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2006 income tax changes due to indexing

It may be four months away, but it's not too early to be thinking about state income taxes. The good news is California's personal income tax brackets will be indexed by 4.8 percent for 2006, which means that some taxpayers will pay less in income taxes next year.

Indexing takes the inflation rate into account, and adjusts tax brackets, filing requirement thresholds, the standard deduction, and certain credits. FTB has computed the indexed values using the inflation rate of 4.8 percent, as measured by the California Consumer Price Index for all urban consumers from June 2005 to June 2006. Last year's inflation rate measured 2.8 percent.

State tax law indexes minimum filing requirement thresholds to ensure that most people who will not owe taxes are not required to file a tax return. We adjust the tables each year to include the added senior exemption, and the dependent exemption credits. The tax threshold is the amount of income reached where a tax liability is incurred. It has risen to $11,271 of adjusted gross income for single and married filing separate taxpayers, and $22,542 for married filing joint, surviving spouse, and head of household filers.

The standard deduction will increase for single or married filing separate taxpayers from $3,254 to $3,410. For married filing jointly, qualifying widow(er), or head of household taxpayers, the standard deduction increases from $6,508 to $6,820. The personal exemption credit increases for single, married filing separate, or head of household taxpayers from $87 to $91 and for married filing jointly or surviving spouses from $174 to $182. The dependent exemption credit changes from $272 to $285 for each dependent.

Other tax credits affected by indexing include the Joint Custody Head of Household Credit, Dependent Parent Credit, Qualified Senior Head of Household Credit, and the Renter's Tax Credit.

Refer to the chart below for tax rates and filing requirement amounts:

2006 California tax rate schedules

Schedule X
Single, or married filing separate taxpayers
If the taxable income is
Computed tax is
Over
But not over
 
Of amount over
$0
$6,622
$15,698
$24,776
$34,394
$43,467
$6,622
$15,698
$24,776
$34,394
$43,467
And over

$0.00
$66.22
$247.74
$610.86
$1,187.94
$1,913.78

Plus
Plus
Plus
Plus
Plus
Plus

1.0%
2.0%
4.0%
6.0%
8.0%
9.3%

$0
$6,622
$15,698
$24,776
$34,394
$43,467

Schedule Y
Married filing joint, or qualifying widow(er) taxpayers
If the taxable income is
Computed tax is
Over
But not over
 
Of amount over
$0
$13,244
$31,396
$49,552
$68,788
$86,934

$13,244
$31,396
$49,552
$68,788
$86,934
And over

$0.00
$132.44
$495.48
$1,221.72
$2,375.88
$3,827.56

Plus
Plus
Plus
Plus
Plus
Plus
1.0%
2.0%
4.0%
6.0%
8.0%
9.3%
$0
$13,244
$31,396
$49,552
$68,788
$86,934
Schedule Z
Head of household taxpayers
If the taxable income is
Computed tax is
Over
But not over
 
Of amount over
$0
$13,251
$31,397
$40,473
$50,090
$59,166
$13,251
$31,397
$40,473
$50,090
$59,166
And over
$0.00
$132.51
$495.43
$858.47
$1,435.49
$2,161.57
Plus
Plus
Plus
Plus
Plus
Plus
1.0%
2.0%
4.0%
6.0%
8.0%
9.3%
$0
$13,251
$31,397
$40,473
$50,090
$59,166

2006 Filing requirement amounts

Gross income more than:

 
Age on 12/31/06 No dependents 1 dependent 2 or more dependents

Single 

Head of household
Under 65
13,713
23,213
30,338
65 or older
18,263
25,388
31,088

Married

Married filing separate

Under 65 (both spouses)
27,426
36,926
44,051
65 or older (one spouse)
31,976
39,101
44,801
65 or older (both spouses)
36,526
43,651
49,351
Qualifying widow(er)
Under 65
N/A
23,213
30,338
65 or older
N/A
25,388
31,088

Adjusted gross income more than:

 
Age on 12/31/06 No dependents 1 dependent 2 or more dependents

Single 

Head of household
Under 65
10,970
20,470
27,595
65 or older
15,520
22,645
28,345

Married

Married filing separate

Under 65 (both spouses)
21,940
31,440
38,565
65 or older (one spouse)
26,490
33,615
39,315
65 or older (both spouses)
31,040
38,165
43,865
Qualifying widow(er)
Under 65
N/A
20,470
27,595
65 or older
N/A
22,645
28,345