The almost 12.8 million 1998 California full-year resident personal income tax (PIT) returns filed represent an increase of 2.6 percent, or over 323,000 returns, from 1997. This total consisted of nearly 5.7 million single filers, nearly 5.1 million married joint filers, nearly 1.9 million head of household filers, almost 160,000 married separate filers, and more than 8,500 surviving spouse filers. Of the nearly 12.8 million returns filed, nearly 1.9 million were Form 540EZ, over 3.1 million were Form 540A (short form), and approximately 7.8 million were Form 540 (long form). Over 1.3 million tax returns were filed electronically in 1999. The amount of self-assessed taxes was almost $26.2 billion, an increase of 9.7 percent over the previous year.
The statewide median adjusted gross income for all filers increased from $26,768 in 1997 to $28,251 in 1998, a 5.5 percent increase from the previous year. For taxpayers filing jointly, the statewide median income increased from $49,210 in 1997 to $52,145 in 1998, a 6.0 percent increase. For the past 27 years, the Bay Area counties of Marin, Santa Clara, San Mateo, and Contra Costa have consistently reported the highest median incomes. Marin County had the highest median income for joint returns in 1998, reporting $86,304, while Imperial County had the lowest, reporting $24,806. The highest median income for all filers was also in Marin County, at $39,962.
The largest gains in median income were reported in Mono County, with an 11.1 percent increase for all filers, and with a 12.6 percent increase for joint filers. All counties experienced an increase in median income for the "all returns" and "joint returns" categories in 1998.
Personal Income Tax: Returns by Income *
The county data presented in Appendix B, Tables 6 and 7, the credit information presented in Table 9, and the voluntary contribution table in this section are derived from FTB's Tax Return Master File. The Tax Return Master File includes data from all 1998 individual tax returns. All other tables in this section and in Appendix B are generated from data gathered from a stratified random sample of personal income tax returns filed during the 1999 filing season. This section and the majority of the Appendix B tables summarizes only 1998 California resident tax returns filed during 1999. However, part-year resident and nonresident data are summarized separately in PIT Appendix Table 4G.
Sample selection is based on a combination of criteria, including the amount of both state and federal adjusted gross income (AGI) and the relative magnitude of California adjustment items. Information was collected from 90,526 resident returns for the 1998 taxable year.
Since 1978, California law has provided for the adjustment of tax brackets, standard deductions and exemption credits to reduce the effect of inflation on average tax rates. The tax brackets were initially adjusted by the percentage of change in the California Consumer Price Index in excess of three percent. Beginning in 1980, the three-percent threshold was removed.
The 1998 inflation adjustment factor was 2.3 percent. This indexing adjustment applied to: exemption credits, standard deductions, some tax credits, limitations on exemption credits and itemized deductions, and the tax brackets.
California taxpayers are required to compute federal AGI by completing their federal tax return before determining California AGI. To determine federal AGI, taxpayers must subtract federal adjustments from federal income. Once the taxpayer has determined federal AGI, the taxpayer makes California adjustments, both additions and subtractions, to federal AGI to determine California AGI. The chart on page 11 illustrates the process used to arrive at California AGI.
The combined federal income of full-year resident California taxpayers for 1998 was $645.0 billion. Major sources of income included: wages and salaries, dividends, interest, pensions and annuities, capital gains, business income, and distributions from partnerships and S corporations.
Increases were noted for all major sources of income. Of particular note were the increases in wages and salaries of $32 billion (7.8 percent), net sale of capital assets of $11 billion (22.8 percent), and net partnership and S corporation income of $3.0 billion (14.7 percent).
Reductions to federal income due to adjustments amounted to nearly $8.0 billion and included: payments to tax deferred retirement accounts and self-employed health plans, moving expense, one-half of self-employment tax, penalty for early withdrawal of savings, and alimony paid. Student loan and medical savings were two new deductions in 1998.
California taxpayers reported total federal AGI of $637.2 billion. From federal AGI, taxpayers subtracted $23.9 billion and added $14.1 billion in California adjustments. Subtractions result from differences between federal and state tax treatment of: state income tax refunds, unemployment compensation, social security benefits, California nontaxable interest income, California lottery winnings, IRA distributions, pensions and annuities, passive activity losses, depreciation and amortization, capital gain/loss, and others. Additions result from differences between federal and state tax treatment of: interest on state and municipal bonds issued by a state other than California, net operating loss, passive activity losses, depreciation and amortization, capital gain/loss, and others.
