California Tax Brackets
California State Tax ? Personal Income Tax
Established in 1935, the personal income tax contributes the most to California’s General Fund for state spending. It applies to all types of California-sourced income (including wages, interest, dividends, business income, and capital gains) for both residents and nonresidents. It also applies to sole proprietorships, partnerships, estates, trusts, and subchapter S-corporations.
California has 7 different brackets for personal income tax rates:
- 1.25% on the first $7,168 of taxable income
- 2.25% on taxable income between $7,169 and $16,994
- 4.25% on taxable income between $16,995 and $26,821
- 6.25% on taxable income between $26,822 and $37,233
- 8.25% on taxable income between $37,234 and $47,055
- 9.55% on taxable income between $47,056 and $1,000,000
- 10.55% on taxable income $1,000,001 or more
There are 5 filing statuses acknowledged by the state of California: Single, Married/RDP (Registered Domestic Partner) Filing Separately, Married/RDP Filing Jointly, Head of Household, and Qualifying Widow(er) With Dependent Child.
California State Tax ? Corporate Income Tax
California’s corporate tax is made up of three individual taxes, all based on income: first, the corporate franchise tax, which is paid by businesses in California and accounts for most of the corporate tax revenue; second, the corporate income tax, which is paid by businesses without enough in-state presence/activity to qualify for the franchise tax; and third, the bank tax, which is paid by banks and financial institutions. California also offers a range of Tax Expenditure Programs (TEPs), such as tax credits, exclusions, income exemptions, and tax deductions.
California’s basic corporate tax rate is 8.84%, with a minimum tax of $800. To balance their exemption from certain local levies, financial institutions are taxed 10.84%. On the other hand, S-corporations are taxed a reduced rate of 1.5% because the profits/losses of these corporations are passed down to their shareholders, who report the them on their personal income tax returns.
Corporations are also subject to an Alternative Minimum Tax (AMT) at the rate of 6.65%. Although it has a lower rate than the basic corporate tax, the AMT limits exclusions/deductions, so there is more taxable income. After a corporation has calculated both tax amounts (the corporate tax and the AMT), it must pay the higher amount as its tax for the year.
California State Tax ? Sales & Use Tax
The sales tax (established in 1933) applies to registered retailers selling tangible goods. The use tax (established in 1935) applies to consumers who purchase out-of-state goods and use them in California’the use tax is enforced when the sales tax is not. Most services are not directly taxed, but they may be subject to other levies or included on a final bill and taxed together with tangible goods.
Other California State Taxes
Other state taxes include the following: the Insurance Tax, motor vehicle-related taxes (e.g. fuel taxes, truck weight fees, and the Vehicle License Fee), tobacco and alcohol taxes, gambling-related taxes, and employment-related taxes (like State Disability Insurance and Unemployment Insurance).
On the local level, counties enforce property taxes, which are a good source of local revenue. Also controlled by local governments are the Utility Users’ Tax, the Transient Occupancy Tax (TOT), the Business License Tax (BLT), and construction development taxes. These all help finance school districts and community/public services.
California State Tax Forms
Form 540 (California Resident Income Tax Return)
Form 540A (California Resident Income Tax Return ‘ Short Form)
Form 540EZ (California Resident Income Tax Return ‘ EZ Form)
Form 540NR (California Nonresident or Part-Year Resident Income Tax Return)
Form 540ES (Estimated Tax for Individuals)
Form 540X (Amended Individual Income Tax Return)
California State Tax Resources
State of California Franchise Tax Board (homepage): www.ftb.ca.gov
Find out if you need to file a California state tax return by taking the following quiz: www.ftb.ca.gov/individuals/FileRtn
California Tax ‘Which Form Should I File?’ chart: ftb.ca.gov/forms/search/index.aspx
Many Californians can file their personal income taxes online for free. Determine your eligibility at this website: www.ftb.ca.gov/online/calfile/qualifications
To file state taxes online, visit the CalFile website (make sure you have all the required information on hand) and click ‘Continue’ at the bottom of the page to begin: www.ftb.ca.gov/online/calFile
Use the California Franchise Tax Board tax calculator to estimate your state tax:
California City & County Sales & Use Tax Rates: www.boe.ca.gov/cgi-bin/rates
Sales and Use Taxes: Exemptions and Exclusions (California Revenue and Taxation Code): www.boe.ca.gov/pdf/pub61
California Society of Certified Public Accountants (licensed by the California Board of Accountancy): www.calcpa.org
California’s Tax Freedom Day is April 20th.