Don't Mess With Taxes

Good news, Kansas taxpayers. Your governor and legislature reached a budget agreement that takes your refunds off hold.

On Tuesday, Democratic Gov. Kathleen Sibelius and GOP lawmakers agreed to a compromise budget. Sibelius promptly signed the measure into law.

So now Kansans, your tax refund checks really should be in the mail.

Californians still on hold: There's no such luck yet for Golden State taxpayers.

Gov. Arnold Schwarzenegger still needs one vote from a fellow Republican legislator to pass a plan to plug California's $42 billion budget deficit. Late Wednesday, it looked like an agreement might be imminent, but to borrow Yogi's famous phrase, legislation isn't over until it's over.

UPDATE, Thursday, Feb. 19
Californians reach budget agreement!

If something isn't done soon, the one-month hold on California state tax refunds that took effect on Feb. 1 might last longer.

Gov. Sibelius you might want to give Gov. Schwarzenegger a call with tips on how to deal with a recalcitrant legislature. I'm sure that right about now, he'd be happy for any advice that could possibly get his state out of its fiscal FUBAR status.

Copycat refund tactics? Not to add to already existing tax anxiety, but it's not an unreasonable fear that other states, facing difficult financial times themselves, might follow suit.

They could look at California and Kansas and say, "Hey, good idea! They did it. Let's hang onto our taxpayers' refunds, too, until we can get our books in order."

It might not happen this year, but if state struggles continue, don't be surprised to see the tactic show up elsewhere.

In fact, fellow personal finance blogger Single Ma put the issue into succinct focus via her Twitter message below:

Don't overpay your state either: All these state budget and tax refund gyrations emphasize a point I've made several times (here and most recently here) on the ol' blog.

Don't let the tax collector have interest-free use of your money.

I'm usually talking about the IRS when I urge you to adjust your withholding so that it more accurately reflects your final tax bill. But the advice applies to state taxes, too.

When you have just the right amount of state taxes withheld, you won't have to worry about that tax collector hanging onto your refund, or at least not a big one, while it works to balance its accounts.

I don't have to worry about state withholding since Texas has no state income tax. But I know that several states, including  Connecticut and California, have their own withholding forms similar to the federal W-4.

Other states with income taxes, such as Minnesota, rely on the information you enter on your federal W-4 to calculate its withholding amounts.

Check with your payroll office or state tax department for details on how to get your state withholding just right.