How to Calculate Allowances for California Income Tax

California is known for its warm temperatures and beautiful sights. But for those living in the state, life can be expensive, especially when it's time to pay income tax. California has one of the highest state income tax rates in the country, hitting 13.3 percent at the highest income bracket of &1 million or more. Allowances can help reduce that tax burden, letting Californians keep a little more of their hard-earned money. To calculate those allowances, you'll need Form DE 4, Employee's Withholding Allowance Certificate. This worksheet helps you make the calculations you'll need to input on Form 540, which is the form you'll use to request that your employer withhold allowances from each paycheck.

How to Calculate Allowances for California Income Tax
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Input Marital Status and Dependents

After you've filled in your name, Social Security number and contact information on Form DE 4, you'll need to provide your marital status and number of dependents. You'll use worksheet A on the form for the latter. In addition to entering allowances for yourself and your spouse, you'll also add an allowance if either you or your spouse is blind. Line E asks you to input any dependents aside from yourself or your spouse. Total these allowances, and write the number on line F.

Estimate Your Deductions

In this section, you'll need to do some guessing. Use Form 540 to estimate your itemized deductions for the tax year in question, and then compare it to the standard deductions, which the worksheet will help you figure. You'll also enter income adjustments like paid alimony and IRA deposits, and complete the calculations to arrive at a total on line 10. At that point, you'll progress to worksheet C.

Estimate Your Wages

Input your wages and nonwage income for the tax year in question, and then calculate the amount of taxes estimated to be withheld during the tax year. If the amount estimated to be withheld is less than zero, you do not need to have your employer withhold extra taxes. If it is greater than zero, though, you'll need to divide the amount by the number of pay periods remaining in the year. Once you have a total, return to the top of the worksheet and add the information to line 2; sign the form, and turn it in to your employer. If your employer is amenable, this amount will be withheld from your paycheck each pay period. At the end of the year, you'll have paid the taxes necessary to avoid owing on the income you earned all year.