Cigarette & Sales Tax Increases, Federal Tax Cuts All Begin Today

It's April 1st and that means a few things other than your taxes are due in 15 days. The state's temporary sales tax increase of 1% begins today, meaning within the city of Los Angeles, we'll be paying 9.25%. That is, until July when Measure R kicks in lopping on another half cent, equaling out to a 9.75% sales tax. Oh, and wait, yes, there's more: on the May 19th statewide special election ballot, Prop 1a asks us to extend the state's tax increase by one to two years beyond the 2011 expiration. For some other cities in LA County, their sales tax is getting close to 11%.

On the other end of things, President Barack Obama's Making Work Pay Tax Credit begins today (as well as "the federal excise tax on cigarettes — which will jump from 39 cents per pack to $1.01 today" says the Wall Street Journal). For the next two years, the credit will give 12.6 million California families $6.4 billion, according to the White House. The refundable 6.2% of earned income refundable tax credit should annually provide an extra $400 for working individuals and $800 for married couples within the middle class tax brackets. People should see the change starting this month in their paychecks. Taxes are a bit confusing, so enjoy the White House's full statement below...

12.6 Million CALIFORNIA working families to benefit from making work pay tax credit 6.4 billion new dollars in the hands of California workers April 1, 2009

The United States faces the most severe economic and financial crisis in generations. Tragically, much of the damage has fallen principally on Main Street. To help middle-class families get back on their feet and restore some fairness to the tax code, President Obama in February signed one of his signature issues into law - the Making Work Pay tax credit. As a result, families across the country are seeing more money in their paychecks. This is one of the fastest and broadest tax cuts in American history.

Today, the Obama Administration is releasing a state-by-state analysis to show the impact the Making Work Pay tax credit is having across the country.

In California that means 12.6 million working families will collectively get $6.4 billion in hand to help them weather the current economic storm. This reflects the Administration’s strong and sustained commitment to the middle class.

Nationally, the credit provides over 110 million working families—about 95%—the tax relief they need right now and will give nearly 60 billion dollars to America’s working families. The Republican alternative budget, announced today, would roll back these tax credits in 2010, thereby increasing taxes for the same 95 percent of working families.

IRS guidance asks that, by April 1, employers must have instituted the lower withholdings for their employees.

Restoring Fairness to the Tax Code and Providing Tax Relief to Working Americans. The Making Work Pay Tax Credit aims to help middle class families who are being squeezed by rising costs and stagnating wages.

  • For 2009 and 2010, the “Making Work Pay” tax credit provides a refundable tax credit of 6.2 percent of earned income up to $400 for working individuals and $800 for married taxpayers.
  • Families should see at least a $65 dollar per month increase in their take home pay.
  • The credit will phase out for taxpayers with adjusted gross income in excess of $150,000 for married couples filing jointly and $75,000 for other workers, and thus is fully phased out for taxpayers with modified adjusted gross income in excess of $190,000 for married workers and $95,000 for other workers.

Getting Needed Cash to Working Families. In an effort to get much needed cash to hard working Americans as quickly as possible, in late February the President announced the IRS would issue a new set of withholding tables (http://www.irs.gov/pub/irs-pdf/n1036.pdf) structured to get the tax credit to Americas’ workers in cash over the course of the year. By reducing required withholding amounts, workers’ take home pay is increased immediately.