California has both a state income tax and a federal income tax

California charges a state income tax on top of the federal income tax you already pay. The state tax rate depends on how much you earn — it ranges from 1% on the lowest incomes to 13.3% on the highest. You owe California state tax if you lived in California for any part of the year and earned income there, even if you have moved away since.

The federal government also taxes your income at rates between 10% and 37%, depending on your bracket. Both taxes are calculated separately, and you pay both. Your employer usually withholds both from your paycheck automatically, but the amounts withheld may not match what you actually owe when you file your return.

Key Takeaways

  • California's state income tax ranges from 1% to 13.3% depending on your income level, and you owe it on top of federal tax.
  • Your employer withholds estimated tax from your paycheck, but the amount withheld may be too much or too little for what you actually owe.
  • You file California taxes using Form 540 (or Form 540-2EZ if your situation is straightforward) and must file by April 15 unless you request an extension.
  • California taxes income from wages, self-employment, investments, and retirement accounts, though some types of income are taxed differently or not at all.
  • If you moved to or from California during the year, you may owe part-year resident tax or may not owe California tax at all.

California's tax brackets and rates for 2024

California uses a progressive tax system, meaning the rate increases as your income increases. You do not pay the top rate on all your income — you pay the lower rate on the first portion, then the next rate on the next portion, and so on. For example, if you are single and earn $50,000, you do not pay 9.3% on all of it; you pay 1% on the first portion, then 2% on the next, and so on until you reach $50,000.

The exact brackets change each year and depend on your filing status (single, married filing jointly, head of household, and so on). A single filer in 2024 pays 1% on income up to about $10,000, then 2% on the next portion, then 4%, 6%, 8%, 9.3%, 10.3%, 11.3%, 12.3%, and finally 13.3% on income above roughly $680,000. Married couples filing jointly have higher brackets at each rate. The Franchise Tax Board publishes updated brackets each January on its website.

What counts as income in California

California taxes most types of income: wages from a job, self-employment income, interest and dividends, rental income, capital gains (profit from selling an asset), and distributions from retirement accounts. Some income is taxed differently. Long-term capital gains (profit from holding an investment for more than one year) may be taxed at a lower rate than ordinary income in some cases, though California's rules differ from federal rules.

Some income is not taxed by California at all. Social Security benefits are generally not taxed. Certain retirement account contributions — like contributions to a traditional 401(k) or traditional IRA — reduce your taxable income. Gifts and inheritances are not taxed. If you received unemployment benefits during the year, they are taxable income in California.

How withholding works and why it may not match what you owe

When you start a job, you fill out a Form W-4 that tells your employer how much tax to withhold from each paycheck. Your employer uses that form to estimate how much federal and state tax you will owe for the year, then withholds that amount. If your estimate is correct, you will break even when you file your return. If you withheld too much, you get a refund. If you withheld too little, you owe money.

Withholding often does not match what you actually owe because your life changes during the year. You might get married, have a child, earn a bonus, take a second job, or have income from investments. You can update your W-4 at any time to adjust your withholding. If you know you will owe money, you can increase your withholding now to avoid a large bill in April. If you know you will get a refund, you can decrease your withholding to take home more pay each month.

Filing your California tax return

You file your California state tax return using Form 540 (the full return) or Form 540-2EZ (a shorter version for straightforward situations). You must file by April 15 unless you request an extension. If you file an extension, you have until October 15 to file, but any tax you owe is still due on April 15 — the extension only gives you more time to file the paperwork, not to pay.

You can file by mail, online through the Franchise Tax Board's website, or through tax software that supports California returns. If you earned less than a certain amount (which changes each year), you may be able to file for free using the Franchise Tax Board's free software. If you earned more, you can use commercial tax software or hire a tax professional.

When you file, you report all your income for the year, claim deductions and credits you are may have access to to, and calculate how much tax you owe. The Franchise Tax Board then compares that to what you already paid through withholding and either sends you a refund or bills you for the difference.

Deductions and credits that lower your California tax

California allows you to reduce your taxable income using either the standard deduction or itemized deductions. The standard deduction is a flat amount that depends on your filing status and age — for 2024, it is about $5,200 for a single filer under 65. If your deductible expenses (mortgage interest, property taxes, charitable donations, and so on) add up to more than the standard deduction, you can itemize instead.

You can also claim tax credits, which directly reduce the tax you owe. California offers credits for things like dependent children, education expenses, and low-income workers. Credits are more valuable than deductions because they reduce your tax dollar-for-dollar, whereas a deduction only reduces the income that is taxed. The Franchise Tax Board publishes a full list of available credits on its website.

Part-year residents and people who moved

If you moved to California during the year, you are a part-year resident and owe California tax only on income you earned while you lived there. If you moved away from California during the year, you are also a part-year resident and owe California tax only on income earned before you left. You report this on Form 540 by indicating the date you moved and which income applies to which period.

If you lived outside California for the entire year but earned income from a California source (for example, you own rental property in California), you may still owe California tax on that income even though you are not a resident. The rules are complex and depend on the type of income. If you are unsure whether you owe California tax, the Franchise Tax Board's website has guidance for nonresidents and part-year residents.

What happens if you do not file or pay on time

If you do not file your return by April 15, the Franchise Tax Board charges a failure-to-file penalty. If you do not pay the tax you owe by April 15, you owe a failure-to-pay penalty plus interest on the unpaid amount. Both penalties increase the longer you wait. If you cannot pay in full, you can request a payment plan or an installment agreement, which lets you pay over time.

If you owe money and do not respond to notices from the Franchise Tax Board, the state can place a lien on your property, garnish your wages, or offset your refunds. If you believe you made a mistake on your return, you can file an amended return using Form 540-X within four years of the original filing date.

Frequently Asked Questions

Do I have to file a California return if I only lived there part of the year?

Yes, if you earned income while you lived in California, you must file a California return for that year. You report your income as a part-year resident and pay tax only on the income you earned during the months you lived there. You will need to know the exact date you moved in or out.

What is the difference between California tax and federal tax?

Federal tax is collected by the IRS and goes to the U.S. government. California tax is collected by the Franchise Tax Board and goes to the state. They use different tax rates, different brackets, and different rules about what counts as income. You file separate returns and owe both taxes.

Can I deduct federal taxes from my California income?

No. California does not allow you to deduct federal income tax from your California taxable income. However, you can deduct state income tax from your federal return, up to a limit of $10,000 per year.

What if my employer did not withhold enough tax?

When you file your return, you will owe the difference between what you should have paid and what was withheld. You can pay it in full, request a payment plan, or adjust your withholding going forward so you do not owe as much next year. You can update your W-4 at any time.

Is there a penalty for filing late if I am getting a refund?

No. If you are owed a refund, there is no penalty for filing late, though you will not receive your refund until you file. However, if you owe money, penalties and interest start on April 15 regardless of when you file.