For 1998, the total California AGI reported by resident taxpayers was $627.4 billion, a 9.9 percent increase from 1997.
1998 Personal Income Tax Components
Income from All Sources
Minus Exempt Income (examples): .Nontaxable Social Security and Railroad Retirement .Insurance Proceeds .Bequests and Gifts .Public Assistance .IRA and Keogh Interest .Interest on Certain State and Local Government Obligations .Scholarships and Fellowships
Equals Gross Income: .Salaries and Wages .Taxable Interest .Dividends .Taxable State and Local Income Tax Refunds .Alimony Received .Business Income or Loss .Capital Gain or Loss .Taxable IRA Distributions .Taxable Pensions and Annuities .Rents and Royalties .Partnership Income or Loss .Estate and Trust Distributions .S Corporation Distributions .Farm Income .Unemployment Compensation .Taxable Social Security Benefits .Other Income .Lottery Winnings
Minus Adjustments to Income: .IRA Contributions .One-Half of Self-Employment Tax .Self-Employed Health Insurance Deduction .Retirement Plan Deductions .Penalty on Early Withdrawal of Savings .Alimony Paid .Moving Expense
Equals Federal Adjusted Gross Income
Minus Federal Income Exempt from State Tax: .State Income Tax Refund .Unemployment Compensation .Taxable Social Security Benefits .Nontaxable Interest and Dividend Income .Railroad Retirement and Sick-Pay .California Lottery Winnings .Fringe Benefits .IRA Distributions .Basis Recovery of IRAs, Pensions and Annuities .Differences in Passive Activities .Differences in Depreciation and Amortization .Differences in Capital Gain or Loss .Differences in Other Gain or Loss .Differences in Net Operating Loss
Plus State Income Exempt from Federal Tax: .Interest on State or Municipal Bonds From Other States .Fringe Benefits .Differences in Passive Activities .Differences in Depreciation and Amortization .Differences in Capital Gain or Loss .Differences in Other Gain or Loss .Differences in Net Operating Losses
Equals California Adjusted Gross Income
Minus Deductions: .California Standard Deduction or Federal Itemized Deductions: Adjusted for Differences in California Medical and Dental Expenses .California Income Tax Paid .Interest Paid .Contributions .Casualty and Theft Loss .Employee Business Expense .Miscellaneous Deductions
Equals California Taxable Income
Calculate Tax Rate from Tax Rate Schedule
Minus Tax Credits (Credits are allowable only after applicable limitations based on the tentative minimum tax): .Personal .Dependent .Blind .Senior .Senior Head of Household .Dependent Parent .Prison Inmate Labor .Enterprise Zone Employee .Joint Custody Head of Household .Low-Income Housing .Enterprise Zone Hiring and Sales Tax .Research .Taxes Paid to Other States .Employer Child Care Program and Contribution .Prior Year Alternative Minimum Tax .Child Adoption .Manufacturer's Investment .Salmon and Steelhead Trout Habitat Restoration .Local Area Military Base Recovery Area .Manufacturing Enhancement Area .Targeted Tax Area .Renter's .Disabled Access .Enhanced Oil Recovery .Farmworker Housing .Transportation of Donated Agricultural Products .Community Development Qualified Deposit .Rice Straw.Miscellaneous Carryovers from Expired Credits
Plus Other Taxes: .Alternative Minimum Tax .Tax on Early Use of IRA, Keogh or Annuity Contract .Tax on Accumulation Distributions of Trusts
Equals Total Tax Liability
Minus Prepayments and Payments: .Withholding .Estimated Tax .Extensions .Excess SDI
Plus Voluntary Contributions
Equals Overpayment or Balance Due
Personal Income Tax: Sources of Adjusted Gross Income*
