I received this information from a reader about what California taxpayers can do in response to the state withholding an extra 10 percent off their paychecks starting now:
California from DE-4, the Employee’s Withholding Allowance Certificate, specifically states its purpose as to “accurately reflect your state tax withholding obligation.” Although I don’t know exactly what California law states the state tax withholding obligation to be, it is generally to withhold enough to not be penalized for underwithholding. The taxpayer files form DE-4 to certify to the employer (under penalty of perjury and a $500 fine if you “with no reasonable basis, a DE 4 that results in less tax being withheld than is properly allowable.”) how much to withhold.
The simple solution for the California tax payer is to file a new DE-4 immediately claiming one more allowance. I examined what my personal case would be under the old and new withholding schedules. By claiming one more allowance I would *decrease* my withholding by 12% but only decrease my total annual withholding by $86, which I doubt would be enough to cause a penalty for underwithholding. If all Californians would do this, the state would quickly learn not to fleece its own citizens.
I have not researched what triggers the underwithholding penalty in California nor have I examined whether the state somehow closed this loophole (although I don’t see how they could since citizens could have other legitimate reasons to revise their DE-4).