California State Tax Overview (2024)¶
Quick Reference¶
Individual Income Tax Rates (2024)¶
California has progressive tax rates from 1.00% to 13.30%.
Single and Married Filing Separately: - 1.00% on income up to $10,412 - 2.00% on income $10,413 to $24,684 - 4.00% on income $24,685 to $38,959 - 6.00% on income $38,960 to $54,081 - 8.00% on income $54,082 to $68,350 - 9.30% on income $68,351 to $349,137 - 10.30% on income $349,138 to $418,961 - 11.30% on income $418,962 to $698,271 - 12.30% on income $698,272 to $1,000,000 - 13.30% on income over $1,000,000
Married Filing Jointly and Qualifying Surviving Spouse: - 1.00% on income up to $20,824 - 2.00% on income $20,825 to $49,368 - 4.00% on income $49,369 to $77,918 - 6.00% on income $77,919 to $108,162 - 8.00% on income $108,163 to $136,700 - 9.30% on income $136,701 to $698,274 - 10.30% on income $698,275 to $837,922 - 11.30% on income $837,923 to $1,000,000 - 12.30% on income $1,000,001 to $1,396,542 - 13.30% on income over $1,396,542
Head of Household: - 1.00% on income up to $20,839 - 2.00% on income $20,840 to $49,371 - 4.00% on income $49,372 to $63,644 - 6.00% on income $63,645 to $78,765 - 8.00% on income $78,766 to $93,037 - 9.30% on income $93,038 to $474,824 - 10.30% on income $474,825 to $569,790 - 11.30% on income $569,791 to $949,649 - 12.30% on income $949,650 to $1,000,000 - 13.30% on income over $1,000,000
Mental Health Services Tax¶
Additional 1.00% tax on taxable income over $1,000,000 (all filing statuses)
Effective top rate: 14.30% for income over $1,000,000
Standard Deduction (2024)¶
- Single: $5,363
- Married Filing Jointly: $10,726
- Married Filing Separately: $5,363
- Head of Household: $10,726
State Disability Insurance (SDI)¶
Employee Rate: 1.10% of wages
Wage Base: $153,164 (maximum withholding $1,684.80 per employee)
Includes: - Disability Insurance (DI): 0.90% - Paid Family Leave (PFL): 0.20%
Sales and Use Tax¶
Base State Rate: 7.25%
Local Additions: Vary by location (typically 0.10% to 3.50%)
Total Range: 7.25% to 10.75% depending on location
Major Cities (Total State + Local): - Los Angeles: 9.50% - San Francisco: 8.625% - San Diego: 7.75% - San Jose: 9.375% - Sacramento: 8.75%
Details¶
California Residency Rules¶
California has aggressive residency rules. Establishing non-California residency requires careful planning and documentation.
Resident Defined: - Person domiciled in California, OR - Person in California for other than temporary or transitory purpose
Safe Harbor: Outside California for at least 546 days during 36-month period (approximately 6 months per year).
Domicile: Place where individual has true, fixed, permanent home and intends to return whenever absent.
