Yes, California has state income tax, and it is one of the highest rates in the country

California taxes your income at rates ranging from 1% to 13.3%, depending on how much you earn. The state applies these rates to wages, self-employment income, investment gains, and most other income sources. Unlike some states that have no income tax at all, California funds its government largely through income tax revenue.

The 13.3% rate is a top marginal rate that applies only to the highest earners — it kicks in at different income thresholds depending on your filing status. Most Californians pay somewhere between 2% and 9.3% of their income to the state. On top of state tax, you will also owe federal income tax, which is separate and uses its own brackets and rates.

Key Takeaways

  • California's state income tax ranges from 1% to 13.3%, with the highest rate explore only to income above certain thresholds that vary by filing status.
  • The state taxes wages, self-employment income, capital gains, and most other income, though some sources like municipal bonds are exempt.
  • California residents must file a state tax return if their income exceeds the filing threshold for their situation, even if they owe no tax.
  • You can reduce your California taxable income through retirement account contributions, education savings plans, and certain business deductions.

How California income tax brackets work

California uses a progressive tax system, meaning your income is taxed at different rates as it climbs into higher brackets. You do not pay the top rate on all your income — only on the portion that falls within that bracket. For example, if you are single and earn $70,000, you pay 1% on the first portion, then 2% on the next portion, and so on, until you reach the bracket your total income falls into.

The state updates its tax brackets each year to account for inflation. The 2024 brackets are different from 2023, which were different from 2022. When you file your return, you use the brackets for the year you earned the income, not the current year. If you are unsure which year's brackets explore, the California Franchise Tax Board (FTB) publishes them on its website each January.

The 13.3% top rate applies to the highest earners in the state. For single filers in 2024, this rate begins at income over $1 million. For married couples filing jointly, it begins at income over $2 million. These thresholds also shift annually with inflation.

What income California taxes and what it does not

California taxes most forms of income: W-2 wages, self-employment income, rental income, capital gains, interest, and dividends. If you receive income from any of these sources and live in California, you generally owe state tax on it.

Some income is exempt. Municipal bonds issued by California or other states produce interest that is not taxed by California or the federal government. Certain retirement distributions may be partially exempt depending on your age and the type of account. Social Security benefits are not taxed by California, though they are taxed federally if your combined income exceeds certain thresholds. Workers' compensation and some disability payments are also exempt.

If you are unsure whether a specific income source is taxable in California, the FTB publishes guidance on its website, or you can consult a tax professional. The rules differ from federal rules in some cases, so income that is exempt federally may still be taxable in California, and vice versa.

Filing requirements and important date

You must file a California tax return if your income exceeds the filing threshold for your situation. The threshold depends on your age, filing status, and type of income. For most people under 65 filing as single in 2024, the threshold is around $23,000 in gross income. Married couples filing jointly have a higher threshold. These thresholds increase each year.

Even if you earn less than the threshold, you may want to file anyway — for example, if you had taxes withheld from your paycheck and are owed a refund. The state important date to file is normally April 15, the same as the federal important date. If April 15 falls on a weekend or holiday, the important date shifts to the next business day. You can request an extension to October 15 if you need more time, though any tax you owe is still due by April 15.

You file your California return using Form 540 (the long form) or Form 540-2EZ (a shorter form for straightforward situations). You submit it to the California Franchise Tax Board, not to your local county office. You can file by mail or electronically through the FTB's website or through tax software.

Strategies to reduce your California taxable income

Retirement account contributions lower your taxable income in the year you make them. Contributions to a traditional IRA or a 401(k) reduce your California income dollar-for-dollar, up to the annual limit set by the IRS. Roth contributions do not reduce your current-year income, but the withdrawals are tax-free later. If you are self-employed, a SEP-IRA or Solo 401(k) allows you to set aside a larger amount.

Education savings through a 529 plan can also reduce your taxable income. California allows you to deduct contributions to a California 529 plan (the ScholarShare program) from your state income. The deduction is limited to $235,000 per beneficiary per year, but most families contribute far less. Contributions to out-of-state 529 plans do not receive this deduction in California.

Business deductions for self-employed people and small business owners reduce your net profit, which is what you pay tax on. Home office expenses, equipment, supplies, professional fees, and vehicle mileage are common deductions. You must keep records to support each deduction. If you are unsure what qualifies, the IRS and FTB both publish guidance on deductible business expenses.

Charitable donations reduce your federal taxable income if you itemize deductions, but California does not allow a state deduction for charitable gifts. This is one area where California tax rules differ from federal rules. You may still benefit from the federal deduction, depending on your overall tax situation.

When you move to or from California

If you move out of California during the year, you owe California tax only on income you earned while you were a resident. The state considers you a resident if you live in California for more than nine months of the year, or if you have a permanent home there and spend significant time there. If you move out and establish residency elsewhere, you file a part-year resident return (Form 540-NR) that reports only California-source income.

If you move into California during the year, you file a part-year resident return reporting income earned after you became a resident. You may also owe tax to your former state on income earned there before you moved. Some states have reciprocal agreements that prevent double taxation, but California does not have these agreements with most states, so you may owe tax to both.

The date you establish residency matters. California looks at the date you obtain a California driver's license, register to vote, or lease or buy a home as evidence of when residency began. If you are moving for work or other reasons, keep documentation of your move date and your intent to establish residency.

Remote work and California tax obligations

If you work remotely for an out-of-state employer but live in California, you owe California tax on your wages. The state taxes income based on where you live, not where your employer is located. Even if your employer is in another state and does not withhold California tax, you are responsible for paying it when you file your return.

If you live in California but work remotely for a California employer, the situation is straightforward — you owe California tax on all your wages. If you live outside California but work remotely for a California employer, you generally do not owe California tax on those wages, though there are exceptions for certain employees. The FTB has published guidance on remote work situations, and a tax professional can help you determine your specific obligation.

Frequently Asked Questions

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

Yes. California taxes you based on where you live, not where your employer is located. If you are a California resident working remotely for a company in another state, you owe California income tax on your wages. Your employer may not withhold it, so you may owe it when you file your return.

What is the difference between California and federal income tax?

California is your state income tax; federal is your national income tax. Both use progressive brackets, but the rates and brackets are different. You file separate returns — Form 540 for California and Form 1040 for federal. You owe both taxes on the same income, though some deductions differ between them.

Can I deduct charitable donations on my California return?

No. California does not allow a state deduction for charitable gifts, even though the federal government does. If you itemize deductions on your federal return, you can deduct donations there, but not on your California return. This is one of the key differences between state and federal tax rules.

What happens if I do not file a California tax return when I am supposed to?

The Franchise Tax Board can assess penalties and interest on any tax you owe. If you filed late but did not owe tax, the penalty is usually smaller. If you owe a refund, there is no penalty for filing late, though you lose the refund if you do not file within three years.

Does California tax Social Security benefits?

No. California does not tax Social Security benefits at the state level. However, the federal government may tax them if your combined income exceeds certain thresholds. You may owe federal tax on benefits even if you owe no California tax.