2013 Changes to California Laws that Affect San Jose Taxpayers

January 31, 2013, by Tamara B. Pow

Although 2013 is well under way, taxpayers in San Jose may not be aware of changes to California laws that may affect them. Some of these changes include:

Proposition 30

With all the talk about federal income taxes going up this year, do not forget about the Proposition 30 retroactive increase in California taxes, effective as of January 1, 2012. For taxpayers with taxable income over $250,000, the California maximum rate is now 12.3%. On top of this, there is a 1% mental health surcharge for taxpayers with taxable income over $1,000,000. Together, these taxes give California the highest maximum state tax rate. If you fall under these tax brackets, you may not have paid enough taxes throughout the year, through either withholding or estimated tax payments, to avoid being under-withheld. However, there will be no penalty for the under-withholding so long as you pay the tax due in full by April 15, 2013. The ability to get out of penalties expires on April 15th. An extension to file doesn't extend the payment deadline or the penalty exclusion. A late payment penalty of 5% plus 0.5% per month will be due if the full 2012 liability is not paid in full by April 15th.

Source: Spidell's California Taxletter Volume 34.12, December 1, 2012.

Sales Taxes

As of January 1, 2013, the California state sales and use tax rate increased by 0.25% to 7.5% for four years. Of course, city and county district taxes are added on top of the 7.5%.

Source: Spidell's California Taxletter Volume 34.12, December 1, 2012.

Retirement Contributions

Taxes may be going up in 2013, but dollar limitations on retirement plans will also be higher this year. The maximum 401k contribution has gone up $500 to $17,500, with people born before 1964 able to put in as much as $23,000. The pay-in limitation for defined contribution plans goes up to $51,000, and the pay-in limits for IRAs and Roth IRAs goes up to $5,500, with an extra $1,000 of pay-ins available to those born before 1964.

Source: The Kiplinger Tax Letter, Vol. 87, No. 22 (Oct. 26, 2012).

IRS Mileage Rate

It is important for businesses to be aware of the current standard mileage rate since many use that rate to figure out both their reimbursement amounts and their tax deduction for miles driven in the course of business operations. The IRS has announced the mileage rates for 2013:

• 56.5 cents for business miles (up from 55.5 cents in 2012)
• 24 cents for medical and moving miles (up from 23 cents in 2012)
• 14 cents for charitable miles

California conforms to these amounts.

Source: Spidell's California Taxletter Volume 34.12, December 1, 2012, p. 143.

The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to the author.