| Item |
1997 Taxable Year |
1998 Taxable Year |
||
| Amount (Millions) |
Amount (Millions) |
Percent of Total Income |
Percent Change |
|
| Federal Income: | ||||
| Wages and Salaries | $ 409,322.3 |
$ 441,126.9 |
68.4 |
7.8 |
| Interest | 20,609.5 |
22,108.8 |
3.4 |
7.3 |
| Dividends | 13,796.6 |
13,851.6 |
2.1 |
0.4 |
| Pensions and Annuities | 28,524.8 |
30,282.6 |
4.7 |
6.2 |
| Net Business Income | 30,559.2 |
35,183.6 |
5.5 |
15.1 |
| Net Sale of Capital Assets | 47,455.7 |
58,259.7 |
9.0 |
22.8 |
| Net Rent and Royalty Income | 2,888.8 |
3,902.1 |
0.6 |
35.1 |
| Net Partnership and S Corporation Income | 20,271.4 |
23,253.4 |
3.6 |
14.7 |
| Net Estate and Trust Income | 1,749.4 |
1,828.6 |
0.3 |
4.5 |
| Net Farm Income | - 829.8 |
- 319.1 |
0.0 |
-61.5 |
| Net Other Income 1 | 21,255.7 |
16,353.3 |
2.5 |
-23.1 |
| Total Federal Income | $ 587,012.8 |
$ 645,037.6 |
100.0 |
9.9 |
| Federal Adjustments: | |
|
|
|
| IRA Adjustments | $ 981.7 |
$ 1,026.5 |
|
4.6 |
| Student Loan | n/a |
156.0 |
|
n/a |
| Medical Savings | n/a |
10.8 |
|
n/a |
| Moving Expense | 135.6 |
134.6 |
|
-0.7 |
| One-half Self-Employment Tax | 2,064.1 |
2,426.5 |
|
17.6 |
| Self-Employed Health Insurance | 441.6 |
613.0 |
|
38.8 |
| KEOGH/SEP Payments | 1,936.9 |
2,184.8 |
|
12.8 |
| Penalty on Early Withdrawal of Savings | 21.8 |
43.8 |
|
100.9 |
| Alimony Paid | 1,095.3 |
1,189.9 |
|
8.6 |
| Other 2 | 222.4 |
195.9 |
|
-11.9 |
| Total Federal Adjustments | 6,899.4 |
7,981.8 |
|
15.7 |
| Total Federal Adjusted Gross Income (AGI) 3 | $ 580,784.5 |
$ 637,248.5 |
|
9.7 |
| California Adjustments: | |
|
|
|
| Schedule CA Subtractions | $ 23,705.2 |
$ 23,894.4 |
|
0.8 |
| Schedule CA Additions | 13,611.4 |
14,077.2 |
|
3.4 |
| Total California Adjustments | $ -10,093.8 |
$ -9,817.2 |
|
-2.7 |
| Total California AGI Reported | $ 570,690.8 |
$ 627,433.7 |
|
9.9 |
| * Totals may not add due to rounding. 1 Includes all other federal income, miscellaneous taxpayer entries and unclassified amounts. 2 Includes miscellaneous taxpayer amounts. 3 Total Federal AGI does not equal Total Federal Income minus Total Federal Adjustments, because it is derived from the state return; while federal income and federal adjustments are derived from the federal return. |
||||
The standard deduction for 1998 was $2,642 for single or married filing separate filers. For married filing joint, head of household and surviving spouse filers, the standard deduction was $5,284.
The total amount of standard deductions claimed by resident California taxpayers was $30.1 billion for the 1998 taxable year, a 3.9 percent increase from the 1997 taxable year.
When a taxpayer's deductions exceed the standard deduction, the taxpayer benefits from claiming itemized deductions. However, limitations do apply to some itemized deductions. The medical expense deduction is limited to the amount that exceeds 7.5 percent of federal AGI. Also, total itemized deductions of high-income taxpayers are reduced to some extent according to recapture rules. Beginning in 1991, interest expenses, other than for home mortgages, were eliminated. Miscellaneous itemized deductions were limited to the amount that exceeded 2 percent of AGI.
About 4.8 million returns (37.0 percent) filed for the 1998 taxable year included state itemized deductions. The total amount of itemized deductions claimed for 1998 was $83.1 billion, 5.9 percent more than 1997. Of note for 1998 were the significant increases in itemized deductions of personal property tax of 17.3 percent and state and local income tax of 14.9 percent.
