State’s Teachers Face Tax ‘Shock’

California teachers are in for an unpleasant surprise come April: They’ve lost a substantial personal income tax credit for 2002.

State legislators, trying to close a massive budget gap, have suspended for at least one year the widely used Teacher Retention Tax Credit, which the Franchise Tax Board said was claimed by 214,166 educators in the 2001 tax year.

Suspension of the credit, which reduced a teacher’s California income tax by $250 to $1,500 depending on the number of years of service, will cost the state’s teachers about $165.4 million in additional state tax -- an average of $772 per teacher claiming the break.

Legislators agreed in September to suspend the credit, but the change hasn’t been widely reported.

The credit was aimed at getting teachers to stay in their jobs despite the notoriously low pay compared with other professions, said Wayne Johnson, president of the California Teachers Assn. in Sacramento.

“The teachers who claimed this are upset about losing it,” Johnson said. “Theoretically, the suspension is just for one year. But we don’t know that for sure because we’re facing a big budget shortfall again.”

About half of the state’s teachers quit during the first four years of their service, said Steve Blazak, director of communications for the United Teachers of Los Angeles.

That made the credit, just 2 years old, an important tool in efforts to retain teachers, he said.

“This comes as a real shock to teachers,” Blazak said. “It was something that they had last year and now it’s gone. There wasn’t much said about it either.”

Indeed, California tax preparers said they were trying to get the word out to the state’s teachers because those who were counting on the credit are likely to have too little state tax withheld from their paychecks this year. That could leave them facing additional taxes when they file 2002 returns in early 2003.

Teachers wouldn’t be subject to penalties, however: Penalties aren’t assessed on taxpayers who underpay because of a change in state law, said Lynn Freer, editor of the Spidell California Tax Letter.

“This was a big credit,” said Jennifer MacMillan, a professional tax preparer in Santa Barbara.

“Teachers who were counting on this definitely need to consider adjusting their withholding.”

The Teacher Retention Tax Credit provided a dollar-for-dollar reduction in state income taxes paid by classroom instructors in kindergarten through 12th grade. It did not provide breaks to school nurses, counselors or administrators.

The credit worked on a sliding scale, providing a $250 credit for those with four or five years of experience; a $500 break for those with six to 10 years of experience; a $1,000 break for those with 11 to 19 years in the profession and a $1,500 tax reduction for those who had been teaching for 20 years or more.

“If you have a teacher who has been counting on this, they could potentially owe $1,500 [more] in tax” for 2002, Freer said.

“That’s a big chunk of cash to have to come up with at the last minute.”