What Type of Tax Does the FTB Collect?

On: July 27, 2018

The Franchise Tax Board (FTB) is the agency responsible for collecting state personal income taxes in California. The revenues FTB collects are placed in the state’s general fund to help pay for items, such as roads, parks, law enforcement, and schools. California’s state income tax system is based on the principle of voluntary compliance. Voluntary compliance is a system of taxation that relies on individual citizens to properly report their income, calculate their tax liability, and file their tax returns timely. State personal income tax, like federal income tax, is a tax imposed on wages, tips, interest, dividends, pensions, capital gains, and other types of income.

Personal income tax is based on the amount of taxable income that people receive annually. Taxable income is less than total income, due to tax deductions. California taxpayers that earn more than the amount defined by California law each year must pay state income tax. In California, as in the federal system, your income taxes are generally prepaid in the form of “tax withholding.” One common example of tax withholding is employee wage withholding, which occurs when your employer takes money out of your paycheck each time you are paid. A portion of this money is sent to the state to be applied against your state income tax liability. When starting a new job, your employer will provide you with a federal Form W-4. Your employer uses information from the W-4 to determine how much federal and state income tax to withhold from your paycheck. To calculate your state income tax, use your federal income tax return amounts, make adjustments, and claim your state credits.