The 13.1 million 1999 California full-year resident personal income tax (PIT) returns filed represent an increase of 2.6 percent, or 330,000 returns, from 1998. This total consisted of nearly 5.9 million single filers, nearly 5.2 million married joint filers, more than 1.9 million head of household filers, almost 155,000 married separate filers, and more than 12,000 surviving spouse filers. Of the nearly 13.1 million returns filed, more than 602,000 were Form 540 2EZ, nearly 1.6 million were Form 540EZ, almost 3.1 million were Form 540A (short form), and approximately 7.9 million were Form 540 (long form). Over 2.0 million tax returns were filed electronically in 2000, an increase of 55.1% from 1999. The amount of self-assessed taxes was almost $33.1 billion, an increase of 26.3 percent over the previous year.
The statewide median adjusted gross income for all filers increased from $28,251 in 1998 to $29,376 in 1999, a 4.0 percent increase from the previous year. For taxpayers filing jointly, the statewide median income increased from $52,145 in 1998 to $54,770 in 1999, a 5.0 percent increase. For the past 28 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 1999, reporting $93,510, while Imperial County had the lowest, reporting $26,836. The highest median income for all filers was also in Marin County, at $42,879.
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| Personal Income Tax: Returns by Filing Status |
Median Adjusted Gross Income of Joint Returns by County: 1999 Taxable Year
The largest gains in median income were reported in San Francisco County, with an 8.0 percent increase for all filers, and Alpine County with a 10.1 percent increase for joint filers. All counties experienced an increase in median income for the "all returns" and "joint returns" categories in 1999.
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 is derived from FTB's Tax Return Master File. The Tax Return Master File includes data from all 1999 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 2000 filing season. This section and the majority of the Appendix B tables summarize only 1999 California resident tax returns filed during 2000. 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 103,745 resident returns for the 1999 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 1999 inflation adjustment factor was 2.6 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 12 illustrates the process used to arrive at California AGI.
The combined total federal income of full-year resident California taxpayers for 1999 was $743.8 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 $49.2 billion (11.2 percent), net sale of capital assets of $35.6 billion (61.1 percent), and net partnership and S corporation income of $4.8 billion (20.6 percent).
Reductions to federal income due to adjustments amounted to over $8.2 billion and included: payments to tax deferred retirement accounts and self-employed health plans, job related moving expense, one-half of self-employment tax, penalty for early withdrawal of savings, and alimony paid.
California taxpayers reported total federal AGI of $735.0 billion. From federal AGI, taxpayers subtracted $27.1 billion and added $13.7 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 1999, total California AGI reported by resident taxpayers was $721.7 billion, a 15.0 percent increase from 1998.
Capital gains income showed a strong 61 percent increase from 1998, growing from 9.3 percent to 12.6 percent of total income. Wages and salaries, the largest income category, grew by nearly $50 billion or 11.2 percent from 1998.
Tax liability was unevenly spread among income groups. The top 1 percent of returns based on AGI accounted for nearly 45 percent of all tax liability. The top 5 percent paid 65 percent of all tax.
1999 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 .Student Loan .Medical Savings .Foreign Earned Income Exclusion
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 .Reward from Crime Hotline .Income from Recycling Beverage Containers .Rebates from Water Agencies .Dividends from Controlled Foreign Corporations .Net Interest Income for Zone Businesses
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 Loss .Income Exempted by U.S. Treaty .Foreign Earned Income Exclusion
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 .SDI .Foreign Taxes .Adoption Related Expenses .Contribution of Stock to Private Foundations .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 .Credit Recapture
Equals Total Tax Liability
Minus Prepayments and Payments: .Withholding .Estimated Tax .Extensions .Excess SDI
Plus Voluntary Contributions
Equals Overpayment or Balance Due
The standard deduction for 1999 was $2,711 for single or married filing separate filers. For married filing joint, head of household and surviving spouse filers, the standard deduction was $5,422.
