California Personal Income Tax (PIT)
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California Personal Income Tax (PIT)

Personal Income Tax (PIT) adds up every week a Californian works for an employer. The employers put the money in an account to give to the state.

The total income earned by a California worker they can use to pay for their living costs is left after their employer takes out the payroll taxes. The personal income tax (PIT) taken out makes the state budget accounts balance.

Every worker with a name on the payroll lets their employer count out a percentage of the amounts earned for being one of the people that does the business's work.

A Tax Taken Out of Owed Income

California employers take the personal income tax amounts out of their workers' pay. The payroll deduction is called tax withholding. People that earn income for doing business work in California, even when they live outside the state, also pay the PIT.

How much money is taken out depends on the worker's marital status and allowances written on their W-4 or DE 4. Employers use the California tax withholding schedules to calculate the amount.

The Account Handlers

Two state agencies handle the amounts taken out of a worker's pay. The Employment Development Department (EDD) collects the amount employers deduct from their worker's pay. The Franchise Tax Board (FTB) use the money to put funds into state accounts used to pay for public services. Those services include schools, public parks, roads, and health and human services.

Total Earned Income

PIT is a tax on productivity. Money earned by doing work that gets a business's work done is taxable wages. Wages are both amounts paid in cash and those not paid in cash. The simple way to know the payments made to workers that are wages is to list all those payments that must be on the California income tax return. Salaries, bonuses, commissions, and fees are the most typical wages that are paid in cash. Common payments made in another form include goods give to a worker for their work, work lodging, and meals on the job. The fair market value is used for these payments.

There are also a number of supplemental wages that are added in to the total wages before an employer looks up the tax rate on a withholding schedule. Overtime pay and vacation pay can be an important part of a worker's income. The pay paid out after a worker ends their job and leaves the business is also put on the wage books. Two other added payments California employers give their workers as part for their pay for their work are sales awards and stock options.

Contributions taken out of pay to pay into a qualified retirement or pension plan are not PIT wages. But, some payments made to family members that work for a business may be counted in the total taxable wages.

Employers and workers can compare the total PIT wages to the State wages, tips, etc. box (Box 16) on federal Form W-2, the Wage and Tax Statement. The two amounts are supposed to match. For each employee, PIT wages are reported quarterly on DE 9C. The payroll total wages goes on DE 9.

The Counts Given

Regular tax withholding is a basic part of paying workers and managing the payrolll. Employers give to the state the money their workers make.

Source:

California Employment Development Department, California Employers Guide 2011 (Internet, January 2011).

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