California Proposition 30 – Sales and Income Tax Increase

Dear MKW Clients,

We hope the year is ending well for you and your business.

We would like to take a moment to inform you of the effects of the newly passed California Proposition 30 – Sales and Income Tax Increase.

Proposition 30
Effective retroactive to January 1, 2012, California income tax rates will increase for taxpayers with taxable income of more than $250,000. This change creates three new upper income tax brackets for California as shown in the table below.

Taxable Income                   Filing Status

Tax Rate

$250,001 - $300,000    Single or Married Filing Single

$340,001 - $408,000    Head of Household

$500,001 - $600,000    Married Filing Joint

10.3%

(Increase of 1%)

$300,001 - $500,000    Single or Married Filing Single

$408,001 - $680,000    Head of Household

$600,001 - $1,000,000 Married Filing Joint

11.3%

(Increase of 2%)

$500,001 and over       Single or Married Filing Single

$680,001 and over       Head of Household

$1,000,001 and over    Married Filing Joint

12.3%

(Increase of 3%)

Because the tax is retroactive, taxpayers subject to the tax increase may be under-withheld, meaning you may have not paid enough from your salary to the state to pay your estimated income tax. Normally, under-withheld taxpayers are assessed an underpayment of estimated tax penalty, but there will be no penalty if the underpayment is attributable to this retroactive tax increase. However, if you do not pay the full balance of your 2012 tax by April 15, 2013, there will be a late payment penalty of 5% plus 0.5% for each month the payment is late. 

Mental Health Surcharge
The 1% mental health surcharge will still apply to taxpayers with more than $1 million of taxable income.

If you have any questions about this new tax change or any questions regarding your tax plan, please feel free to contact us.

Best wish for the holidays and New Year.

Sincerely,

Milam, Knecht & Warner, LLP