How often do tax brackets change?
December 4, 2021 3:21 PM
How often to California income tax brackets change, and when should I expect 2022 brackets to be announced?
Every December I spend some time planning the next year's annual budget. As I'm mostly set in my ways, it's usually a process of looking up new limits and tax rates and updating the spreadsheet to reflect announced changes, and a light bit of analysis & planning.
Ever since I've moved to California, I've noticed that California seems to be the last one to publish updates. The IRS announces their changes in November, but AFAICT, nowhere on the web has any updates on California brackets yet.
Am I impatient? Should I just be waiting until later in the month? Or is there no announcement because there's no changes?
Every December I spend some time planning the next year's annual budget. As I'm mostly set in my ways, it's usually a process of looking up new limits and tax rates and updating the spreadsheet to reflect announced changes, and a light bit of analysis & planning.
Ever since I've moved to California, I've noticed that California seems to be the last one to publish updates. The IRS announces their changes in November, but AFAICT, nowhere on the web has any updates on California brackets yet.
Am I impatient? Should I just be waiting until later in the month? Or is there no announcement because there's no changes?
> I'm with you. Howver, there's a common misperception that "if I reach bracket X, all of my income is taxed at that level" I assume you know better.
Yes, and that's precisely why I'm interested in the new brackets -- when the bracket sizes increase, my overall tax burden goes down. There's a lot of things in flight at the federal level obviously, like the after-tax 401k rollover provisions remaining in bills that have yet to pass.
Mostly I just want to understand the process by which the brackets are set; is there a legislative act that must be passed, does it happen every year, or every biennium, is there inflation adjustment data that needs to happen first, etc. I recall reading that Cali had a bumper year for taxes despite (or perhaps because of) the pandemic, and perhaps there's some wrangling ongoing.
Or even maybe I'm laboring under the false idea that the taxbrackets for a year will be announced before that year begins. Basically, I want to know when I should be looking in 2022 for 2023's brackets, and what factors influence that, so I can set the calendar reminder for then and get out of this 'everything is done except California' holding pattern.
posted by pwnguin at 12:53 PM on December 5, 2021
Yes, and that's precisely why I'm interested in the new brackets -- when the bracket sizes increase, my overall tax burden goes down. There's a lot of things in flight at the federal level obviously, like the after-tax 401k rollover provisions remaining in bills that have yet to pass.
Mostly I just want to understand the process by which the brackets are set; is there a legislative act that must be passed, does it happen every year, or every biennium, is there inflation adjustment data that needs to happen first, etc. I recall reading that Cali had a bumper year for taxes despite (or perhaps because of) the pandemic, and perhaps there's some wrangling ongoing.
Or even maybe I'm laboring under the false idea that the taxbrackets for a year will be announced before that year begins. Basically, I want to know when I should be looking in 2022 for 2023's brackets, and what factors influence that, so I can set the calendar reminder for then and get out of this 'everything is done except California' holding pattern.
posted by pwnguin at 12:53 PM on December 5, 2021
> Mostly I just want to understand the process by which the brackets are set; is there a legislative act that must be passed, does it happen every year, or every biennium,
I can't answer for California, but on the federal level you probably know that Congress sets the tax law and then the IRS must turn the law into regulations and then forms, publications, tables, etc that people will use in preparing taxes. Also, the firms that create tax software depend on that same information to program their tax software.
So you would think that taxes and all tax law, policy, etc for say 2021 would be set before 2021 starts, so that people could plan. But no.
You would think that it would be set by the end of 2021, but no.
You would think the IRS would have all their forms, publications, etc, settled and published by January 1st, 2022 - but no.
It is very, very common for large changes in tax law to come down from Congress in the fall and even very near the end of the year. And it has happened several times (during the years spouse worked at H&R block in one of the divisions that creates their tax software) that the actual tax law was not completed and passed until early in the following year.
And then once the law is passed, it is a massive amount of work for the IRS to turn all that into forms, publications, tables, etc.
