Paying California Taxes in 2024

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Nobody likes to pay taxes, but the obligation to write that check to Uncle Sam on April 15 is coming soon. State taxes will also be due at that time. One state that is known for its taxes is California.

California has nine tax rates. Depending on a taxpayer’s income, they range from 1 percent to 13.3 percent. But there are also payroll taxes that eat away at income. Are there changes in California tax law for 2024? What credits are available? And what happens if you can’t pay your California state taxes?

New Payroll Taxes for 2024

On Jan. 1, 2024, employees received a payroll tax increase. The tax affects private-sector employees and is often labeled CASDI. It funds the California State Disability Insurance (CASDI) and paid family leave programs.

In 2023, the “contribution rate” was 0.9 percent of pay up to $153,164 in annual wages. Payroll over that amount was exempt, so the maximum CASDI tax was $1,378.48.

But 2024 brings a higher tax rate and wage ceiling.

The contribution now sits at 1.1 percent. A taxpayer earning $85,000 will now pay an extra $170 annually. The largest change is the payroll limit. The new tax will apply to an unlimited amount of pay. For example, an employee earning $200,000 will see an increase of around $822.

This quietly levies an additional tax on higher-income taxpayers. For example, the top income tax rate is 13.3 percent. With the addition of the increased CASDI tax, that would bring taxable income to a 14.4 percent rate.

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This tax increase pays for additional benefits under California’s disability insurance and paid family leave programs.

Starting in 2025, benefits will increase. Currently, they are at 60–70 percent of income, but are slated to be 70–90 percent depending on income.

Most self-employed people and public-sector employees don’t pay into the program. They aren’t eligible for benefits.

Does California Have an ‘Exit Tax’?

The exit tax was proposed for 2023 to “protect the state.” California wanted to recoup money that the state had invested in development through tax breaks, financial incentives, or infrastructure support.

The other reason was to close a capital gains loophole. Californians would move out of state before liquidating assets to avoid California’s tax.

However, it is illegal in the United States to tax someone for moving out of a state. An exit tax may violate the U.S. Constitution’s Due Process or Commerce Clause. But California has proposed exit taxes in the past.

California does make life more difficult for those with a net worth of over $30,000,000 in a tax year. The state charges a tax of 0.4 percent, and the net worth can be located in a different state or country and still be subject to the tax.

California Standard Deduction

Just like the federal government has a standard deduction, so has California.

For tax returns filed in 2024, California’s standard deduction is $5,363 for single or married filing separately. For those filing jointly, the deduction is $10,726.

California Tax Credits

California has some tax credits to help reduce tax liability.

The California child and dependent care tax credit offers a nonrefundable tax credit for people with expenses related to the care of a child, spouse, or any other dependent type. It is similar to the federal child and dependent care credit. It also allows the taxpayer to claim a certain limited percentage of their expenses.

Also, like the federal government, California has an earned income tax credit (CalEITC). Californians with earned income and federal adjusted gross income (AGI) of more than $1 and not more than $30,950 are eligible for a tax credit. The amount depends on the number of qualifying children and the taxpayer’s filing status.

The California Young Child Tax Credit (YCTC) is a refundable credit modeled after the federal version. It provides up to $1,117 per eligible tax return. It can provide a refund or reduction in taxes. A family qualifies with an earned income of up to $30,931.

There is a California nonrefundable renters tax credit. If a single filer’s income falls below $50,746, they are eligible for a $60 credit. Those filing jointly and earning less than $101,492 receive a $120 credit. The taxpayer must have paid rent in California for at least six months.

Trouble Paying California Tax Bill

According to the State of California Franchise Tax Board, there are options for taxpayers who may find it difficult to pay their California tax bill.

One option is requesting a 30-day delay to pay the balance in full. But this is a one-time request, so it can only be used once.

A taxpayer can apply for an installment agreement. A personal taxpayer takes up to 90 days, and it takes 60 days for a business to process the request.

Once approved, a personal taxpayer will have three to five years to pay off the balance. A business is typically given up to 12 months.

Personal taxpayers requesting a payment plan cannot owe more than $25,000 and must be able to pay the balance in 60 months or less. The taxpayer must also have filed all their income tax returns in the past five years.

Tax Increase Under the Radar

California slipped a tax increase under the radar with the CASDI. Many may not immediately notice the 1.1 percent increase. But it will increase the tax burden on higher-income earners.

Contact an accountant to learn how California tax credits can lower your tax liability.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.