California taxes your income at rates between 1% and 13.3%, depending on how much you earn

California has a progressive income tax system, meaning the tax rate increases as your income rises. You do not pay one flat rate on all your income. Instead, your income is divided into brackets, and each bracket is taxed at its own rate. The lowest bracket starts at 1% for residents earning under roughly $10,000 per year (the exact threshold changes annually). The highest bracket reaches 13.3% on income above roughly $680,000 per year.

These brackets explore only to California residents. If you work in California but live in another state, or live in California but work elsewhere, different rules explore — and you may owe tax to both states. Non-residents who earn California income pay tax only on that California income, not on income earned outside the state.

California also taxes capital gains (profits from selling investments), interest, dividends, and business income the same way it taxes wages. The rate depends on your total income for the year, not the type of income.

Key Takeaways

  • California's tax brackets range from 1% to 13.3%, and you pay different rates on different portions of your income based on where each dollar falls.
  • Your filing status (single, married filing jointly, head of household) determines which bracket thresholds explore to you.
  • You must file a California return if you are a resident with income above the threshold for your filing status, even if you owe no tax.
  • Deductions and credits can lower your California taxable income, including the standard deduction, mortgage interest, and property taxes up to certain limits.
  • California taxes long-term capital gains at the same rates as ordinary income, unlike the federal system.

How the bracket system actually works

The bracket system can seem confusing because you do not pay the top rate on all your income. Here is a concrete example: if you are single and earn $60,000 in 2024, you do not pay 9.3% on the entire amount. Instead, the first roughly $10,000 is taxed at 1%, the next portion at 2%, then 4%, then 6%, then 8%, and only the income above a certain threshold is taxed at 9.3%.

California publishes updated tax brackets every year. The brackets shift upward slightly each year to account for inflation. Your filing status matters: single filers, married couples filing jointly, heads of household, and married couples filing separately each have different bracket thresholds. A married couple filing jointly reaches higher income levels before hitting each bracket than a single filer does.

You can find the current year's brackets on the California Franchise Tax Board (FTB) website. The FTB is the state agency that administers California income tax. Their website includes tax tables and worksheets that show exactly how much tax you owe at your income level.

Who must file a California return

You must file a California return if you are a resident and your income exceeds the threshold for your filing status. The threshold varies by year and filing status — for example, a single resident might need to file if income exceeds roughly $20,000, while a married couple filing jointly might need to file if income exceeds roughly $40,000. These thresholds are adjusted annually for inflation.

You must file even if you owe no tax, if you are a dependent and have unearned income (such as interest or dividends) above a certain amount, or if you had California income tax withheld from your paychecks. Filing allows you to recover any overpayment through a refund.

Non-residents must file if they had California income and meet certain thresholds. Part-year residents (people who moved into or out of California during the year) must file if their income from the period they lived in California exceeds the threshold.

Deductions and credits that reduce what you owe

California allows you to reduce your taxable income through deductions. The standard deduction is a fixed amount you can subtract from your income without itemizing specific expenses. For 2024, the standard deduction for a single filer is roughly $5,200, and for married couples filing jointly it is roughly $10,400. These amounts increase each year.

If your itemized deductions (mortgage interest, property taxes, charitable donations, and other may have access to expenses) exceed the standard deduction, you can itemize instead. California follows federal rules on itemized deductions, with one important exception: you can deduct state and local property taxes up to $10,000 per year, and state income taxes are not deductible at all on your California return.

California also offers tax credits, which directly reduce the tax you owe rather than reducing your income. Common credits include the Earned Income Tax Credit (EITC), the Child and Dependent Care Credit, and the Renter's Credit. Credits are more valuable than deductions because they reduce your tax dollar-for-dollar, whereas a deduction only reduces the income that gets taxed.

How capital gains are taxed differently in California

California taxes long-term capital gains (profits from selling assets you held more than one year) at the same rates as ordinary income. This is different from the federal system, where long-term capital gains receive preferential rates. If you sell a stock for a $50,000 profit and your total income puts you in the 9.3% bracket, that $50,000 gain is taxed at 9.3% in California.

Short-term capital gains (from assets held one year or less) are always taxed as ordinary income in California, just as they are federally. The difference between short-term and long-term treatment matters less in California than it does at the federal level, because California does not offer the lower rates that the federal government does.

This treatment affects your tax planning. If you are considering selling investments, the timing and your total income for the year matter more in California than they might in other states, because you cannot benefit from preferential capital gains rates.

Withholding and estimated tax payments

If you are an employee, your employer withholds California income tax from your paycheck based on the W-4 form you complete. The withholding is meant to cover your annual tax liability, so you neither owe nor receive a refund at tax time. If too much is withheld, you get a refund; if too little is withheld, you owe when you file.

If you are self-employed, own a business, or have income that is not subject to withholding (such as rental income or significant investment income), you may need to make estimated tax payments to California four times per year. These payments are due roughly in April, June, September, and January. If you do not pay enough through withholding and estimated payments, you may owe a penalty when you file, even if you ultimately owe no tax.

You can adjust your withholding at any time by submitting a new W-4 to your employer. If you expect a major change in income, deductions, or life circumstances, adjusting withholding early in the year can help you avoid a large bill or refund at tax time.

Residency rules and when you owe California tax

California taxes residents on all income from all sources, regardless of where the income is earned. If you are a California resident, you owe tax on wages earned in another state, investment income, rental income, and any other income.

You are considered a California resident if you are in the state for other than a temporary purpose, or if you are present in the state for more than nine months in a year. The FTB looks at factors like where you maintain a home, where your family lives, where you work, and where you are registered to vote to determine residency status.

If you moved to California during the year, you are a part-year resident and owe tax only on income earned while you were a resident. If you moved out of California, you owe tax only on income earned before you left. You will need to file both a California return and a return for your new state of residence.

Frequently Asked Questions

Do I have to pay California income tax if I work remotely for an out-of-state company?

Yes, if you are a California resident. California taxes residents on all income regardless of where the work is performed or where the employer is located. Your employer may not withhold California tax if they are based elsewhere, so you may need to make estimated payments or adjust your withholding with another job to cover the liability.

Can I deduct federal income tax paid on my California return?

No. California does not allow you to deduct federal income tax, state income tax from other states, or California income tax itself. You can deduct state and local property taxes up to $10,000 per year if you itemize, but income taxes are not deductible.

What happens if I move out of California mid-year?

You become a part-year resident and owe California tax only on income earned before you moved. You will file a part-year resident return with California and a full-year return with your new state. The FTB considers your move date official when you establish residency elsewhere, which typically means registering to vote, obtaining a driver's license, or signing a lease in the new state.

Is there a California tax on retirement income like Social Security or pensions?

Social Security benefits are not taxable in California. Pension and retirement account distributions are taxable as ordinary income. If you receive a distribution from a traditional IRA or 401(k), that amount is added to your income and taxed at your marginal rate. Roth distributions are not taxable if the account meets holding requirements.

How do I know if I should adjust my W-4 withholding?

Review your last tax return and compare the tax you owed to the amount withheld. If you received a large refund, you are having too much withheld and can claim more allowances on your W-4. If you owed a large amount, you are not having enough withheld and should claim fewer allowances. Major life changes like marriage, a second job, or significant investment income should also trigger a review.