California charges a progressive state income tax that ranges from 1% to 13.3% depending on how much you earn
California's state income tax is progressive, meaning the rate increases as your income increases. You do not pay one flat rate on all your income. Instead, your income is divided into brackets, and each bracket is taxed at its own rate. The lowest bracket starts at 1%, and the highest reaches 13.3%. This means a person earning $20,000 per year pays a different effective rate than someone earning $200,000.
The state also adds a Mental Health Tax of 1% on income over $1 million, which means the highest earners can face a combined rate of 13.3% plus this additional tax. California residents pay this tax on all income earned in the state, including wages, self-employment income, interest, dividends, and capital gains.
Key Takeaways
- California's income tax brackets change each year based on inflation, so the income ranges that determine your rate shift annually.
- You pay tax on wages, self-employment income, rental income, investment gains, and most other forms of income earned in California.
- The state withholds income tax from paychecks automatically, but you may owe more or receive a refund when you file your return.
- If you move out of California, you stop owing state income tax on income earned after you leave, but you may still owe tax on income earned while you were a resident.
The tax brackets for 2024 and how they work
California updates its tax brackets every year to account for inflation. For 2024, the brackets for single filers start at 1% on the first portion of income and increase through nine brackets until reaching 13.3% on income over a certain threshold. Married couples filing jointly have different bracket ranges, as do heads of household and other filing statuses.
The brackets themselves are not the rate you pay on all your income. Instead, you pay the bracket rate only on income that falls within that range. For example, if the 2% bracket covers income from $10,000 to $23,000, you pay 2% only on income in that range. Income below $10,000 is taxed at the lower 1% rate, and income above $23,000 moves into the next bracket. This is why your effective tax rate (the percentage you actually pay on all your income) is lower than your highest bracket rate.
Because brackets change yearly, the income ranges that trigger each rate are different in 2024 than they were in 2023. You can find the current year's brackets on the California Franchise Tax Board website, or your tax software will use the correct brackets automatically.
What income is subject to California state tax
California taxes most forms of income. This includes W-2 wages from an employer, self-employment income from a business or freelance work, rental income, interest from savings accounts and bonds, dividends from stocks, capital gains from selling investments or property, and income from retirement account withdrawals (with some exceptions for certain retirement accounts).
Some income is exempt from California state tax. This includes federal tax refunds, certain disability benefits, workers' compensation, and some retirement income depending on your age and the type of account. Social Security benefits are not taxed by California. If you receive income from sources outside California while living in the state, you still owe California tax on that income.
How withholding works and why you might owe or get a refund
When you work for an employer, California requires them to withhold state income tax from your paycheck. The amount withheld is based on the W-4 form you complete, which tells your employer how much to hold back. If you withhold too much, you receive a refund when you file your tax return. If you withhold too little, you owe money when you file.
Self-employed people do not have an employer to withhold tax, so they must pay estimated taxes quarterly to the state. These are payments made four times per year to cover the tax you expect to owe. If you do not pay enough in estimated taxes, you may owe a penalty when you file your annual return, even if you ultimately owe no additional tax.
The amount you should withhold depends on your income, filing status, and whether you have dependents or other deductions. You can adjust your withholding by filing a new W-4 with your employer at any time during the year. Many people adjust their withholding after a major life change, such as getting married, having a child, or taking a second job.
Deductions and credits that reduce what you owe
California allows you to reduce your taxable income through deductions. You can choose between the standard deduction (a flat amount based on your filing status) or itemized deductions (specific expenses you list). Most people use the standard deduction because it is simpler and results in a lower tax bill.
California also offers tax credits, which directly reduce the tax you owe rather than reducing your income. Credits include the Earned Income Tax Credit (EITC) for lower-income workers, the Child and Dependent Care Credit, and the California Child Tax Credit. These credits can result in a refund even if you owe no tax, meaning the state sends you money.
The standard deduction amounts change each year. For 2024, the standard deduction for a single filer is higher than it was in 2023, and the amounts differ based on whether you are single, married filing jointly, head of household, or another status. You can find the current standard deduction on the California Franchise Tax Board website or in your tax software.
What happens if you move out of California
If you move out of California, you stop owing California state income tax on income you earn after you move. However, you still owe tax on income you earned while you were a California resident. The state considers you a resident based on where you maintain your permanent home and where your personal and financial ties are located.
If you move to another state and that state also has income tax, you will owe tax to your new state on income earned there. Some states have no income tax, so residents of those states pay no state income tax at all. If you move between states during a tax year, you may need to file returns in both states for the portion of the year you lived in each.
The California Franchise Tax Board can challenge whether you have truly moved out of the state. If the state believes you are still a resident, it may assess additional tax and penalties. This is most common for people who maintain a home in California while claiming residency elsewhere, or who spend significant time in California while claiming to live elsewhere.
Frequently Asked Questions
Is California income tax deductible on my federal return?
You can deduct California state income tax on your federal return, but only up to $10,000 per year. This limit applies to the total of all state and local taxes you pay, including income tax, property tax, and sales tax combined. Most people in California hit this cap because the state income tax alone often exceeds $10,000.
Do I have to file a California return if I lived there for only part of the year?
Yes, if you earned income in California during any part of the year, you must file a California return for that year. You report only the income you earned while you were a resident. If you moved mid-year, you may also need to file a return in your new state for income earned there.
What is the Mental Health Tax and who pays it?
The Mental Health Tax is an additional 1% tax on income over $1 million per year. Only high-income earners pay this tax. It was enacted to fund mental health and substance use services. If your income is under $1 million, you do not owe this tax.
Can I reduce my California income tax by making retirement contributions?
Contributions to traditional IRAs and 401(k) plans reduce your federal taxable income, but California taxes these contributions. However, contributions to a Roth IRA do not reduce your taxable income in either state or federal tax. Some retirement accounts have special California treatment, so check with a tax professional about your specific situation.
What if I disagree with the amount of tax California says I owe?
You can file an appeal with the California Franchise Tax Board within a set timeframe. The process begins with a written protest that explains why you believe the assessment is wrong. You will need to provide documentation to support your position. The Franchise Tax Board has an appeals process that can take several months to resolve.