California - Retroactive marginal tax increase proposition passes

Proposition 30

Nov 12, 2012

California recently passed Proposition 30, which retroactively increases high-earner marginal income tax rates effective January 1, 2012.

The following rate increases are effective for seven years: 

Marginal Tax Rate

Taxable Income

10.3% (1% increase)

$250,001-$300,000 (Single/MFS)

$340,001-$408,000 (HOH)

$500,001-$600,000 (MFJ)

11.3% (2% increase)

$300,001-$500,000 (Single/MFS)

$408,001-$680,000 (HOH)

$600,001-$1,000,000 (MFJ)

12.3% (3% increase)

More than $500,000 (Single/MFS)

More than $680,000 (HOH)

More than $1,000,000 (MFJ)

Note - Income in excess of $1 million is also subject to the 1% mental health surcharge.

Proposition 30 also increases the California sales tax rate by 0.25% for four years, beginning January 1, 2013, bringing the standard statewide rate to 7.50% (currently 7.25%).

GMT recommends the following action on the part of companies with US assignees having nexus to California, Foreign Nationals moving to California and payroll departments reporting California state wages:

  • Communicate this information to your assignees with domicile or tax residency in California, including Foreign Nationals on one-way transfers to California.
  • Consider revising any 2012 hypothetical tax calculations, tax cost projections, and net pay calculations in order to align them retroactively to January 1, 2012.
  • Communicate these changes to your payroll departments as it may affect end of year tax withholdings, tax gross-up calculations and year end compensation reporting.
Should you need any immediate assistance regarding the above, please do not hesitate to contact us. We are ready to help!