I love taxes (have you noticed yet?), so now that we’re at the end of February, all of my 1099s and W2s have arrived and there’s nothing holding me back from filing.
I use TurboTax, so I went online, plugged in all of my information, and was pleased to see that I would be getting a $2,500 refund from the IRS! Pretty sweet, though that means I overpaid my taxes throughout 2011.
In 2011, it was pretty difficult to estimate taxes correctly. I moved from DC to California, I switched companies, and I had a growing business that I had to make estimated tax payments for.
I did by best to accurately pay my estimated taxes when they were due, but obviously I overpaid by a bit. Not a big deal, it’s always nice to get some extra money put into your bank account.
The difficult part of filing taxes this year was the move betweem DC and California. Each state has different tax laws, and I had to split my income between the two states, which meant recording all income and expenses on the day I moved and allocating everything according to where I called home that day.
It was a hassle, but eventually I got it right. In DC, I was owed about $125, which is sweet (better than owing money!), but California told me that I owed them over $600. That’s a lot, and I didn’t understand how I could have estimated so poorly. I knew how much I made while in California and I had calculated my tax burden, so why was this a surprise to me?
After digging through the forms, I realized that California has an insane way of calculating taxes for part-year residents.
I’m going to use nice, big, round numbers to demonstrate how California calculates taxes for people in this situation and show that they are really just stealing money from their constituents. This isn’t reflective of my actual situation, but shows how this situation affects a lot of people who move to California.
A single person makes $120,000 in 2011, $60,000 in one state, and $60,000 in California. They move on July 1st, so they live in each state for 6 months each. The question is how much should California tax this resident? We know that they earned $60,000 while in California, so we’d expect them to calculate the tax due based on that $60,000, right?
Instead, California calculates the tax based on the entire $120,000, then says since the person only lived in California for half the year, cuts the tax bill in half.
Well, since we know that tax rates are progressive, the difference in these calculations is enormous. In the first (and more logical) calculation, the tax bill would be $3,228. In the second (and more insane) calculation, the tax bill comes out to $4,404. That’s a difference of $1,176!!
This makes me so angry because I spent the time to find out exactly how much I made while a resident of California. So why can’t I just pay taxes on the amount I actually earned while in California instead of some silly overly complicated calculation? I see no reason why I should have to pay a penny more, it feels like they are stealing my money just because they can.
I contacted the advisory board of California, but to no avail. The law is the law, so even though they are stealing my money, there’s not much I can do.
I’m not going to go broke because of the amount of money the State of California is stealing from me. But it’s not an insignificant amount of money, and I wish there was something I could do!
Readers, am I just whining or do California’s tax laws make no sense?