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California Subtractions to Wages

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California Subtractions to Wages

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In general, for taxable years beginning on or after January 1, 2010, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2009. However, there are continuing differences between California and federal law. When California conforms to federal tax law changes, they do not always adopt all of the changes made at the federal level. These differences are reported on Schedule CA.

The following are instructions from Schedule CA regarding Additions and Subtractions:

Line 7-Wages, Salaries, Tips, etc.

Generally, you will not make any adjustments on this line. If you did not receive any of the following types of income, make no entry on this line in either column B or column C.

Active duty military pay. Special rules apply to active duty military taxpayers. Get FTB Pub. 1032 for more information.

Sick pay received under the Federal Insurance Contributions Act and Railroad Retirement Act. California excludes this item from income. Enter in column B the amount of these benefits included in the amount in column A.

Ridesharing fringe benefit differences. Under federal law, qualified transportation benefits are excluded from gross income. Under the R&TC, there are no monthly limits for the exclusion of these benefits and California’s definitions are more expansive. Enter the amount of ridesharing benefits received and included in federal income on line 7, column B.

Exclusion for compensation from exercising a California Qualified Stock Option (CQSO). To claim this exclusion:

  • Your earned income is $40,000 or less from the corporation granting the CQSO.
  • The market value of the options granted to you must be less than $100,000.
  • The total number of shares must be 1,000 or less.
  • The corporation issuing the stock must designate that the stock issued is a CQSO at the time the option is granted.

If you included an amount qualifying for this exclusion in federal income, enter that amount in column B.

Employer health savings account (HSA) contribution. Enter the amount of any employer HSA contribution from federal Form W-2, box 12, code W on line 7, column C.

Income exclusion for In-Home Supportive Services (IHSS) supplementary payments – If you are an IHSS provider who received IHSS supplementary payments that was included in federal wages, enter the IHSS supplementary payments on line 7, column B. IHSS providers only receive a supplementary payment if they paid a sales tax on the IHSS services they provide. The supplementary payment is equal to the sales tax paid plus any increase in the federal payroll withholding paid due to the supplementary payment.

Taxable Interest

If you did not receive any of the kinds of income listed below, make no entry on this line in either column B or column C.

Enter in column B the interest you received from:

  • U.S. savings bonds (except for interest from series EE U.S. savings bonds issued after 1989 that qualified for the Education Savings Bond Program exclusion).
  • U.S. Treasury bills, notes, and bonds.
  • Any other bonds or obligations of the United States and its territories.
  • Interest from Ottoman Turkish Empire Settlement Payments.
  • Interest income from children under age 19 or students under age 24 included on the child’s federal tax return and reported on the California tax return by the parent. For more information, get form FTB 3803, Parents’ Election to Report Child’s Interest and Dividends

Certain mutual funds pay “exempt-interest dividends.” If the mutual fund has at least 50% of its assets invested in tax-exempt U.S. obligations and/or in California or its municipal obligations, that amount of dividend is exempt from California tax. The proportion of dividends that are tax‑exempt will be shown on your annual statement or statement issued with Form 1099-DIV, Dividends and Distributions.

Enter in column C the interest you identified as tax-exempt interest on your federal Form 1040 (or Form 1040A), line 8b, and which you received from:

  • The federally exempt interest dividends from other states, or their municipal obligations and/or from mutual funds that do not meet the 50% rule above.
  • Non-California state bonds.
  • Non-California municipal bonds issued by a county, city, town, or other local government unit.
  • Obligations of the District of Columbia issued after December 27, 1973.
  • Non-California bonds if the interest was passed through to you from S corporations, trusts, partnerships, or Limited Liability Companies (LLCs).
  • Interest or other earnings earned from a Health Savings Account (HSA) are not treated as taxed deferred. Interest or earnings in a HSA are taxable in the year earned.
  • Interest on any bond or other obligation issued by the Government of American Samoa.
  • Interest income from children under age 19 or students under age 24 included on the parent’s federal tax return and reported on the California tax return by the child.

Make no entries in either column B or column C for interest you earned on Federal National Mortgage Association (Fannie Mae) Bonds, Government National Mortgage Association (Ginnie Mae) Bonds, and Federal Home Loan Mortgage Corporations (FHLMC) securities, or grants paid to low income individuals.