Personal Income Tax: Itemized Deductions by Type*
| 1997 | 1998 | |||
| Amount (Millions) |
Amount (Millions) |
Percent of Total |
Percent Change |
|
| Medical Deductions | $ 3,836.9 | $ 3,794.2 | 3.4 | -1.1 |
| Deductible Taxes: | ||||
| State and Local Income Tax | 23,065.0 | 26,512.8 | 23.7 | 14.9 |
| Real Estate Tax | 9,328.1 | 9,895.9 | 8.8 | 6.1 |
| Personal Property Tax | 1,031.8 | 1,210.5 | 1.1 | 17.3 |
| Other Taxes | 502.8 | 528.8 | 0.5 | 5.2 |
| Total Taxes | $ 33,927.7 | $ 38,148.0 | 34.1 | 12.4 |
| Interest: | ||||
| Mortgage Interest | 45,443.2 | 46,950.0 | 42.0 | 3.3 |
| Other | 2,565.6 | 2,748.1 | 2.5 | 7.1 |
| Total Interest | $ 48,008.8 | $ 49,698.1 | 44.4 | 3.5 |
| Contributions: | ||||
| Cash | 8,464.5 | 9,564.3 | 8.6 | 13.0 |
| Non-cash | 4,217.6 | 5,239.8 | 4.7 | 24.2 |
| Carryover from Prior Year | 1,969.4 | 2,344.7 | 2.1 | 19.1 |
| Total Contributions1 | $ 12,430.0 | $ 14,028.4 | 12.5 | 12.9 |
| Casualty and Theft Loss | 251.2 | 202.5 | 0.2 | -19.4 |
| Miscellaneous Deductions | 7,184.2 | 7,710.3 | 6.9 | 7.3 |
| Adjustments to Federal Deductions2 | - 3,659.0 | - 1,720.6 | -1.5 | -53.0 |
| Total Federal Itemized Deductions | $101,979.8 | $111,860.9 | 100.0 | 9.7 |
| California Adjustments3 | - 22,187.7 | - 25,512.1 | 15.0 | |
| Adjustments to California Deductions4 | - 1,331.5 | - 3,294.8 | 147.5 | |
| Total California Itemized Deductions | $ 78,460.5 | $ 83,054.0 | 5.9 | |
* Totals may not add due to rounding.
1 Total does not equal the sum of the detail because total contributions are limited generally to 50 percent of adjusted gross income.
2 This amount is the result of taxpayers itemizing their deductions for either state or federal purposes, but not both.
3 This amount is composed mostly of state income tax payments not deductible for state purposes.
4 This amount is the result of taxpayers itemizing their deductions for either state or federal purposes, but not both.
California taxable income after deductions totaled $522.6 billion in 1998, compared to $473.1 billion in 1997. This represented a 10.5 percent increase.
The total amount of tax credits claimed by Californians for 1998 was over $4.0 billion, nearly $1.8 billion more than 1997. This represented an increase of nearly 81.8 percent because the dependent exemption credit increased from 0.6 billion to 2.4 billion in 1998. The credits for personal, dependent, senior, and blind exemptions amounted to more than $3.6 billion and accounted for 88.3 percent of the total tax credits claimed.
Most credits are limited during the computation of alternative minimum tax (AMT). The section below provides information about credit limitations created by AMT.
Special tax credits are employed to either prevent double taxation or to promote economic or societal goals. Appendix B, Table 9 presents an enumeration of various tax credits applied for 1998. Note that, unlike data presented elsewhere in this report, information presented in Table 9 is developed from the Return Processing Master File and includes credits reported on returns of nonresident and part-year resident returns. Of more than $535 million of special credits applied as tax reductions, the Other State Tax Credit accounted for $307 million, by far the largest single tax credit. Other tax credits that represented significant tax reductions included the Nonrefundable Renter's Credit ($68 million), Manufacturer's Investment Credit ($44 million), and the Credit for Prior Year Alternative Minimum Tax ($44 million). The Renter's Credit was reinstated, effective January 1, 1998, after being suspended for tax years 1993 through 1997. Since the renter's credit is a nonrefundable credit that can only be used against a tax liability, a taxpayer must have a tax liability to claim it. Prior to tax years 1993, the Renter's Credit was a refundable credit regardless of tax liability.
California tax law gives special treatment to some types of income and allows special deductions and credits for some types of expenses. The alternative minimum tax (AMT) is designed to ensure that individuals who take substantial advantage of these provisions pay at least a minimum level of tax. The AMT rate is 7 percent.