Factors Considered (None Determinative Alone): - Time spent in California vs. elsewhere - Location of principal residence (size, value, time spent) - Location of spouse and children - Location of real property owned - State issuing driver's license and vehicle registration - Voter registration - Location of professional licenses - Location of business interests - Location of social, professional, and religious organizations - State designated on tax returns, legal documents - Location of banks and financial accounts - Statements of intent
FTB Audit Risk: - California Franchise Tax Board (FTB) aggressively audits residency changes - Burden on taxpayer to prove non-residency - Keep contemporaneous records (calendars, receipts, phone records) - Avoid maintaining California driver's license or voter registration after departure
California Nonresident Taxation¶
Nonresidents taxed on California-source income: - Wages for services performed in California - Business income from California trade or business - Rental income from California property - Sale of California real estate (withholding may apply) - California partnership/S corporation income
Not California-source: - Wages for services performed outside California (even if employer is California-based) - Investment income (interest, dividends) not from California business - Sale of stock or intangibles (even if company is California-based)
Nonresident Allocation: - Form 540NR - California Nonresident or Part-Year Resident Income Tax Return - Must allocate income and deductions between California and other states - Use ratio of California days worked to total days worked for wage allocation
Standard Deduction vs. Itemized¶
California allows itemized deductions but with significant differences from federal:
California Itemized Deductions: - State and local taxes: NOT deductible (California does not allow SALT deduction) - Mortgage interest: limited to acquisition debt of $1,000,000 (vs. federal $750,000) - Charitable contributions: generally follows federal rules - Medical expenses: same 7.5% floor as federal - Miscellaneous itemized deductions: NOT allowed (suspended like federal)
Pease Limitation: - California has its own version of Pease limitation (itemized deduction phase-out) - Applies to higher-income taxpayers - Reduces itemized deductions by lesser of: - 6% of AGI over threshold, OR - 80% of itemized deductions subject to limitation
Mental Health Services Tax (Prop 63)¶
Enacted: 2004 (Proposition 63)
Rate: 1.00% on taxable income over $1,000,000
Applies to: - Single, MFS, HOH: income over $1,000,000 - MFJ, QSS: income over $1,000,000
Combined with regular rates: - Effective top bracket: 13.30% + 1.00% = 14.30%
Not Deductible: California does not allow deduction for this tax (nor any state/local income taxes)
Alternative Minimum Tax (AMT)¶
California has its own AMT separate from federal.
Rates: - 7.00% on California AMT income
Exemption Amounts (2024): - Single, HOH: $90,508 - MFJ, QSS: $120,674 - MFS: $60,337
Phase-Out Begins: - Single, HOH: $361,926 - MFJ, QSS: $542,889 - MFS: $271,444
California AMT Adjustments: - Different from federal AMT - State/local tax deduction (already not allowed for California regular tax) - Certain interest deductions - Depreciation adjustments - ISO spread (like federal)
Capital Gains¶
No preferential rate - California taxes capital gains as ordinary income at regular rates (up to 13.30% + 1.00% mental health tax).
Short-Term vs. Long-Term: - No distinction for California purposes - Both taxed at full ordinary income rates
Federal vs. California: - Federal: preferential rates (0%, 15%, 20%) for long-term capital gains - California: no preferential rates (taxed same as wages)
Tax Planning: - Selling appreciated assets while California resident results in significant tax - Consider timing of sales if changing residency - Installment sale may spread income over multiple years
Credits and Exclusions¶
Renters' Credit: - $60 for single, MFS, HOH - $120 for MFJ, QSS - AGI limits apply (phases out above $49,220 single, $98,440 MFJ for 2024)
Child and Dependent Care Credit: - California credit separate from federal - Percentage of federal credit based on AGI
Earned Income Tax Credit (CalEITC): - California version of federal EITC - More generous than federal for some taxpayers - Refundable
Young Child Tax Credit (YCTC): - $1,000 per qualifying child under age 6 - Income limits apply
Mortgage Interest Credit: - For holders of Mortgage Credit Certificates (MCCs) - Nonrefundable credit
State Disability Insurance (SDI)¶
Required withholding for most employees.
Rate: 1.10% of wages (2024)
Wage Base: $153,164 maximum
Components: - Disability Insurance (DI): 0.90% - wage replacement for non-work-related illness/injury - Paid Family Leave (PFL): 0.20% - wage replacement for family leave (bonding, care)
Benefits: - DI: up to 52 weeks, 60%-70% of wages (max $1,620/week in 2024) - PFL: up to 8 weeks, 60%-70% of wages
Not Applicable: - Self-employed (unless voluntarily enrolled) - Certain employees of religious organizations - Certain family employment
Employment Taxes and Withholding¶
Withholding Requirements: - Employers must withhold California income tax from wages of California residents - Must withhold from nonresidents for California-source wages - Use Form DE 4 (Employee's Withholding Allowance Certificate)
Estimated Tax: - Required if expect to owe $500 or more after withholding and credits - Form 540-ES (Estimated Tax for Individuals) - Due quarterly: April 15, June 15, September 15, January 15
Safe Harbor: - 90% of current year tax, OR - 100% of prior year tax (110% if AGI over $150,000/$75,000)
Pass-Through Entity Tax (AB 150)¶
California enacted elective pass-through entity tax (PTET) to bypass $10,000 federal SALT cap.
