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State Announces 2006 Income Tax Changes Due to Indexing

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.

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

2006 CALIFORNIA TAX RATE SCHEDULES

SCHEDULE X
SINGLE OR MARRIED FILING SEPARATE TAXPAYERS

IF THE TAXABLE INCOME IS

COMPUTED TAX IS

OVER

BUT NOT OVER

OF AMOUNT OVER

$0
$6,622
$15,698
$24,776
$34,394
$43,467

$6,622
$15,698
$24,776
$34,394
$43,467
AND OVER

$0.00
$66.22
$247.74
$610.86
$1,187.94
$1,913.78

PLUS
PLUS
PLUS
PLUS
PLUS
PLUS

1.0%
2.0%
4.0%
6.0%
8.0%
9.3%

$0
$6,622
$15,698
$24,776
$34,394
$43,467

SCHEDULE Y
MARRIED FILING JOINT OR QUALIFYING WIDOW(ER) TAXPAYERS

IF THE TAXABLE INCOME IS

COMPUTED TAX IS

OVER

BUT NOT OVER

OF AMOUNT OVER

$0
$13,244
$31,396
$49,552
$68,788
$86,934

$13,244
$31,396
$49,552
$68,788
$86,934
AND OVER

$0.00
$132.44
$495.48
$1,221.72
$2,375.88
$3,827.56

PLUS
PLUS
PLUS
PLUS
PLUS
PLUS

1.0%
2.0%
4.0%
6.0%
8.0%
9.3%

$0
$13,244
$31,396
$49,552
$68,788
$86,934

SCHEDULE Z
HEAD OF HOUSEHOLD TAXPAYERS

IF THE TAXABLE INCOME IS

COMPUTED TAX IS

OVER

BUT NOT OVER

OF AMOUNT OVER

$0
$13,251
$31,397
$40,473
$50,090
$59,166

$13,251
$31,397
$40,473
$50,090
$59,166
AND OVER

$0.00
$132.51
$495.43
$858.47
$1,435.49
$2,161.57

PLUS
PLUS
PLUS
PLUS
PLUS
PLUS

1.0%
2.0%
4.0%
6.0%
8.0%
9.3%

$0
$13,251
$31,397
$40,473
$50,090
$59,166

2006 Filing Requirement Amounts

Gross income more than:

Single or head of household

Age on 12/31/06

No dependents

1 dependent

2 or more dependents

Under 65

13,713

23,213

30,338

65 or older

18,263

25,388

31,088

Married

Or

Married Filing

Separate

Age on 12/31/06

No dependents

1 dependent

2 or more dependents

Under 65 (both spouses)

27,426

36,926

44,051

65 or older (one spouse)

31,976

39,101

44,801

65 or older (both spouses)

36,526

43,651

49,351

Qualifying widow(er)

Age on 12/31/06

No dependents

1 dependent

2 or more dependents

Under 65

N/A

23,213

30,338

65 or older

N/A

25,388

31,088

Adjusted gross income more than:

Single or head of household

Age on 12/31/06

No dependents

1 dependent

2 or more dependents

Under 65

10,970

20,470

27,595

65 or older

15,520

22,645

28,345


Married
Or Married Filing Separate

Age on 12/31/06

No dependents

1 dependent

2 or more dependents

Under 65 (both spouses)

21,940

31,440

38,565

65 or older (one spouse)

26,490

33,615

39,315

65 or older (both spouses)

31,040

38,165

43,865

Qualifying widow(er)

Age on 12/31/06

No dependents

1 dependent

2 or more dependents

Under 65

N/A

20,470

27,595

65 or older

N/A

22,645

28,345