State Tax Increases on the Way

I wrote last month that many states, facing huge budget shortfalls, were considering increases to many taxes, including income taxes. California and Arizona enacted income tax increases effective May 1. New York also increased income taxes in the highest income brackets.

CNN reports today that there are $24 billion in state tax increases being considered. States are being squeezed by a record drop in tax revenues coupled with a dramatic increase in demand for social service spending. Unlike the Federal government, which can and does run deficits, most states are required by their state constitutions to balance the budget. $8.8 billion of the total $24 billion of increases is expected to be in personal income taxes.

Household employers have to watch the tax changes carefully in the coming months. This is a highly unusual year, where we have already seen a mid-year drop in Federal income tax rates and two substantial mid-year increases in state taxes. When you agree to deduct (withhold) your employee's income taxes, your employee then depends on you to properly withhold the taxes. HomeWork Solutions commits to provide employers notice, both via this blog AND via direct email, when changes occur. Clients who pay their employees directly then must follow up and adjust the payroll calculations.