Electing Entity Tax (PTET): - 9.3% tax on qualified net income - Available to partnerships and S corporations - Partners/shareholders receive credit for tax paid at entity level - Deductible for federal purposes (not subject to SALT cap)
Election: - Annual election - Must be made by March 15 of taxable year (extended to June 15 for short tax year) - Binding for all owners
Payments: - Quarterly estimates required (June 15, September 15, December 15, March 15) - Final payment with return
Benefits: - Converts nondeductible SALT to deductible business expense for federal purposes - No benefit for California (state credit = state tax paid) - Significant federal savings for owners in high tax brackets subject to SALT cap
Community Property Rules¶
California is community property state.
Community Property: - Property acquired during marriage while domiciled in California - Income from services of either spouse - Presumed to be 50/50 ownership
Separate Property: - Owned before marriage - Acquired by gift or inheritance - Acquired after legal separation - Income from separate property (but may be subject to allocation rules)
Tax Implications: - MFJ: all income reported on joint return - MFS: must allocate community income 50/50 (each spouse reports half) - Registered Domestic Partners (RDP): treated same as married for California tax purposes
Filing Requirements (2024)¶
Must file California return if:
Resident: - Gross income exceeds filing threshold: - Single, MFS: $19,918 - MFJ, QSS, HOH: $39,836 (if both spouses have income)
Nonresident/Part-Year: - Any California-source income (subject to minimum thresholds)
Special Requirements: - Owe additional taxes (AMT, mental health services tax) - Want to claim refund of withholding - Eligible for refundable credits (CalEITC, etc.)
Other California Taxes¶
Property Tax: - Approximately 1.00% of assessed value (Proposition 13) - Plus local assessments and bonds - Proposition 13 limits increases to 2% per year (or CPI, whichever is less) - Reassessed on change of ownership or new construction
Estate Tax: - No California estate tax (repealed effective 2005) - Federal estate tax still applies
Inheritance Tax: - No California inheritance tax
Citations¶
California Revenue and Taxation Code: - Cal. Rev. & Tax. Code § 17001 et seq. - Personal Income Tax Law - Cal. Rev. & Tax. Code § 17041 - Imposition of tax; rates - Cal. Rev. & Tax. Code § 17052 - Mental Health Services Tax - Cal. Rev. & Tax. Code § 17073.5 - Alternative Minimum Tax - Cal. Rev. & Tax. Code § 17131 et seq. - Residents and nonresidents - Cal. Rev. & Tax. Code § 17951 - Gross income of nonresidents
California Code of Regulations: - Cal. Code Regs. tit. 18, § 17014 - Resident defined - Cal. Code Regs. tit. 18, § 17951 - Determination of source of income
California Franchise Tax Board (FTB): - FTB Publication 1031 - Guidelines for Determining Resident Status - FTB Publication 1100 - Taxation of Nonresidents and Individuals Who Change Residency - FTB Legal Ruling 2004-02 - Residency determination
Forms: - Form 540 - California Resident Income Tax Return - Form 540NR - California Nonresident or Part-Year Resident Income Tax Return - Schedule CA (540) - California Adjustments (Residents) - Schedule CA (540NR) - California Adjustments (Nonresidents/Part-Year) - Form 540-ES - Estimated Tax for Individuals - Form 3893 - Pass-Through Entity Elective Tax Payment Voucher