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State Announces 2005 Income Tax Rate Changes Due to Indexing

California's personal income tax rates will be indexed by 2.8 percent for 2005 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 2.8 percent, as measured by the California Consumer Price Index for all urban consumers from July 1, 2004, to June 30, 2005. Last year's inflation rate measured 3.1 percent.

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 $10,764 of adjusted gross income for single and married filing separate taxpayers, and $21,527 for married filing joint, surviving spouse, and head of household filers.

The standard deduction will increase for single or married filing separate taxpayers from $3,165 to $3,254. For married, qualifying widow(er), or head of household taxpayers, the standard deduction increases from $6,330 to $6,508. The personal exemption credit increases for single, married filing separate, or head of household taxpayers from $85 to $87 and for married or surviving spouses from $170 to $174. The dependent exemption credit changes from $265 to $272 for each dependent.

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.

Editor's Note: See the attached chart for tax rates and filing requirement amounts.