California’s Supplemental Tax Rate Hike
Raises Questions for California Employers
Due to a recent law passed in California which raises the
state supplemental tax withholding rate for stock options
and bonuses from 6 percent to 9.3 percent, PricewaterhouseCoopers
LLC is recommending that their clients pay much closer attention
to what are bonuses are what are not, Michael Mojabi, a senior
manager with PwC, said Oct. 1 at the 14th Annual American
Society for Payroll Management Forum & Trade Show, held
in La Quinta, Calif., near Palm Springs.
The new rate, contained in A.B. 2065, is effective immediately
and has already raised several questions for employers. As
Mojabi pointed out, employers must distinguish between bonuses
and nonbonuses. Where employers are not able to make the distinction,
PwC recommends that employers should withhold at the 9.3 percent
rate, in order to avoid any possible penalties.
Attendees at the conference session suggested areas where
bonuses may be a catchy point. For example, at some companies,
the payroll systems may not distinguish between commission
and bonus payments, meaning that the systems will have to
go through a major coding overhaul to deal with the new law.
Low wage earners who receive holiday bonuses also will be
affected, although Mojabi said that employees would be able
to recoup money lost due to the higher withholding rate when
it comes time to file their personal tax returns.
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