Get FTB Pub. 1001 if you received interest income from the following sources:

  • Loans made in an enterprise zone (EZ) or the former Los Angeles Revitalization Zone (LARZ).
  • Items listed above passed through to you from S corporations, trusts, estates, partnerships, or LLCs.

Line 9 – Ordinary Dividends

Generally, no difference exists between the amount of dividends reported in column A and the amount reported using California law. However, California taxes dividends derived from other states and their municipal obligations.

Add dividends received from the following and enter in column B:

  • Dividend income from children under age 19 or students under age 24 included on the parent’s or child’s federal tax return and reported on the California tax return by the opposite taxpayer. For more information, get form FTB 3803.

Add dividends received from the following and enter in column C:

  • Controlled foreign corporation (CFC) dividends in the year distributed.
  • Regulated investment company (RIC) capital gains in the year distributed.
  • Distributions of pre-1987 earnings from an S corporation.
  • Dividend income from children under age 19 or students under age 24 excluded on the parent’s or child’s federal tax return and reported on the California tax return by the opposite taxpayer. For more information, get form FTB 3803.

Get FTB Pub. 1001 if you received dividends from:

  • Non-cash patronage dividends from farmers’ cooperatives or mutual associations.
  • A CFC.
  • Distributions of pre-1987 earnings from S corporations.
  • Undistributed capital gains for RIC shareholders.

Line 10 – Taxable Refunds, Credits, or Offsets of State and Local Income Taxes

California does not tax the state income tax refund received in 2013. Enter in column B the amount of state tax refund entered in column A.

Line 11 – Alimony Received

If you are a nonresident alien and received alimony not included in your federal income, enter the alimony on this line in column C. Otherwise, make no entry on this line.

Line 12 – Business Income or (Loss)

Adjustments to federal business income or loss you reported in column A generally are necessary because of the difference between California and federal law relating to depreciation methods, special credits, and accelerated write-offs. As a result, the recovery period or basis used to figure California depreciation may be different from the amount used for federal purposes.

Adjustments are figured on form FTB 3885A, Depreciation and Amortization Adjustments, and are most commonly necessary because of the following:

• Before January 1, 1987, California did not allow depreciation under the federal accelerated cost recovery system. Continue to figure California depreciation for those assets in the same manner as prior years.

• On or after January 1, 1987, California provides special credits and accelerated write-offs that affect the California basis of qualifying assets. Refer to the bulleted list below.

Use form FTB 3801, Passive Activity Loss Limitations, to figure the total adjustment for line 12 if you have:

  • One or more passive activities that produce a loss.
  • One or more passive activities that produce a loss and any nonpas­sive activity reported on federal Schedule C (Form 1040), Profit or Loss From Business.

Use form FTB 3885A to figure the total adjustment for line 12 if you have:

  • Only nonpassive activities which produce either gains or losses (or combination of gains and losses).
  • Passive activities that produce gains.

Get FTB Pub. 1001 for more information about:

Income related to:

  • Business, trade, or profession carried on within California that is an integral part of a unitary business carried on both within and outside California.
  • Pro-rata share of income received from a CFC by a U.S. shareholder.

Basis adjustments related to:

  • Property acquired prior to becoming a California resident.
  • Sales or use tax credit for property used in an EZ, Local Agency Military Base Recovery Area (LAMBRA), Targeted Tax Area (TTA), or former LARZ.
  • Reduced recovery periods for fruit-bearing grapevines replaced in a California vineyard on or after January 1, 1992, as a result of phylloxera infestation; or on or after January 1, 1997, as a result of Pierce’s disease.
  • Expenditures for tertiary injectants.
  • Property placed in service on an Indian reservation after January 1, 1994, and before January 1, 2014.
  • Amortization of pollution control facilities.
  • Discharge of real property business indebtedness.
  • Vehicles used in an employer-sponsored ridesharing program.
  • An enhanced oil recovery system.
  • Joint Strike Fighter property costs.
  • The cost of making a business accessible to disabled individuals.
  • Property for which you received an energy conservation subsidy from a public utility on or after January 1, 1995, and before January 1, 1997.
  • Research and experimental expenditures.

