California, known for its vibrant economy, also has a reputation for its complex tax system. Understanding how much you might owe in income tax is crucial for financial planning. This guide breaks down California’s income tax rates, how your income is taxed, and other essential information for taxpayers.
Understanding California’s Income Tax Rates
California has a progressive income tax system, meaning that the more you earn, the higher the tax rate. The state has nine tax brackets, ranging from 1% to 12.3%. In addition, individuals earning over $1 million are subject to an additional 1% tax under the Mental Health Services Act.
California state tax rates and information
How California Taxes Your Income
It’s important to note that not all of your income is taxed at the same rate. California uses a graduated tax system, meaning that different portions of your income are taxed at different rates based on the tax brackets.
Here’s a breakdown of the 2024 income tax brackets for single filers:
| Income | Tax Rate |
|---|---|
| $0 to $10,756 | 1% |
| $10,757 to $25,499 | 2% |
| $25,500 to $40,245 | 4% |
| $40,246 to $55,866 | 6% |
| $55,867 to $70,606 | 8% |
| $70,607 to $360,659 | 9.3% |
| $360,660 to $432,787 | 10.3% |
| $432,788 to $721,314 | 11.3% |
| Over $721,314 | 12.3% |
Source: California Franchise Tax Board
Here’s a breakdown of the 2024 income tax brackets for joint filers:
| Income | Tax Rate |
|---|---|
| $0 to $21,512 | 1% |
| $21,513 to $50,998 | 2% |
| $50,999 to $80,490 | 4% |
| $80,491 to $111,732 | 6% |
| $111,733 to $141,212 | 8% |
| $141,213 to $721,318 | 9.3% |
| $721,319 to $865,574 | 10.3% |
| $865,575 to $1,442,628 | 11.3% |
| Over $1,442,628 | 12.3% |
Source: California Franchise Tax Board
Taxable income: Gross income (wages, tips, bonuses, etc.) after subtracting for itemized or standard deductions
Part-year residents are taxed on all income received while they were California residents, as well as on income from California sources while they were nonresidents.
Nonresidents pay taxes on income sourced from California.
Taxation of Retirement Income in California
Yes, California taxes most forms of retirement income. Withdrawals from pensions, 401(k)s, 403(b)s, and IRAs are taxed as regular income, with rates ranging from 1% to 12.3%. This includes government, private, and military retirement income. Social Security benefits are exempt from California income tax.
Investment Income and Capital Gains
Capital gains from investments are treated as ordinary personal income in California and are taxed at the same rate. However, gains from the sale of your home that are less than $250,000 (single) or $500,000 (married filing jointly) are not taxable.
Property Tax in California
Property tax in California is assessed by individual county assessors. Proposition 13 limits the property tax rate to 1% of the property’s full cash value, plus the rate necessary to fund local voter-approved bonded indebtedness. Property assessments are typically done when there’s a change of ownership or after new construction. There are some exemptions and postponement programs available.
Sales Tax and Other Taxes
California has sales tax and excise taxes on various goods, including fuel. Lottery winnings are not subject to state or local tax, but they are subject to federal income tax.
Inheritance and Estate Tax
California does not have an estate tax. While inheritances and gifts are generally not considered income, any income generated from those assets later is taxable.
Tax Breaks for Older Residents
California offers a few tax breaks for older residents, including an additional exemption credit for those 65 or older. There’s also a Senior Head of Household Credit and a Property Tax Postponement Program for qualifying individuals.
Military Benefits
California taxes the military retirement income of residents. Active-duty pay is taxed like normal income if you are a resident of the state. Military spouses may be eligible for certain tax benefits under the Military Spouses Residency Relief Act.
Filing Deadline
The deadline to file California state tax returns is typically April 15th, which aligns with the federal tax deadline. However, those affected by declared disasters may have extended deadlines. California offers an automatic six-month extension to file, but payments are still due by the original deadline.
Consult with a tax professional or utilize tax preparation software to ensure accurate and timely filing.
