SACRAMENTO, Calif. — January is usually filled with new laws and they can include changes to your taxes. By now you’ve probably seen headlines talking about California’s new income tax rate – 14.4%.
Living in California isn’t cheap so ABC10 spoke with a tax expert to understand the new rate and who it impacts. He had good news for most taxpayers…
Flaminius Ching, a CPA in Elk Grove, says while the number is shocking, the rate won’t apply to most California taxpayers.
“For those that have incomes above $154,000, they will feel that. They will certainly feel the pain of an additional 1.1% on all the income that they generate beyond $154,000,” said Ching.
But why did the rate change?
Back in 2022, Governor Gavin Newsom signed Senate Bill 951 to increase access to family and disability leave benefits, saying in part: “... to ensure more low-wage workers, many of them women and people of color, can access the time off they’ve earned while still providing for their family.”
As a result, some taxpayers will pay more.
The 14.4% rate is a combination of the highest marginal tax bracket, mental health tax and now uncapped state disability insurance, which is a payroll tax.
The payroll tax isn’t new for high-earning Californians, but the tax was previously only imposed on wages up to $145,600.
“With the new legislation that came into play for 2024, there is no longer a wage cap of $154,000 and the rate went up to 1.1%,” said Ching.
As of Jan. 1, workers making more than $145,600 per year will now pay the tax.
“This increase from 0.9 to 1.1% would increase their tax for the year by $308,” said Ching.
So, while a tax increase is true for most people making more than $154,000, the potential combined tax rate of 14.4% applies to California’s top income tax bracket, meaning people earning more than $1 million mostly through salary.
The IRS announced Jan. 29 is the official start date of the 2024 tax season. It expects more than 128 million tax returns to be filed by the April 15 deadline. The IRS expects most refunds to be issued in less than 21 days.
WATCH MORE ON ABC10: What the IRS adjusting 2024 tax brackets for inflation means for you
