California: Top Personal Income Tax Mistakes and How to Avoid Them

Excess VPDI Payments and Other Mistakes on California Tax Returns

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The California Franchise Tax Board (FTB) has ranked the 10 most common errors found on personal income tax returns of state residents. These mistakes range from trying to deduct Voluntary Plan for Disability Insurance (VPDI) payments on federal returns to incorrectly calculating adjusted gross income (AGI). They can delay the processing of your return and affect the amount of your refund. 

Estimated Tax Payments

Make sure that the amount you think you've paid toward this year's taxes is the same as what California thinks you paid.

First, check your records for all tax payments you've made to the FTB for the tax year in question. Then take a look at last year's return to check whether you requested that any amount of that year's refund be applied to this year's estimated tax. The information should appear on line 95 on Form 540, the California Resident Income Tax Return, or line 102 on Form 540NR, the California Nonresident or Part-Year Resident return long form. Add this amount to the payments you made. 

Now compare the total to California's record of your payments at ftb.ca.gov under the "My FTB Account" link to make sure that they match. You can call the FTB at 1-800-852-5711 if you believe the state's amount is incorrect. 

Be sure you have proof of all the payments you made. You can also include a letter and proof of all payments when you submit your return.

The lines cited for Form 540 and Form 540NR pertain to California's 2018 tax returns. They might not be applicable on 2019 returns, and they're not always the same as on previous years' forms. All references to Form 540NR are for the long form except where otherwise noted.

Standard or Itemized Deduction

Make sure you're using the correct amount for your filing status on line 18 of Form 540 or 540NR if you're claiming the standard deduction.

Use the worksheet provided and check the instructions to make sure all your deductions are allowed if you itemize.

Your Total Tax Amount

Check the total tax amount on line 31 of Form 540, or line 31 of Form 540NR, to make sure the amount is calculated correctly. Then check any affected schedules to make sure that the correct tax amount has been transferred over.

Also check your total credits on line 47 of Form 540, or line 62 of the long form 540NR, to make sure the amount is calculated correctly.

Get the Math Right

Check to make sure that your starting point is the correct federal adjusted gross income (AGI) amount and that your state wages are entered correctly from your W-2. Then confirm that your California additions and subtractions are all correct. Finally, review your math to make sure that your California adjusted gross income on line 17 of Form 540 or 540NR is calculated correctly.

Your Total Exemption Credit Amount

The California exemption credit is based on filing status and your total number of dependents, and it directly reduces your total tax due. Make sure you're using the correct number of exemptions, one each for you and your spouse if you're filing jointly, plus one for each of your dependents.

The exemption credit amount is calculated on line 11 and is transferred to line 32 on Form 540. Make sure you prorate your exemption credit on line 38 of Form 540NR if you're a part-year resident. 

Filing Status and Dependents

Confirm that you're using the correct filing status and that your AGI is calculated correctly. Make sure that all your dependents' names and their relationships to you are listed, and that your exemption amount on line 11 of Form 540 or 540NR is computed correctly.

Nonresidents or Part-Year Residents

Double check to make sure your California taxable income on line 35 of the long form 540NR is the correct amount and that it's accurately transferred from line 5, Part IV of Schedule CA. Check line 35 to make sure the deduction percentage on line 33 and the prorated deduction amount on line 34 are calculated correctly if you're submitting the short-form 540NR.

The Withholding Amount Claimed

Make sure you enter all California withholding from your W-2s or 1099 statements. Confirm that you're claiming only California income tax withheld and that your math is correct. Attach copies of all statements to your return as support for the withholding amount you're claiming.

You can also verify your withholding amount using "My FTB Account" at ftb.ca.gov.

Excess State Disability Insurance or VDPI

You can only take a credit for excess state disability insurance (SDI) or Voluntary Plan Disability Insurance (VPDI) if you meet all the following conditions:

  • You had two or more California employers.
  • You received more than $114,967 in wages in calendar year 2018.
  • The amounts of SDI and/or VPDI appear on your W-2.

The wage base of $114,967 can be adjusted annually for inflation. It increases to $118,371 in 2019.

You'll have to get a refund from your employer if you only had one employer for the year and had more than 1.1% of your gross income withheld for SDI or VPDI.

Use the worksheet in the instructions for line 74 on Form 540, or line 84 on the 540NR long form, to calculate the correct amount of the credit. Be sure to attach the appropriate documents to support any amount claimed. 

A Few Other Common Mistakes

Let's face it, preparing a tax return is a headache and quite a few pitfalls can lie in wait for you. Watch out for these other issues as well:

  • If you're filing an amended return, make sure all the information from your original return matches—except, of course, for the information you're amending.
  • Make sure no one else is claiming any of your dependents.
  • Make sure you do indeed qualify for the Earned Income Tax Credit if you're claiming it. The rules can be tricky.
  • Do the math, then do it twice, especially if you're itemizing numerous deductions.

NOTE: Please check the California Franchise Tax Board website for the most up-to-date advice. The information contained in this article is not intended as tax advice and it is not a substitute for legal advice.