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California Announces Income Tax Changes

 It may be four months away, but it's not too early to be thinking about your state income taxes. The good news is California's personal income tax brackets will be indexed by 4.8 percent for 2006, meaning some taxpayers will pay less in income taxes next year, according to the Franchise Tax Board (FTB).

    Indexing takes the inflation rate into account and adjusts tax brackets, filing requirement thresholds, the standard deduction, and certain credits. The FTB computes the indexed values using the inflation rate of 4.8 percent, as measured by the California Consumer Price Index for all urban consumers from June 2005, to June  2006. Last year's inflation rate measured 2.8 percent.

    "By adjusting tax rates to account for inflation, families who earn about the same as last year will pay less in state income taxes next year and keep more money in their pockets," said State Controller and FTB Chair Steve Westly.

    The FTB designs the minimum filing requirement thresholds to ensure that most people who will not owe taxes are not required to file a tax return. The FTB adjusts these tables each year to include the added senior exemption and the dependent exemption credits. The tax threshold, the amount of income reached where a tax liability is incurred, has risen to $11,271 of adjusted gross income for single and married filing separate taxpayers, and $22,542 for married filing joint, surviving spouse, and head of household filers.      

    The standard deduction will increase for single or married filing separate taxpayers from $3,254 to $3,410. For married filing jointly, qualifying widow(er), or head of household taxpayers, the standard deduction increases from $6,508 to $6,820. The personal exemption credit increases for single, married filing separate, or head of household taxpayers from $87 to $91 and for married filing jointly or surviving spouses from $174 to $182. The dependent exemption credit changes from $272 to $285 for each dependent.

"Indexing means tax relief for the average family, which will pay nearly five percent less in taxes this year, if their income was unchanged," said Board of Equalization Chair and FTB Member John Chiang.

    Other tax credits affected by indexing include the Joint Custody Head of Household Credit, Dependent Parent Credit, Qualified Senior Head of Household Credit, and the Renter's Tax Credit.

California Announces Income Tax Changes

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