California charges a state income tax on wages, self-employment income, and certain other earnings

California has its own income tax separate from federal income tax. The state taxes most money you earn — wages from a job, self-employment income, rental income, and investment gains — at rates that range from 1% to 13.3% depending on how much you earn. Unlike some states, California does not have a flat tax rate; instead, it uses a progressive system where higher earners pay a higher percentage.

You file California state taxes on Form 540 (or Form 540-2EZ if your situation is simple) by April 15 each year, the same deadline as federal taxes. If you work in California or live there, you almost certainly owe state tax. If you live in California but work in another state, you may still owe California tax on that out-of-state income. The Franchise Tax Board (FTB) is the state agency that collects and enforces California income tax.

Key Takeaways

  • California income tax rates range from 1% to 13.3% and increase as your income rises — you do not pay the highest rate on all your income, only on the portion above each threshold.
  • You file state taxes using Form 540 or Form 540-2EZ by April 15, and the Franchise Tax Board processes returns and collects taxes owed.
  • California taxes wages, self-employment income, rental income, and investment gains, but excludes certain items like Social Security benefits and some retirement distributions.
  • If you underpay throughout the year, you may owe a large amount at tax time; if you overpay, you receive a refund from the state.

How California's tax brackets work

California uses tax brackets, which means your income is taxed at different rates depending on which bracket it falls into. For the 2024 tax year, a single filer with $20,000 in taxable income pays 1% on the first portion, then 2% on the next portion, and so on. You do not pay the top rate (13.3%) unless your income is very high — that rate only applies to income above a certain threshold, which changes each year.

The brackets themselves change annually based on inflation. A married couple filing jointly has different bracket thresholds than a single filer, and head-of-household filers have their own brackets. The FTB publishes updated brackets each year on its website. Because the brackets shift, your tax bill can change even if your income stays the same.

The highest bracket, 13.3%, applies only to very high earners. California also imposes an additional 1% tax on income over $1 million, which was originally temporary but has been extended. This means the effective top rate can reach 13.3% or higher depending on your total income.

What income California taxes and what it does not

California taxes most types of income: W-2 wages from an employer, self-employment income, rental income, capital gains (profit from selling investments), interest, and dividends. If you receive a 1099 form from a client or business, that income is taxable in California.

Some income is not taxed by California. Social Security benefits are generally not taxed by the state (though they are taxed federally in some cases). Certain retirement distributions, including some from IRAs and 401(k)s, may be excluded. Military pay for active-duty service members is not taxed. Gifts and inheritances are not taxed. Workers' compensation and certain disability payments are also excluded. The rules for retirement income are complex and depend on your age and the type of account, so you may want to check the FTB website or a tax preparer if you receive retirement distributions.

Withholding and estimated taxes

If you work as an employee, your employer withholds California income tax from your paycheck based on the W-4 form you complete. The amount withheld depends on how many dependents you claim and your filing status. If your employer withholds too much, you get a refund when you file; if too little is withheld, you owe money.

If you are self-employed or have income that is not subject to withholding, you may need to pay estimated taxes four times a year (quarterly). These payments are due in April, June, September, and January. If you do not pay enough throughout the year, you may owe a penalty when you file, even if you ultimately do not owe any tax.

You can adjust your withholding at any time by submitting a new W-4 to your employer. If you expect a large change in income, changing your withholding mid-year can help you avoid a big bill or refund at tax time.

Filing requirements and deadlines

You must file a California state return if your income exceeds a certain threshold. For 2024, that threshold is around $20,000 for most single filers, though it varies by age and filing status. Even if you do not meet the threshold, filing may be worth it if you had taxes withheld — you could receive a refund.

The deadline to file is April 15 (or the next business day if April 15 falls on a weekend). You can request an extension to October 15, but an extension to file does not extend the deadline to pay taxes owed. If you owe money and do not pay by April 15, you will owe interest and penalties on the unpaid amount.

You can file online using tax software, through a tax preparer, or by mailing a paper return to the FTB. The FTB also offers a free online filing program called CalFile for lower-income filers.

Deductions and credits that reduce your tax bill

California allows a standard deduction that reduces your taxable income. For 2024, the standard deduction for a single filer is around $5,200, though it increases each year and varies by age and filing status. If you are 65 or older, your standard deduction is higher. You can use the standard deduction or itemize deductions if itemizing results in a larger reduction.

California also offers tax credits, which directly reduce the tax you owe rather than reducing your income. The Earned Income Tax Credit (EITC) is available to lower-income workers and can result in a refund even if you owe no tax. Other credits include the Child and Dependent Care Credit and the Renter's Credit (for renters with low income). Credits are often more valuable than deductions because they reduce your tax dollar-for-dollar rather than reducing the income that is taxed.

What happens if you do not pay or file

If you owe California income tax and do not pay by the deadline, the FTB charges interest on the unpaid amount. The interest rate changes quarterly and is currently around 8% per year. You also face a failure-to-pay penalty of 0.5% per month on the unpaid tax, up to 25% total.

If you do not file a return when you are required to, you face a failure-to-file penalty of 5% per month (up to 25%) on the unpaid tax. If you file late but do not owe tax, the penalty is smaller. The FTB can also place a lien on your property or garnish your wages to collect unpaid taxes.

If you cannot pay the full amount owed, you can set up a payment plan with the FTB. You can also request a hardship extension or an offer in compromise (settling for less than you owe) in certain situations, though these are not granted automatically.

Frequently Asked Questions

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

Yes, if you live in California and work remotely, you owe California income tax on your wages even if your employer is based elsewhere. California taxes income earned by residents regardless of where the employer is located. If you work in another state but live in California, the rules are more complex and depend on how many days you work in each state.

What is the difference between California and federal income tax?

California income tax is separate from federal income tax. You file two returns — one to California (Form 540) and one to the federal government (Form 1040) — and you may owe tax to both. California's rates and brackets are different from federal rates, and some income is taxed by one but not the other. You cannot use a federal tax credit to reduce California taxes owed.

Can I get a refund if California withheld too much tax?

Yes. If your employer withheld more California income tax than you owe, you receive a refund when you file your return. Refunds are typically issued within 30 to 60 days of filing, though it can take longer if the FTB needs to verify information on your return.

What if I moved out of California during the year?

If you moved out of California mid-year, you are a part-year resident. You owe California tax only on income earned while you lived in the state. You file Form 540-NR (nonresident return) and report only California-source income. You may also owe tax to your new state on income earned there.

Are retirement distributions taxed by California?

Some retirement distributions are taxed and some are not, depending on the type of account and your age. Distributions from traditional IRAs and 401(k)s are generally taxed. Distributions from Roth IRAs are usually not taxed. Military retirement pay and certain other pensions have special rules. Check the FTB website or consult a tax preparer for your specific situation.