If a taxpayer is subject to AMT, the AMT is added to the taxpayer's regular tax liability. Generally, a taxpayer is subject to AMT if alternative minimum taxable income (AMTI, defined as taxable income plus AMT adjustments and preferences) totals more than $57,260 for filers who are married filing joint or qualified widow(er); $42,945 for filers who are single or head of household; and $28,630 for filers who are married filing separate. For 1998, there were 11,000 filers who computed $49 million in AMT compared to 26,000 filers who computed $63 million in 1997. This represented a 56.6 percent decrease in the number of AMT filers and a 22.4 percent decrease in the amount of AMT paid compared to 1997.
California's AMT provisions may also increase a taxpayer's regular tax, even if AMT is not owed. This may occur because most California tax credits, including exemption credits, are limited by the taxpayer's tentative minimum tax (TMT). TMT is the amount of tax calculated by multiplying AMTI minus any AMT exemption amount by 7 percent. Certain credits may reduce the regular tax to TMT; other credits may reduce the regular tax below TMT. A few credits may reduce AMT.
The total tax liability, after credits and other taxes, was $26.2 billion for 8.2 million returns that reported a tax liability for the 1998 taxable year. This compared to $23.9 billion for 8.9 million returns that reported a tax liability in 1997. The total tax liability increased 9.7 percent from 1997. The number of taxable returns filed decreased by 7.5 percent.
Payments, Withholding, Estimated Tax, SDI and Overpayments
For 1998, $18.1 billion in taxes were paid through wage and salary withholding. This was an 11.0 percent increase over the $16.3 billion paid in 1997. Withholding was reported on 10.1 million returns and represented 69.1 percent of the self-assessed total tax liability.
Estimated tax payments of more than $9.2 billion were claimed on nearly 1.4 million returns. This was an 18.5 percent increase from the $7.8 billion paid in 1997.
Claims for excess state disability insurance (SDI) were reported on more than 532,700 returns and totaled 31.8 million, averaging $60 per claim.
The amount of overpayments, before any voluntary contributions were made or any credits were applied to 1998 taxes, was $4.9 billion on nearly 8.2 million returns.
Since 1982, taxpayers have been afforded the opportunity to make charitable contributions to many special causes on the state tax return, as reflected in the table shown above. The Emergency Food Assistance Fund and Mexican American Veterans Memorial Account were added in 1999.
Of the remaining voluntary contributions on the state tax return, the highest contributions were to the Endangered Species Account of almost $575,000, the Breast Cancer Fund of nearly $475,000, and State Children's Trust Fund of close to $473,000.
Personal Income Tax: Voluntary Contributions*
| Contribution | 1997 Taxable Year | 1998 Taxable Year | ||||
| Number of Contributors | Amount Contributed | Average Amount Contributed | Number of Contributors | Amount Contributed | Average Amount Contributed | |
| California Seniors Fund | 40,756 | 190,594 | $4.68 | 42,285 | 216,110 | $5.11 |
| Alzheimer's Disease Fund | 52,037 | 334,389 | $6.43 | 53,132 | 362,998 | $6.83 |
| Endangered Species Account | 68,219 | 568,847 | $8.34 | 65,549 | 574,723 | $8.77 |
| State Children's Trust Fund | 66,236 | 444,198 | $6.71 | 65,928 | 472,743 | $7.17 |
| Breast Cancer Fund | 61,478 | 390,039 | $6.34 | 66,554 | 474,723 | $7.13 |
| Firefighter's Memorial Fund | 28,621 | 131,776 | $4.60 | 27,047 | 134,023 | $4.96 |
| Public School Library Fund | 50,077 | 324,424 | $6.48 | 45,760 | 300,136 | $6.56 |
| D.A.R.E. (Drug Abuse Resistance Education) Fund | 36,506 | 170,926 | $4.68 | 34,216 | 175,946 | $5.14 |
| Military Museum Fund | 16,041 | 54,951 | $3.43 | 15,448 | 56,492 | $3.66 |
| Emergency Food Assistance Fund | n/a | n/a | n/a | 51,178 | 326,199 | $6.37 |
| Mexican American Veterans Memorial Account | n/a | n/a | n/a | 16,465 | 61,705 | $3.75 |
| Subtotal | 419,971 | $ 2,610,144 | $6.22 | 483,562 | 3,155,798 | $6.53 |
| Seniors Special Fund | 5,299 | 63,664 | $12.01 | 5,154 | 62,924 | $12.21 |
| Total | 425,270 | $ 2,673,808 | $6.29 | 488,716 | $ 3,218,722 | $6.59 |
| * The data presented in this table include all types of returns, but did not include administrative cost adjustment. Also, the data in this table were derived from FTB's Tax Return Master File. The Tax Return Master File included data from all 1998 resident, part-year, and nonresident tax returns. Therefore, the data reflected herein were different from the sample data presented in Appendix B, Table 4A. | ||||||
Refunds, Transfers and Balances Due
The number of refunds issued was 7.9 million, up from 7.0 million in 1998. The refund amount totaled over $3.9 billion, an increase of 36.8 percent from the amount refunded in 1997. The average refund issued was $502 per refund return.
