Effects of Proposition 30

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The Californian’s have spoken and they have decided on higher taxes. Proposition 30 has officially passed and higher taxes are on the way. What most people do not know about proposition 30 is that most of the laws do not start in 2013 but are actually retroactive to begin January 1, 2012.

Proposition 30 increased state taxes in 2 ways. The first increase is the 0.25% increase in the state sales tax rate. This state sales tax rate is effective for four years beginning January 1 ,2013. The second increase is in the income tax rate on taxpayers making more than $250,000 a year. This increase is retroactive to January 1, 2012. See the table below for the new rates.

10.3% (1% increase) on income of:
$250,001–$300,000 for Single
$340,001–$408,000 for Head of Household
$500,001–$600,000 for Married Filing Joint

11.3% (2% increase) on income of:
$300,001–$500,000 for Single
$408,001–$680,000 for Head of Household
$600,001–$1,000,000 for Married Filing Joint

12.3% (3% increase) on income of:
More than $500,000 for Single
More than $680,000 for Head of Household
More than $1,000,000 for Married Filing Joint

These rates do not include the income in excess of $1 million that is subject to an additional 1% mental health surcharge.

This raises the question of estimated tax payments. Many taxpayers have made their estimated state tax payments according the their estimated liability at the old taxes rates for 2012. Now that the law is retroactive to January 1, 2012 are they are worried that they are going to get penalized for an underpayment penalty. Fortunately proposition 30 provides that affected taxpayers who are underpaid will be held harmless from the underpayment penalty (California Constitution, Article XIII, Section 36(f)(2)(C)(i)). To obtain relief, taxpayers must pay any balance due by April 15, 2013 (calendar-year taxpayers), and complete form FTB 5805, "Underpayment of Estimated Tax by Individuals and Fiduciaries." The FTB will not provide automatic penalty relief.

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