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State Announces Tax Changes at Start of Filing Season

Released: January 21, 2009

SACRAMENTO – The Franchise Tax Board (FTB) today announced tax law changes and free tax services available for California taxpayers’ filing their 2008 state personal income tax returns.

Delay of Refunds

Due to the state's persistent cash and budget problems, the State Controller announced that he may have to delay refunds for 30 days starting February 1, 2009, for both personal and business taxpayers. FTB is still processing returns as normal. However, it is likely this delay will affect state refunds for most early filers. Returns that have not completed processing before February 1, may have their refunds held for 30 days.

Law Changes

Mortgage relief - New state law for 2007 and 2008 provides relief for people who have been through foreclosure or had their home mortgage modified. Usually, taxes are paid on debt that a lender forgave or canceled. Now this amount may be excluded from taxable income. California and federal limits differ.

Net operating losses suspended for 2008 and 2009 for taxpayers with net business income of $500,000 or more - The time limit to carry forward losses increases from 10 to 20 years. Starting in 2011, taxpayers can carry back losses for two years. Carry backs are limited to 50 percent of losses for tax year 2011, 75 percent for 2012, and 100 percent in 2013.

Business tax credits - For taxpayers with net business income of $500,000 or more, business tax credits are limited to 50 percent of the net tax for 2008 and 2009. Be sure to review our tax forms instructions for specific details.

Same-sex marriages - Couples wedded on June 16, 2008, and before November 5, 2008, must file as married. However, the California Supreme Court has agreed to review the challenges to the passage of Proposition 8, which eliminated the right of same-sex couples to marry. The California Attorney General has stated he believes these marriages are valid and will defend them in the court action. Affected taxpayers should follow the court action since the decision may impact their marital status. FTB will provide updates following the Supreme Court decision on its website.

Charitable contributions - Taxpayers can contribute to any of 15 charities listed on the tax return. Contributions will reduce refunds or increase taxes owed. Those who itemize their deductions may take a charitable contribution deduction on next year’s return. New this year are the:

  • California Ovarian Cancer Research Fund
  • Municipal Shelter Spay-Neuter Fund
  • California Cancer Research Fund
  • ALS/Lou Gehrig’s Disease Research Fund

Standard deduction - The standard deduction for single or married filing separately is increased from $3,516 to $3,692. For joint, surviving spouse, or head of household filers, it increased from $7,032 to $7,384.

Personal exemption credit - The personal exemption amount for single, married filing separately, and head of household filers jumps from $94 to $99. For joint or surviving spouses, it increases from $188 to $198. The dependent exemption credit changes from $294 to $309 per dependent.

Estimated tax payments - Starting in 2009, estimated tax payments for the first and second quarters increase from 25 to 30 percent. The percentage drops to 20 percent for the third and fourth quarters. Also new, fewer people will be required to make estimated tax payments. Now, they are required only when the tax owed after timely tax payments and credits is expected to be $500 or more ($250 for married/RDP filing separately). The prior threshold was $200. To avoid penalties, the estimated payments for taxpayers with adjusted gross income of $1 million or more must be at least 90 percent of the taxes owed.

Electronic payment requirement - New law requires that individuals who make a 2009 estimated tax or extension payment larger than $20,000, or with total 2009 tax liabilities of more than $80,000, must make all future payments electronically.

Free e-file Services

ReadyReturn is FTB’s completed tax return program where FTB completes the tax return for the taxpayer. It is based on information already collected from employers such as W-2s. ReadyReturn has been expanded to include more people this year. Nearly 1.9 million taxpayers who last year earned wages from a single employer, filed either as single or head of household, only took the standard deduction, claimed no more than five dependents, were renters, or can be claimed as a dependent are eligible.

CalFile is FTB’s no-cost, direct to FTB, online filing program. It is available in both English and Spanish to more than 6.5 million taxpayers on FTB’s website. CalFile accepts income of up to $326,379, itemized deductions, and some tax credits.

Check your My FTB Account - Check your My FTB Account on our website to get information such as your estimated tax payments, any balances due, state W-2 information, or FTB issued 1099 forms. Claiming the wrong amount of estimated tax payments is the top error made on returns.

Pay taxes online - FTB’s Web Pay allows taxpayers to authorize a payment from their bank account on a specific date to satisfy their return balance due or extension payment. Pay on or before April 15 to avoid penalties and interest. Taxpayers can also pay estimated tax or make any bill payments online. New this year, sign up for e-mail reminders of upcoming estimate payments due. For a fee, taxpayers can also pay their taxes with their American Express, Discover/NOVUS, MasterCard, and Visa cards. FTB also accepts payments made via Western Union.

Other Changes

Designate a contact person on your tax form – You can now designate a third party contact person, such as your tax preparer or family member, by checking a box. This feature gives FTB permission to contact your designee to get information if needed to process your return, discuss math errors and offsets, or provide the status of your refunds. It does not authorize the designee to receive any refund checks, or bind the taxpayers to anything.