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Californians face added withholding

Last week while voters in some states were making ballot choices about taxes, Californians were dealing with a tax decision that had already been made for them.

As part of the budget deal struck months ago to keep the Golden State operating, lawmakers approved a 10 percent increase in the state's withholding rate, from 6 percent to 6.6 percent.

It's not a change to income tax rates. It's just a way for the state to get more of your owed-tax money sooner.

When you file your return next year, if you didn't pay in enough, the state-compelled added year-end withholding should mean your bill will be smaller than it would have been.

And if California's extra paycheck take turns out to be too much, you'll get it back as a bigger refund in 2010. You hope. We all remember the IOUs instead of refunds y'all got earlier this year.

What with those state warrants in lieu of refunds, a budget crisis fueled by the real estate meltdown and now extra withholding from your pay, no wonder so many of my Austin neighbors are former Californians!

Eye_on_the_irs Adjust your federal withholding now: I discuss this latest tax insult to injury situation in my Bankrate blog, Eye on the IRS. But I do want to make a couple of observations here.

First, because of the added state withholding, California workers will be getting slightly smaller paychecks just as the holiday shopping season begins. That means you'll have to budget a little more carefully.

Second, you might be able to make up for the lost state money by adjusting your federal withholding.

Now I'm not saying you should make W-4 change just to get more spending money. If you do that, you could end up with a big tax bill this coming filing season. That presents a whole lot of other, potentially more costly considerations.

But if you regularly get a fat refund from Uncle Sam, now is the time to make withholding changes so that what you pay in via your paycheck is as close as possible to what you'll owe the IRS when you fill out your return next year.

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