So what would happen in real life, very often, is that the IRS and the tax preparation industry basically know when during tax season various forms will be actually needed and used. And so think of "just in time" inventory management systems. No need to have form 2034-2-Sub-Z ready in January if no one will actually be using it until March 15th! Instead, it will be ready to go March 14th.
So for example, 1040EZ and basic 1040 forms would be ready to go by January 15th or so (but often - only just barely ready by that time).
More complicated business tax type forms wouldn't be ready to go for another month or even two - because no one with taxes that complex is ready to go with them by January 15th.
California is a very big state and so I would expect they work much like the federal system does. Also, before they complete their state tax forms, tables, they may need to have the federal in hand. Meaning (if that is the case) they will never be finished before the IRS is.
In short, whatever you are looking for, the only time you can really depend on it being available is sometime during tax season just a few days before the time when large numbers of tax filers will be expecting it to be available.
On the other hand, if you really only need to know the tax tables you could probably figure them out by looking up the California tax law for that year. But turning that written law into a nice easy-to-read table could be a rather difficult job depending on exactly how they handle it.
posted by flug at 7:35 PM on December 7, 2021
I can't answer for California, but on the federal level you probably know that Congress sets the tax law and then the IRS must turn the law into regulations and then forms, publications, tables, etc that people will use in preparing taxes. Also, the firms that create tax software depend on that same information to program their tax software.
So you would think that taxes and all tax law, policy, etc for say 2021 would be set before 2021 starts, so that people could plan. But no.
You would think that it would be set by the end of 2021, but no.
You would think the IRS would have all their forms, publications, etc, settled and published by January 1st, 2022 - but no.
It is very, very common for large changes in tax law to come down from Congress in the fall and even very near the end of the year. And it has happened several times (during the years spouse worked at H&R block in one of the divisions that creates their tax software) that the actual tax law was not completed and passed until early in the following year.
And then once the law is passed, it is a massive amount of work for the IRS to turn all that into forms, publications, tables, etc.
So what would happen in real life, very often, is that the IRS and the tax preparation industry basically know when during tax season various forms will be actually needed and used. And so think of "just in time" inventory management systems. No need to have form 2034-2-Sub-Z ready in January if no one will actually be using it until March 15th! Instead, it will be ready to go March 14th.
So for example, 1040EZ and basic 1040 forms would be ready to go by January 15th or so (but often - only just barely ready by that time).
More complicated business tax type forms wouldn't be ready to go for another month or even two - because no one with taxes that complex is ready to go with them by January 15th.
California is a very big state and so I would expect they work much like the federal system does. Also, before they complete their state tax forms, tables, they may need to have the federal in hand. Meaning (if that is the case) they will never be finished before the IRS is.
In short, whatever you are looking for, the only time you can really depend on it being available is sometime during tax season just a few days before the time when large numbers of tax filers will be expecting it to be available.
On the other hand, if you really only need to know the tax tables you could probably figure them out by looking up the California tax law for that year. But turning that written law into a nice easy-to-read table could be a rather difficult job depending on exactly how they handle it.
posted by flug at 7:35 PM on December 7, 2021
So halfway into January, and I still am unaware of any official guidance. Going by archive.org, it looks like tables for 2021 were not published in September of that year. (but had been by December). So this is not an unusual situation I guess. Not sure why the IRS can get brackets out a year faster than CA FTB.
How do companies handle withholding? Use last years bracket since inflation adjustments only lead to excess withholding? Or is there a separate publication for employer witholding guidance?
posted by pwnguin at 12:24 PM on January 16, 2022
How do companies handle withholding? Use last years bracket since inflation adjustments only lead to excess withholding? Or is there a separate publication for employer witholding guidance?
posted by pwnguin at 12:24 PM on January 16, 2022
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Cause it's mostly not true: income is taxed at marginal rates.
Also, yes, CA is just slow. IRS and CA tax penalties are small. It's prudent (emotionally, an perhaps financially) to wait.
posted by soylent00FF00 at 6:24 PM on December 4, 2021