Beating California- How to Get Your Delayed Refund Back Now!
California is in financial trouble- that is no secret with a large portion of the state's income coming from sinking property tax revenues. On top of that our wonderful officials spent months bickering over a budget, causing a whole mess of problems while living it up on their expense accounts. Due to that same "budget crisis" California is delaying the tax refunds they are sending out this year. Even though a budget has now been passed, they are still dragging their heels on sending out tax refunds. The bottom line is: file your taxes now, and you will get paid whenever the state feels like it. But for clever workers there is a way to get some of that money back now through reducing what is withheld out of your paycheck.
First though we must consider what an insult this is. We all have entrusted in the government the safekeeping of our tax dollars throughout the year until we tally it all up at year end, then we expect to get our money returned promptly. Some people even treat their tax refund as an annual savings account- counting on a windfall in springtime. If any private company disregarded their fiduciary duties in this way they would have the SEC cracking down on them immediately.
If you live in California you've already given the state an interest free loan all last year until now when you want your money back- and they are keeping their greedy little paws on it until the last possible second. That's right- by working a job you've automatically agreed to give the government an interest free loan through the tax they withhold from your paycheck. By law they don't have to pay you interest on the money they owe you unless it is at least 45 days after April 15th or the date you file your taxes, whichever is later. Basically the "IOU's" California is talking about issuing are when you would finally receive a note from them stating how much interest they will pay you until they can meet their obligation. What a raw deal.
However there is a way to get at least some of your tax refund back now- or at least gain control and know when you will get your money back. File your tax return checking the box that elects to carry forward your 2008 tax return, having it apply to 2009, then file a new form DE-4 with your employer to reduce your withholding. If you have already filed for 2008 you can file an amended return electing to carry forward your refund to the 2009 tax year.
You might be asking- What is this mystical form DE-4? When you started your job you likely just filled out a federal from W-4 and then the payroll for your business just gave you the same allowances for California and that is why you have "x" dollars withheld from your paycheck every week for the federal and state governments. Most people are not aware that they can adjust their California withholding separate from the federal, but it is simple to do and you can print out the form at home, hand it in to whoever handles your payroll, and the change should show up on your next paycheck!
When you fill out the form they make it look scary "you are signing this under penalty of perjury" and all that type of language. But it is quite simple and perfectly legal to adjust your withholding so that you receive no refund at the end of next year and get more money in your pocket now. Be careful though on filling out withholding forms to never declare yourself "exempt," that is when you can get yourself into legal troubles. However raising the number of allowances won't give you any problems- just remember to bring them back down to a level where you are breaking even with the government come year end- you don't want to end up owing taxes and paying penalties next year.
On the Franchise Tax Board's website they have an Excel calculator that you can use to calculate the number of allowances to create a zero balance at the end of next year. Or you can just claim 9 allowances now- get more money back in your check every week- then once you have gotten back your tax refund file a new DE-4 with your old allowance amount, or slightly more allowances- you don't want to wind up with a big refund again next year now do you?
***Update- the Franchise Tax Board has started issuing refunds again- for information on your refund go to:
As the author I am leaving this information up here though because I believe that California could arbitrarily do something like this again- and even if they don't it is worthwhile for people to know they can adjust the California withholding to not loan the state money for the next several months.
Franchise Tax Board