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

California has a progressive income tax system, which means the tax rate increases as your income increases. You do not pay the highest rate on all your income — you pay different rates on different portions of it. For example, a single filer in 2024 pays 1% on the first $10,099 of taxable income, then 2% on income between $10,099 and $23,942, and so on, up to 13.3% on income over $677,275.

The state collects this tax through payroll withholding if you are employed, or through estimated tax payments if you are self-employed or have income that is not subject to withholding. You file a California tax return each year to report your income and either claim a refund or pay any additional tax owed.

California's top rate of 13.3% is one of the highest in the nation. However, most people pay far less because the rate applies only to the highest portion of income. A person earning $50,000 per year does not pay 13.3% on all of it.

Key Takeaways

  • California uses tax brackets that range from 1% to 13.3%, with the rate you pay depending on your total income and filing status.
  • If you work for an employer, California income tax is withheld from your paycheck automatically; you can adjust withholding using Form CA W-4.
  • Self-employed people and those with investment income must usually pay estimated taxes four times per year to avoid penalties.
  • You file your California return using Form 540 or Form 540-2NR if you lived outside the state part of the year, and the deadline is typically April 15.
  • Certain types of income, such as Social Security benefits and some retirement distributions, may be partially or fully exempt from California tax.

How tax brackets work in California

California divides income into brackets, and you pay a different rate on each bracket. The brackets change each year based on inflation. For the 2024 tax year, a single filer's brackets start at 1% on the first $10,099, then step up through 2%, 4%, 6%, 8%, 9.3%, 10.3%, 11.3%, 12.3%, and finally 13.3% on income over $677,275.

If you are married filing jointly, the brackets are wider, so you can earn more before reaching the higher rates. If you are head of household or married filing separately, your brackets fall between single and married filing jointly. The state publishes updated brackets each January on the Franchise Tax Board website.

To find your tax, you locate your income in the correct bracket for your filing status, calculate the tax on each portion, and add them together. Most people use tax software or a tax preparer to do this, but the Franchise Tax Board website also provides tax tables and worksheets.

Payroll withholding and Form CA W-4

If you are an employee, your employer withholds California income tax from your paycheck. The amount withheld is based on information you provide on Form CA W-4, which you complete when you are hired. This form tells your employer how much to withhold based on your filing status, number of dependents, and other income.

If too much tax is withheld, you receive a refund when you file your return. If too little is withheld, you owe tax when you file. You can change your withholding at any time by submitting a new Form CA W-4 to your employer — for example, if you get married, have a child, or take a second job.

The Franchise Tax Board provides a withholding calculator on its website to help you determine whether your current withholding is correct. This is useful if your circumstances change mid-year or if you have income from multiple sources.

Estimated tax payments for self-employed and other filers

If you are self-employed, have investment income, or receive income that is not subject to withholding, you must usually pay estimated taxes four times per year. These payments are due on April 15, June 15, September 15, and January 15 of the following year. You calculate your expected income for the year, subtract deductions, and pay one-quarter of the estimated tax by each deadline.

If you do not pay estimated taxes and owe more than $500 when you file your return, you may owe a penalty. The penalty is calculated based on how late the payment was and how much was owed. You can reduce or eliminate the penalty if you can show that you had a reasonable cause for not paying on time.

You pay estimated taxes using Form 540-ES, which includes a payment voucher and instructions. You can pay online through the Franchise Tax Board website, by mail, or through an authorized payment processor. If your income changes during the year, you can adjust your next estimated payment.

Income that is exempt or partially exempt from California tax

Not all income is taxed in California. Social Security benefits are not taxed by the state, even if they are taxed by the federal government. Certain retirement distributions, such as distributions from a Roth IRA, are also exempt. Some military pay and certain disability payments are excluded as well.

Other types of income receive partial exemptions. For example, if you are over 62 and receive a pension from your job, you may be able to exclude up to $7,812 of pension income from your California tax (this amount changes each year). Distributions from a traditional IRA or 401(k) are taxed as ordinary income, but you can deduct contributions you made to those accounts if you did not receive a tax deduction when you contributed.

The rules for what is exempt are complex and depend on your age, the source of the income, and when you received it. The Franchise Tax Board publishes a guide called "Pension and Annuity Income" that explains these rules in detail.

Filing your California tax return

You file your California return using Form 540 if you lived in California for the entire year. If you moved to or from California during the year, or if you are a nonresident, you use Form 540-2NR (Nonresident or Part-Year Resident Income Tax Return). The deadline to file is typically April 15, the same as the federal deadline, though you can request an extension.

You can file by mail or electronically through the Franchise Tax Board website or through tax software. Electronic filing is faster and reduces errors. If you owe tax, you can pay when you file or set up a payment plan with the Franchise Tax Board.

You must file a return if your income exceeds the filing threshold for your age and filing status. For 2024, a single person under 65 must file if their income is over $20,198. The threshold is higher if you are 65 or older, and it varies by filing status. If you are not required to file but had taxes withheld, you should file to get a refund.

Deductions and credits that reduce your California tax

California allows you to deduct certain expenses from your income before calculating your tax. The most common deduction is the standard deduction, which is a fixed amount based on your age and filing status. For 2024, the standard deduction for a single filer under 65 is $5,202. You can also itemize deductions if they exceed the standard deduction — for example, mortgage interest, property taxes, and charitable contributions.

California also offers tax credits, which reduce your tax dollar-for-dollar rather than reducing your income. The Earned Income Tax Credit (EITC) is available to low-income workers. The Child and Dependent Care Credit helps pay for childcare. The Renter's Credit provides a refund to renters with low income. These credits can result in a refund even if you owe no tax.

To claim deductions and credits, you list them on your tax return. The Franchise Tax Board website provides worksheets and instructions for each deduction and credit. If you are unsure whether you are may have access to to a particular deduction or credit, you can contact the Franchise Tax Board or consult a tax preparer.

Frequently Asked Questions

Do I have to pay California income tax if I work remotely for a company outside the state?

Yes, if you live in California and work remotely, you owe California income tax on your wages. The state taxes income earned by residents, regardless of where the employer is located. If you moved out of California during the year, you may owe tax only on income earned while you were a resident.

What happens if I do not pay my estimated taxes on time?

If you owe more than $500 when you file your return and did not pay estimated taxes, you will owe a penalty. The penalty is based on how much was owed and how late the payment was. You can reduce the penalty by showing reasonable cause, such as a sudden job loss or medical emergency.

Can I deduct federal income tax from my California return?

No, California does not allow you to deduct federal income tax paid. However, you can deduct state income tax paid on your federal return. You can also deduct property taxes and sales taxes (but not both) up to $10,000 total on your federal return.

What is the difference between Form 540 and Form 540-2NR?

Form 540 is for California residents who lived in the state for the entire tax year. Form 540-2NR is for nonresidents or people who moved to or from California during the year. The 2NR form requires you to report income from all sources, not just California income.

Do I need to file a California return if I only have Social Security income?

No, Social Security benefits are not taxed by California, so you do not need to file a state return based on Social Security alone. However, if you have other income that exceeds the filing threshold, you must file and report all income, including Social Security.