The total amount of standard deductions claimed by resident California taxpayers was $31.6 billion for the 1999 taxable year, a 4.7 percent increase from the 1998 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 4.9 million returns (37.6 percent) filed for the 1999 taxable year included state itemized deductions. The total amount of itemized deductions claimed after federal and California adjustments for 1999 was $89.1 billion, 7.3 percent more than 1998. Of note for 1999 were the significant increases in itemized deductions of state and local income tax of 19.7 percent, total contributions of 17.7 percent, and medical deductions of 15.0 percent.
California taxable income after deductions totaled $609.2 billion in 1999, compared to $522.6 billion in 1998. This represented a 16.6 percent increase.
The total amount of tax credits claimed by Californians for 1999 was over $4.0 billion, nearly $8.5 million less than 1998. This represented a decrease of nearly 0.2 percent. The credits for personal, dependent, senior, and blind exemptions amounted to more than $3.5 billion and accounted for 87.9 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 1999. 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. As observed in Table 9, of nearly $560 million of special credits applied as tax reductions, the Other State Tax Credit accounted for $318 million, by far the largest single tax credit. Other tax credits that represented significant tax reductions included the Nonrefundable Renter's Credit ($83 million), Prior Year Alternative Minimum Tax ($41 million), and the Manufacturer's Investment Credit ($40 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 in order to claim it must have a tax liability. Prior to tax year 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 $58,749 for filers who are married filing joint or qualified widow(er); $44,062 for filers who are single or head of household; and $29,374 for filers who are married filing separate. For 1999, there were 16,300 filers who paid $122 million in AMT compared to 11,000 filers who paid $49 million in 1998. This represented a 47.3 percent increase in the number of AMT filers and an 148.3 percent increase in the amount of AMT paid compared to 1998.
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.
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The total tax liability, after credits and other taxes, was $33.1 billion for 8.5 million returns that reported a tax liability for the 1999 taxable year. This compared to $26.2 billion for 8.2 million returns that reported a tax liability in 1998. The total tax liability increased 26.3 percent from 1998. The number of taxable returns filed increased by 3.8 percent.
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Payments, Withholding, Estimated Tax, SDI and Overpayments
For 1999, $20.6 billion in taxes were paid through wage and salary withholding. This was a 13.8 percent increase over the $18.1 billion paid in 1998. Withholding was reported on 10.4 million returns and represented 62.2 percent of the self-assessed total tax liability.
Estimated tax payments of almost $12.4 billion were claimed on nearly 1.4 million returns. This was a 34.0 percent increase from the $9.2 billion paid in 1998.
Claims for excess state disability insurance (SDI) were reported on more than 583,800 returns and totaled 37.8 million, averaging $65 per claim.
The amount of overpayments, before any voluntary contributions were made or any credits were applied to 1999 taxes, was $5.2 billion on more than 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. The Peace Officer Memorial Fund and Birth Defects Research Fund were added in 2000.
Of the remaining voluntary contributions on the state tax return, the highest contributions were to the Endangered Species Account of more than $569,300, the Breast Cancer Fund of around $508,600, and the State Children's Trust Fund of more than $488,600.
Refunds, Transfers and Balances Due
The number of refunds issued was 7.9 million, a slight increase of 35,000 for 1999. The refund amount totaled nearly $4.0 billion, an increase of 1.1 percent from the amount refunded for 1998. The average refund issued was $505 per refund return.
Transfers of overpayments to the 2000 taxable year totaled $1.2 billion on over 445,700 returns, compared to $925 million on nearly 460,000 returns for 1998 that were transferred to 1999.
The number of balance due returns for 1999 was nearly 3.3 million, compared to 3.1 million in 1998, a increase of 6.0 percent. Balances due for 1999 totaled almost $5.3 billion, compared to $3.7 billion in 1998, a 42.6 percent increase.
For 1999, 338,960 returns reported income of $200,000 or more, of which 550 or 0.2 percent had no net tax liability. This represented a decrease of 11.3 percent in the number of untaxed high-income taxpayers over 1998. The Los Angeles Revitalization Zone Credit was the greatest contributor to tax reductions for these high-income return filers. The Manufacturer's Investment Credit also contributed heavily to tax reductions for this category of taxpayer.
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Personal Income Tax: Total Tax Voluntary Contributions
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