California State Taxes

People from outside of California just love to rub it in: California taxes are rough. And sure, they feel like a maze at first glance, but with a little guidance, it’s totally manageable. Are you looking to move to the Golden State? Are you a new transplant? Do you simply earn income from California while living elsewhere (smart move)? Whichever the case, here are some key things you’ll want to know.

This article gives you a solid overview of how California’s state taxes work, from income and sales tax to credits and deadlines, without diving too deep into the fine print. If you’re filing on your own, planning for tax season, or just curious about where your money’s going, this is a great place to start.

California 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 and 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 is the main income tax return for full-year California residents. If you live in the state all year and have a typical tax situation, this is the form you’ll most likely file.

Form 540A was a simplified version of Form 540 for residents with straightforward finances, but it’s no longer in use. Same goes for Form 540EZ, which was the easiest version meant for very simple returns. Both forms have been phased out, and most filers now just use Form 540 or e-file instead.

Form 540NR is for nonresidents and part-year residents. If you only lived in California for part of the year or earned income from California while living in another state, this is the form you’ll use.

Form 540ES is for people who need to make estimated tax payments throughout the year. It helps folks who are self-employed, have rental income, or earn other income not subject to withholding.

Form 540X is used to amend a previously filed California return. If you realize you made a mistake or left something out after filing, this is the form to fix it.

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: https://www.ftb.ca.gov/forms/index.html
• 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:
  www.ftb.ca.gov/online/Tax_Calculator
• California City & County Sales & Use Tax Rates: https://www.ftb.ca.gov/forms/index.html
• 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.

The Final Word on California State Taxes…

Navigating California state taxes can be a bit of a roller coaster, especially with the mix of high tax rates, unique deductions, and varying rules compared to the federal system. But once you understand the basics, it gets a lot easier to manage your filing and avoid surprises.

Just remember that things like your income level, residency status, and types of income all play a role in what you’ll owe or get back. And when in doubt, don’t hesitate to check out the California Franchise Tax Board’s site or talk to a tax pro who knows the local landscape. Staying informed is the best way to stay ahead.

California State Taxes: FAQ

1. Who has to file a California state tax return?
If you’re a full-year resident, part-year resident, or even a nonresident with California-sourced income, you might have to file. The threshold depends on your income, filing status, and age. In general, if your income is above the standard deduction and personal exemption combined, you’ll need to file. Even if you’re not required to, filing could help you get a refund if taxes were withheld from your paycheck.

2. When is the California state tax return due?
Typically, it’s due on April 15, just like your federal return. If that falls on a weekend or holiday, it shifts to the next business day. California does give you an automatic six-month extension to file if you miss the deadline, but that extension doesn’t apply to any taxes you owe. If you expect to owe money, you still need to pay by the original due date to avoid penalties and interest.

3. How does California treat capital gains and investment income?
Unlike the federal government, California does not have a separate capital gains tax rate. All capital gains, whether short-term or long-term, are treated as regular income. That means they’re taxed at the same rate as your wages or salary. So if you’re making money on investments, be prepared for California to take its cut just like it does from your paycheck.

4. What tax credits or deductions are available to California residents?
California offers several tax credits that can help reduce your bill, including the California Earned Income Tax Credit (CalEITC) for low-income workers, a Young Child Tax Credit for families with small children, and renter’s credits if you meet income requirements. There are also deductions for student loan interest, contributions to HSAs, and certain retirement savings, though they may differ from federal rules.

5. Does California tax unemployment or stimulus payments?
California does not tax federal stimulus payments or state-provided Golden State Stimulus payments. As for unemployment, California generally does not tax unemployment benefits, unlike federal rules which may treat them as taxable income. However, always double-check the current rules during tax season since guidelines can change.

6. How can I pay my California state taxes online?
You can pay your state taxes through the California Franchise Tax Board’s (FTB) website. They offer a few easy options like Web Pay (which pulls funds from your bank account), credit or debit card payments, and even payment plans if you can’t pay everything at once. Just make sure you’re using the official FTB site to avoid scammers and fees that some third-party services may charge.

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