California Budget- Accelerated Estimated Tax Payments

For as long as I can remember, taxpayers making estimated tax payments paid in their taxes evenly over 4 quarters on 4/15, 6/15, 9/15, and 1/15 of the following year, at the rate of 25% for each payment of the required “safe” full-year estimated tax amount. There are exceptions, but the vast majority of people follow this rule.

For 2009, the clever people in Sacramento accelerated their cash flow by accelerating the % of the full-year tax due in 4 payments in chronological order as: 30%, 30%, 20%, 20% = 100% for 2009.

Now, they accelerated it again for 2010 in the recent budget bill. It will be 30%, 40%, 0%, 30% = 100%

“Revenue receipts accelerated. The first tax bill (A17, 4th S.S.) will increase tax withholding schedules on wages and salaries by 10% starting with wages paid after October 31, 2009; and will require individual and corporate taxpayers to accelerate estimated payments by remitting 30% of their estimated annual income or corporate tax liabilities in April, 40 % in June, no payment in September, and 30% in December (compared to existing law requirements of 30% each in April and June)— starting with the 2010 taxable year.”

Comments:

If you earn your income evenly throughout the year, I’m flabbergasted how it is legal to require the accelerated payment of tax prior to when a taxpayer has earned the income! At least they made the 3rd payment in September = to zero as some form of “rough justice” to even it out. Note, this rule impacts many small businesses and the self-employed as well as investors with large interest and dividend income.

More complexity and confusion in the tax law. The I.R.S. federal law did not adopt this (thanks for small favors!), so this is more I.R.S/California Franchise Tax Board NON-conformity to worry about.

No surprise, this law change is called an “accounting gimmick” by the press to balance the budget from the accelerated cash flow.

AB17, Sec. 19025 for the actual bill. http://www.leginfo.ca.gov/pub/09-10/bill/asm/ab_0001-0050/abx4_17_bill_20090723_amended_sen_v98.pdf