Business expense deductions related to:

  • Wages paid in an EZ, LAMBRA, Manufacturing Enhancement Area (MEA), or TTA.
  • Certain employer costs for employees who are also enrolled members of Indian tribes.
  • Abandonment or tax recoupment fees for open-space easements and timberland preserves.
  • Business located in an EZ, LAMBRA, or TTA.
  • Research expense.
  • Employer wage expense for the Work Opportunity Credit and Welfare‑to- Work Credit.
  • Pro-rata share of deductions received from a CFC by a U.S. shareholder.
  • Interest paid on indebtedness in connection with company-owned life insurance policies.
  • Premiums paid on life insurance policies, annuities, or endowment contracts issued after June 8, 1997, where the owner of the business is directly or indirectly a policy beneficiary.
  • Commercial Revitalization Deductions for Renewal Communities.
  • Small Employer Health Insurance Credit

Line 13 – Capital Gain or (Loss)

Generally, no adjustments are made on this line. California taxes long and short term capital gains as regular income. No special rate for long term capital gains exists. However, the California basis of the assets listed below may be different from the federal basis due to differences between California and federal laws. If there are differences, use Schedule D (540), California Capital Gain or Loss Adjustment, to calculate the amount to enter on line 13.

  • Gain on sale of qualified small business stock under IRC Section 1045 and IRC Section 1202.
  • Basis amounts resulting from differences between California and federal law in prior years.
  • Gain or loss on stock and bond transactions.
  • Installment sale gain reported on form FTB 3805E, Installment Sale Income.
  • Gain on the sale of personal residence where depreciation was allowable.
  • Pass-through gain or loss from partnerships, fiduciaries, S corporations, or LLCs.
  • Capital loss carryover from your 2012 California Schedule D (540).
  • Capital gain from children under age 19 or students under age 24 included on the parent’s or child’s federal tax return and reported on the California tax return by the opposite taxpayer. For more information, get form FTB 3803.

Get FTB Pub. 1001 for more information about:

  • Disposition of S corporation stock acquired before 1987.
  • Capital gain exclusion for sale of principal residence by a surviving spouse.
  • Gain on sale or disposition of qualified assisted housing development to low-income residents or to specified entities maintaining housing for low‑income residents.
  • Undistributed capital gain for RIC shareholders.
  • Gain or loss on the sale of property inherited before January 1, 1987.
  • Capital loss carrybacks.

Line 14 – Other Gains or (Losses)

Generally, no adjustments are made on this line. However, the California basis of your other assets may differ from your federal basis due to differences between California and federal law. Therefore, you may have to adjust the amount of other gains or losses. Get Schedule D-1, Sales of Business Property.

Line 15 – IRA Distributions

Generally, no adjustments are made on this line. However, there may be significant differences in the taxable amount of a distribution (including a distribution from conversion of a traditional IRA to a Roth IRA), depending on when you made your contributions to the IRA. Differences also occur if your California IRA deductions were different from your federal deductions because of differences between California and federal self-employment income.

If the taxable amount using California law is:

  • Less than the amount taxable under federal law, enter the difference in column B.
  • More than the amount taxable under federal law, enter the difference in column C.

Get FTB Pub. 1005 for more information and worksheets for figuring the adjustment to enter on line 15, if any.

If you have an IRA basis and were a nonresident in prior years, you may need to restate your California IRA basis. Get FTB Pub. 1100 for more information.

Coverdell Education Savings Account (ESA) formerly known as Education (ED) IRA – If column A includes a taxable distribution from an ED IRA, you may owe additional tax on that amount. Get form FTB 3805P, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. Report only the taxable amount of the distribution on line 21f.

Line 16 – Pensions and Annuities

Generally, no adjustments are made on this line. However, if you received Tier 2 railroad retirement benefits or partially taxable distributions from a pension plan, you may need to make the following adjustments.

If you received a federal Form RRB-1099-R, Annuities or Pensions by the Railroad Retirement Board, for railroad retirement benefits and included all or part of these benefits in taxable income in column A, enter the taxable benefit amount in column B.

