On November 6, 2012, California voters approved Proposition 30 (Initiative Constitutional Amendment), which includes a tax rate increase for individual taxpayers with taxable income of $250,000 or higher. The new higher income tax brackets are effective retroactively to January 1, 2012.

Previously, California’s highest income tax bracket was 9.3%. However, the highest effective tax rate was 10.3% as a result of the Mental Health Services Tax which imposed an additional 1% tax on taxable incomes in excess of $1,000,000.

Effective January 1, 2012, the new California higher income tax brackets are as follows:

Single or Married Filing Separate

• 10.3% for taxable incomes of $250,001 to $300,000
• 11.3% for taxable incomes of $300,001 to $500,000
• 12.3% for taxable incomes over $500,000

Married Filing Jointly

• 10.3% for taxable incomes of $500,001 to $600,000
• 11.3% for taxable incomes of $600,001 to $1,000,000
• 12.3% for taxable incomes over $1,000,000

Head of Household

• 10.3% for taxable incomes of $340,001 to $408,000
• 11.3% for taxable incomes of $408,001 to $680,000
• 12.3% for taxable incomes over $680,000

The additional 1% surcharge for mental health services would still apply to taxable income in excess of $1,000,000. Accordingly, the highest effective tax rate for California will be 13.3% as of January 1, 2012. The voter-approved rate increases shown above will be in effect for seven years (2012-2018).

Proposition 30 also increases state sales taxes by .25% for four years, beginning January 1, 2013. The higher sales tax rate will be in effect for four years (2013-2016).

Questions

If you have any questions about California Proposition 30 and how it impacts your tax situation, contact your local CBIZ MHM tax advisor.

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