Transfers of overpayments to the 1999 taxable year totaled $925 million on over 460,000 returns, compared to $736 million on nearly 380,000 returns for 1997 that were transferred to 1998.
The number of balance due returns for 1998 was more than 3.1 million, compared to 3.7 million in 1997, a decrease of 14.9 percent. Balances due for 1998 totaled almost $3.7 billion, compared to $3.4 billion in 1997, a 9.7 percent increase.
Personal
Income Tax:
1988-1998 Returns with Expanded Income1 of $200,000 or More
| Taxable Year | Total Returns | Nontaxed Returns | Percent of Total |
| 1998 | 272,596 | 620 | 0.2 |
| 1997 | 233,417 | 579 | 0.2 |
| 1996 | 191,758 | 510 | 0.3 |
| 1995 | 161,493 | 262 | 0.2 |
| 1994 | 140,425 | 326 | 0.2 |
| 1993 | 130,807 | 254 | 0.2 |
| 1992 | 129,722 | 117 | 0.1 |
| 1991 | 121,695 | 135 | 0.1 |
| 1990 | 126,543 | 167 | 0.1 |
| 1989* | 119,926 | 171 | 0.1 |
| 1988* | 111,112 | 258 | 0.2 |
| 1 Expanded income is
adjusted gross income plus tax preference income less investment
expenses.
* Based on adjusted gross income figures, expanded income figures not available. |
|||
For 1998,272,596 return filers reported income of $200,000 or more, of which 620 or 0.2 percent had no net tax liability. This represented an increase of 7.1 percent in the number of untaxed high income taxpayers over 1997. The Los Angeles Revitalization Zone Credit was the greatest contributor to tax reductions for these high-income return filers. The addition of the Manufacturer's Investment Credit also contributed heavily to tax reductions for this category of taxpayers.
Personal
Income Tax: Largest Deduction or
Credit on 1998 Nontaxed High Income Returns1
| Item | Number of Returns | Percent of Total2 |
| LA RV Zone Credit | 147 | 23.7 |
| Manufacturer's Investment Credit | 114 | 18.4 |
| EZ Hire, Sales, Use Tax Credit | 90 | 14.6 |
| Miscellaneous Deductions | 40 | 6.4 |
| Prior Year Minimum Tax Credit | 34 | 5.4 |
| Research And Development Credit | 29 | 4.7 |
| Casualty Loss | 29 | 4.7 |
| Other State Tax Credit | 23 | 3.7 |
| Contribution Carryover | 22 | 3.6 |
| Mortgage Interest Expense | 16 | 2.5 |
| Cash Contributions | 12 | 1.9 |
| Investment Interest | 10 | 1.7 |
| Medical Expense Allowed | 10 | 1.7 |
| Noncash Contributions | 9 | 1.5 |
| Solar Energy Credit | 7 | 1.2 |
| Residential Rental & Farm Sales Credit | 6 | 1.0 |
| Expenses Allowed | 5 | 0.8 |
| Low-Income Housing Credit | 4 | 0.7 |
| Energy Conservation | * | * |
| Target Tax | * | * |
| State Tax Refund | * | * |
| Political Contribution | * | * |
| Unknown Credit | * | * |
| Total | 620 | 100.0 |
| 1 Returns with expanded income
of $200,000 or more. 2 Totals may not add due to rounding. * Statewide frequency data not shown for cells with 3 or less returns. |
||