If you began receiving a retirement annuity between July 1, 1986, and January 1, 1987, and elected to use the three-year rule for California purposes and the annuity rules for federal purposes, enter in column C the amount of the annuity payments you excluded for federal purposes.

You may have to pay an additional tax if you received a taxable distribution from a qualified retirement plan before reaching age 59½ and the distribution was not rolled over into another qualified plan. See Form 540, line 63 instructions; or form FTB 3805P.

The cost of group term life insurance for retirees funded by the transfer of excess pension assets is taxable for California purposes. Enter in column C the amount of the cost excluded for federal purposes.

Line 17 – Rental Real Estate, Royalties, Partnerships, S Corporations, Trusts, etc.

Adjustments to federal income or loss you reported in column A generally are necessary because of the difference between California and federal law relating to depreciation methods, special credits, and accelerated write-offs. As a result, the recovery period or basis used to figure California depreciation may be different from the recovery period or amount used for federal. For more information, see the instructions for column B and column C, line 12.

California law does not conform to federal law for material participation in rental real estate activities. Beginning in 1994, and for federal purposes only, rental real estate activities conducted by persons in real property business are not automatically treated as passive activities. Get form FTB 3801 for more information.

Use form FTB 3801 to figure the total adjustment for line 17 if you have:

  • One or more passive activities that produce a loss.
  • One or more passive activities that produce a loss and any nonpassive activity reported on federal Schedule E (Form 1040), Supplemental Income and Loss.

Use form FTB 3885A to figure the total adjustment for line 17 if you have:

  • Only nonpassive activities which produce either gains or losses (or combination of gains and losses).
  • Passive activities that produce gains.

LLCs that are classified as partnerships for California purposes and limited liability partnerships (LLPs) are subject to the same rules as other partnerships. LLCs report distributive items to members on Schedule K‑1 (568), Member’s Share of Income, Deductions, Credits, etc. LLPs report to partners on Schedule K-1 (565), Partner’s Share of Income, Deductions, Credits, etc.

Get FTB Pub. 1001 for more information about accumulation distributions to beneficiaries for which the trust was not required to pay California tax because the beneficiary’s interest was contingent.

Line 18 – Farm Income or (Loss)

Adjustments to federal income or loss you report in column A generally are necessary because of the difference between California and federal law relating to depreciation methods, special credits, and accelerated write‑offs. As a result, the recovery period or basis you use to figure California depreciation may be different from the amount used for federal purposes, and you may need to make an adjustment to your farm income or loss. For more information, see the instructions for column B and column C, line 12.

Use form FTB 3801 to figure the total adjustment for line 18 if you have:

  • One or more passive activities that produce a loss.
  • One or more passive activities that produce a loss and any nonpassive activity reported on federal Schedule F (Form 1040), Profit or Loss From Farming.

Use form FTB 3885A to figure the total adjustment for line 18 if you have:

  • Only nonpassive activities which produce either gains or losses (or combination of gains and losses).
  • Passive activities that produce gains.

Line 19 – Unemployment Compensation

California excludes unemployment compensation from taxable income. Enter on line 19, column B the amount of unemployment compensation shown in column A.

Paid Family Leave Insurance (PFL) benefits, also known as Family Temporary Disability Insurance. Payments received from the PFL Program are reported on Form 1099-G, Certain Government Payments. Enter on line 19, column B the amount of PFL payments shown in column A. For more information, get FTB Pub. 1001.

Line 20 – Social Security Benefits

California excludes U.S. social security benefits or equivalent Tier 1 railroad retirement benefits from taxable income. Enter in column B the amount of taxable U.S. social security benefits or equivalent Tier 1 railroad retirement benefits shown in column A, line 20(b).

Line 21 – Other Income

a. California Lottery Winnings. California excludes California lottery winnings from taxable income. Enter in column B the amount of California lottery winnings included in the federal amount on line 21 in column A.

