up the shortfall in the cash it takes in from state income tax withholding, the state of California is now effectively forcing its taxpaying citizens to loan it extra money at zero interest by increasing the amount it requires to be withheld from their paychecks.

Let's be clear that this isn't a tax increase, although it certainly resembles one in the short term. In theory, the state of California will refund all the additional money it collects above the state's income tax payers actual tax liability. We say "in theory" because the state of California likes to hand out IOUs instead of actual cash when it needs to pay regular citizens what it owes them.

While the change in state withholding amounts is intended to increase the amount of money it takes from paychecks issued in the months of November and December 2009, we can't help feel sorry for the typical California income earner, who now has measurably less cash available to pay their own bills and debts. What a way to ring in the Christmas shopping season!

So we thought we'd help out the hard working Californians who are now being compelled to provide an interest-free loan to the state. Because the old withholding rates for the state should be enough to cover their real state tax liability, we've built a tool to work out the difference between what they now have to pay and what they would have to pay to simply ensure they've withheld enough to pay their California state income taxes.

Then we figured out how many additional state withholding allowances the hard working Californian would need to take on the DE-4 state income tax withholding form so they don't have to suffer as much today for the state's chronic fiscal troubles.

We've accounted for just about everything that would affect the typical Californian's taxable income calculation in the tool below - just enter your data and we'll do the rest!

Update 11 January 2010: The tool below is no longer valid for determining the effects of altering the withholding allowances on a California Form DE-4. It applied only for the months of November and December 2009, the period in which the state California significantly cranked up its withholding amounts to acquire additional interest-free funding from income earning taxpayers in California to cover its operating expenses.

Your Paycheck and Tax Withholding Data
Category Input Data Values
Basic Pay Data Current Annual Pay [$USD]
Pay Period
Tax Filing Status Data Filing Status
Number of Withholding Allowances
401(k) or 403(b) Contributions Pre-Tax Contributions [%]
After Tax Contributions [%]
Flexible Spending Account Data Annual Contribution to Health Care Spending Account [$USD]
Annual Contribution to Dependent Care Spending Account [$USD]

Your California Paycheck Data
Category Calculated Results Values
Basic Income Data Typical Paycheck Amount [$USD]
California Tax Withholding Amounts Before Tax Withholding Rates Were Increased
After Tax Withholding Rates Were Increased
Net Difference Change in Amount Being Taken by California from Your Paycheck
Suggested Tax Withholding Adjustment Approximate Number of Extra Withholding Allowances To Take on California Form DE-4 to Get Closer to Your Real Withholding Requirement

In the tool above, we're not taking into account the state's low income exemption allowance, since it won't apply to the vast majority of the state's income tax payers. In addition, we're also erring on the conservative side of how many additional tax withholding allowances may be taken. A California tax payer seeking to take advantage of this tool to determine how many more withholding allowances they might take without being penalized for overwithholding or underwitholding should consider how much they may already have overpaid or how much they may have underpaid their state income taxes.

We'll also caution those adjusting their California state tax withholding to be sure to revise it again in the new year to avoid underwithholding income taxes in 2010. Since this excessive income tax withholding only applies to California's state income tax, federal income tax withholding should not be changed.

Update 16 November 2009: We've corrected the amount of each California withholding allowance, changing the figure used in the tool above from $99 to $108.90, which matches the new level that applies for the period from 1 November 2009 through 31 December 2009. Our thanks to the sharp-eyed reader who caught our error!

Elsewhere on the Web

If you're looking to double check our tool's results, or maybe if you want to run the income tax withholding numbers that apply for your state, we recommend PaycheckCity.com's state-by-state paycheck withholding calculators.

Previously on Political Calculations

Did you ever wonder what your paycheck would have looked like in previous years, taking into account the portion of your pay that is affected by federal taxes? Our archive of tax withholding calculators can show you!

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About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

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