President Donald Trump’s tax cuts will be anything but for about 1 million California taxpayers who will owe Uncle Sam more money a year from now.
They’re the Californians who will lose a collective $12 billion because the new law caps a deduction they have been able to take for paying their state and local taxes, according to a new analysis by the Franchise Tax Board.
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.
But some middle-class Californians will pay more, too. About 751,000 households with incomes under $250,000 probably will owe more tax. All together, they’ll owe an extra $1.1 billion.
The FTB has been releasing reports on the new tax law in waves since December, explaining in detail how it differs from state regulations and analyzing how taxpayers might respond to the changes.
Overall, most Californians should see a tax cut. 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.
It’s still hard to tell how it will affect individual families and businesses, said Controller Betty Yee, a member of the tax board. She doesn't have a clear picture yet on how different aspects of the new law will interact and potentially change taxpayer decisions.
“What we’ve been telling taxpayers is just stay in touch with your own situation, stay in touch with your tax preparer,” she said.
“And with the state,” she said, referring to the Legislature and other policy makers, “we shouldn’t rush to judgment.”
The batch of reports the FTB published in March focused on the new cap on deductions for state and local taxes. California Democratic leaders have been wary of how the tax law will play out. Gov. Jerry Brown called it “evil in the extreme,” arguing that it primarily benefits wealthy people and swells federal deficits by hundreds of billions of dollars.
He also said in January that he’s worried that the changes will provide an incentive for wealthy Californians to leave the state, potentially starving the state of tax revenue. The state’s wealthiest 1 percent, for instance, pay about 48 percent of the state’s personal income tax.
Republican George Runner, a member of the Board of Equalization and the Franchise Tax Board, said the board's report demonstrated that most Californians would benefit from the new law.
“The scenario that was being presented where Democrats were crying that Californians won’t benefit from it truly was out of place,” he said.
“The higher-income bracket” Californians who probably will pay more tax “for the most part, it’s the price you pay for having a high-priced house in California,” he said.
The FTB carried out its analysis with a sample of 300,000 California tax returns from 2015. It built a model to help it predict how taxpayers in different income tax brackets would respond to changes in the law.
That year, 5.9 million Californians itemized their returns and claimed $110 billion in deductions for state and local taxes. About 2.6 million of them claimed more in state and local taxes than the new $10,000 cap on those deductions would allow.
About 1.5 million Californians who claimed more in state and local taxes than the new law allows should still see a tax cut next year because of other changes in the law, according to the FTB. About 100,000 of them will owe about the same amount of tax, and about 1 million taxpayers likely will owe more tax.
The FTB report "highlights the fact that most Americans and Californians as well are going to see a tax cut, contrary to what some others have been saying," said Assemblywoman Melissa Melendez, R-Lake Elsinore, a member of the Revenue and Tax Committee.
The FTB report also gave five examples of how different households would be affected by the cap on the state and local tax deduction. They were:
- 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 father with a child in college and income of $125,000. He has itemized deductions of $28,000, which would decrease to $18,000 because of the cap on deductions for state and local taxes. His federal tax bill would increase by about $1,800 to $18,100.
- 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.
- A married couple with two children who earn $50,000 in wages and $150,000 in pass-through income from a business they own. They had $80,000 in itemized deductions, and their tax under the previous law was $19,200. They have the most to gain if their small business income qualifies for a new 20 percent deduction on pass-through income. It would reduce their federal tax bill by $4,900.
President Donald Trump displays the $1.5 trillion tax overhaul package he had just signed on Friday, Dec. 22, 2017, in the Oval Office of the White House in Washington. Evan Vucci AP
No comments:
Post a Comment