Make no adjustment for lottery winnings from other states. They are taxable by California. California and federal laws allow gambling losses only to the extent of reported gambling income. If you reduced gambling income for California lottery income, you may need to reduce the losses included in the federal itemized deductions on line 38. Enter these losses on line 41 as a negative number.

b. Disaster Loss Carryover from Form FTB 3805V, Part III, line 6. If you have a California disaster loss carryover from your 2012 form FTB 3805V, Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations – Individuals, Estates, and Trusts, enter that amount as a positive number in column B.

c. Federal NOL from Form 1040, line 21. If the amount on line 21 in column A includes a federal NOL, enter the amount of the federal NOL as a positive number in column C. Get form FTB 3805V, to figure the allowable California NOL.

d. NOL Carryover from Form FTB 3805V, Part III, line 5. The allowable NOL carryover under California law is different from the allowable NOL carryover under federal law. If you have a California NOL carryover from your 2012 form FTB 3805V, enter it as a positive number in column B.

e. NOL from Forms FTB 3805D, FTB 3805Z, FTB 3806, FTB 3807, or FTB 3809. Enter in column B the total NOL figured on the following forms.

  • FTB 3805D, Net Operating Loss (NOL) Carryover Computation and Limitation – Pierce’s Disease, line 7, column C
  • FTB 3805Z, Enterprise Zone Deduction and Credit Summary, line 5b
  • FTB 3806, Los Angeles Revitalization Zone Deduction and Credit Summary, line 3b
  • FTB 3807, Local Agency Military Base Recovery Area Deduction and Credit Summary, line 5b
  • FTB 3809, Targeted Tax Area Deduction and Credit Summary, line 4b

f. Other (describe).

Identify the type of income reported in the space provided. If there is more than one item to report on line 21f, attach a statement that lists each item and enter the total of all individual items in column B or column C as instructed in Schedule CA instructions.

Line 22 – Total

Add line 7 through line 21f in column B and column C. Enter the totals on line 22.

Line 23 through Line 31a and Line 32 through Line 35 – California law is the same as federal law with the exception of the following:

  • Line 23 (Educator Expenses) – California does not conform to federal law regarding educator expenses. Enter the amount from column A, line 23 to column B, line 23.
  • Line 24 (Certain Business Expense of Reservists, Performing Artists, and Fee Basis Government Officials) – If claiming a depreciation deduction as an unreimbursed employee business expense on federal Form 2106, Employee Business Expenses, or Form 2106‑EZ, Unreimbursed Employee Business Expenses, you may have an adjustment in column B or column C. For more information, get FTB Pub. 1001.
  • Line 25 (Health Savings Account (HSA) Deduction) – Federal law allows a deduction for contributions to an HSA account. California does not conform to this provision. Transfer the amount from column A, line 25, to column B, line 25.
  • Line 31a (Alimony Paid) – Enter the SSN or ITIN and last name of the person to whom you paid alimony.

If you are a nonresident alien and did not deduct alimony on your federal tax return, enter the amount you paid in column C.

  • Line 32 (IRA Deduction) – If you are an active duty military servicemember domiciled outside of California, you may have an adjustment. See line 36.
  • Line 33 (Student Loan Interest Deduction) – California conforms to federal law regarding student loan interest deduction except for a spouse/RDP of a non-California domiciled military taxpayer residing in a community property state. Use the Student Loan Interest Deduction Worksheet to compute the amount to enter on line 33. For more information, get FTB Pub. 1032.
  • Line 34 (Tuition and Fees) – California does not conform to federal law regarding the tuition and fees deduction. Enter the amount from column A, line 34 to column B, line 34.
  • Line 35 (Domestic Production Activities Deduction) – California does not conform to the federal law regarding the domestic production activities deduction. Enter the amount from column A, line 35, to column B, line 35.

Line 36 – Add line 23 through line 31a and line 32 through line 35 in column B and column C.

If you claimed the foreign housing deduction, include that amount in the total you enter in column B, line 36. Enter the amount and “Form 2555” or “Form 2555‑EZ” on the dotted line next to line 36.

If you are active duty military and not domiciled in California and your IRA deduction was limited because of a federal AGI limitation, recalculate your deduction excluding your active duty military pay. If the recalculated amount is larger than the amount on line 32, column A, enter the difference between the two amounts in column C, line 36. Enter the amount and “MPA Adjustment” on the dotted line next to line 36.


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Views: 1114 Created on: Jun 15, 2013
Date updated: Aug 19, 2014

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