California tax bills may be higher next year, according to Governor Jerry Brown. The wealthiest Californians will shoulder an increased tax burden when tax day 2019 comes around.
Citing a new study by the Franchise Tax Board, it looks as though wealth Californians will pay an extra $12 billion in taxes next year.
Very wealthy Californians earning more than $1 million a year will pay the lion’s share of that money, with 43,000 of them paying a combined $9 billion.
The report comes at a time when California is seeing an exodus of high-earning residents.
The main reason why California tax bills may be higher for high-income residents is due to the changes in SALT deductions. Now capped at $10,000, residents will be unable to deduct the entirety of their state and local taxes from their federal income tax bill.
The law may effect some middle-income residents as well. About 751,000 households with incomes under $250,000 will probably see an increased tax bill. Altogether, they’ll owe an extra $1.1 billion.
On the other hand, lower-income residents and the majority of middle class residents should see a tax cut come next April. The new federal law doubles the standard deduction available to all taxpayers, and it increases a child tax credit. It also slashes corporate tax rates.
The FTB did provide a few estimate scenarios:
A married couple with three dependent children who earn $200,000. The family paid $15,000 in state and local taxes and contributed $25,000 to charities. The couple would pay less federal tax despite losing the state and local tax deduction because it would benefit from an overall lower tax rate and expanded child credits. The FTB estimated the couple would pay $22,179 – about $3,900 less than under the prior tax law.
Another married couple with dependent children in college and a combined $130,000 annual income. They have itemized deductions worth $30,000 between state and local taxes, mortgage interest and charitable contributions. The family would lose $5,000 in deductions for state and local taxes. Their federal tax bill would climb about $1,800 to $13,980.
A single mother with two children and income of $125,000. Her current itemized deductions are worth $15,000. Under the law, she’d get a standard deduction of $18,000 and a $4,000 child credit that she was not eligible to claim previously. Her taxes would decrease by $3,700 to $14,600.
Further estimates are available here.
Time will tell what the effect will be. However, for now it seems as though the wealthiest Californians will wind up paying more taxes next year.
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