Yes, California has a state income tax, and it is one of the highest in the nation

California taxes your income at rates that range from 1% to 13.3%, depending on how much you earn. The state applies these rates to wages, self-employment income, investment gains, and retirement distributions. Unlike some states that have no income tax at all, California funds its schools, infrastructure, and social programs largely through this tax.

The tax brackets change each year. For the 2024 tax year, a single filer earning $70,000 pays a different rate than someone earning $700,000. California also taxes capital gains — the profit you make when you sell an investment — at your ordinary income tax rate, which is unusual compared to federal rules.

You file California taxes using Form 540 if you are a resident, or Form 540NR if you are a nonresident with California income. The state's Franchise Tax Board handles collection and enforcement.

Key Takeaways

  • California's income tax rates range from 1% to 13.3% depending on your income level, making it one of the highest state tax burdens in the country.
  • The state taxes wages, self-employment income, investment gains, and retirement withdrawals, with rates that adjust annually for inflation.
  • Nonresidents who work in California or earn California-source income must file a nonresident return even if they live in a no-income-tax state.
  • California taxes long-term capital gains at ordinary income rates rather than at a lower rate, which increases the tax on investment profits.

How California's tax brackets work

California uses a progressive tax system, meaning the rate increases as your income rises. You do not pay the top rate on all your income — you pay the lowest rate on the first portion, the next rate on the next portion, and so on. For 2024, the brackets for single filers start at 1% on income under $10,099 and reach 13.3% on income over $680,000.

The state adjusts these bracket amounts each year for inflation, so the income thresholds are different in 2025 than they were in 2024. Married couples filing jointly have higher bracket thresholds than single filers. Head-of-household filers and those filing as married filing separately each have their own bracket structure.

You can find the current-year brackets on the Franchise Tax Board website. Many tax software programs also load the correct brackets automatically when you enter your filing status and income.

Who has to file a California return

You must file if you are a California resident and your income exceeds the threshold for your filing status. For 2024, a single resident with more than $20,198 in income must file. A married couple filing jointly must file if their combined income exceeds $40,396. These thresholds also adjust annually.

Nonresidents must file if they earned income from a California source — wages from a California employer, rental income from California property, or business income earned in the state. You can live in Nevada, Texas, or any other state and still owe California tax on money you earned while working in California.

Even if your income is below the filing threshold, you may want to file anyway if you had taxes withheld from your paychecks, because you could receive a refund. The same applies if you are due any state tax credits.

California tax deductions and credits

California allows a standard deduction that reduces the income you actually pay tax on. For 2024, the standard deduction for a single filer is $5,202. Married couples filing jointly get $10,404. These amounts are lower than the federal standard deduction, so many California residents end up paying state tax even though they claim the standard deduction on their federal return.

The state also offers tax credits that directly reduce the tax you owe. The Earned Income Tax Credit (EITC) helps lower-income workers. The Child and Dependent Care Credit covers some childcare expenses. The California Child Tax Credit provides money for families with children. Unlike deductions, which reduce your taxable income, credits reduce your actual tax bill dollar for dollar.

You must claim these credits on your California return. Some credits are refundable, meaning you can receive money back even if you owe no tax. Others are nonrefundable, so they can only reduce your tax to zero.

Self-employment and business income taxes

If you are self-employed, you pay California income tax on your net business income at the same rates as wage earners. You also pay self-employment tax to fund Social Security and Medicare, which is a federal obligation. California does not add a separate self-employment tax on top of that.

You report self-employment income on Schedule C (federal) and Schedule CA (California). You can deduct ordinary business expenses — supplies, equipment, home office costs, vehicle mileage — to reduce your taxable income. Keeping records of these expenses is essential because the Franchise Tax Board may ask for proof if you are audited.

If your business operates in multiple states, you may owe income tax to more than one state. California taxes income earned within the state, even if you live elsewhere. Some states offer credits for taxes paid to other states to prevent double taxation, but the rules vary.

Capital gains and investment income

California taxes capital gains — profit from selling stocks, real estate, or other investments — as ordinary income. This means a long-term capital gain is taxed at your regular income tax rate, not at a lower rate like the federal system uses. A person in California's top bracket pays 13.3% on investment gains, whereas the federal top rate on long-term gains is 20%.

Dividends and interest income are also taxed as ordinary income in California. If you receive $5,000 in dividend income, it is added to your wages and taxed at your marginal rate. This treatment makes California's tax on investment income notably higher than many other states.

Losses from investments can offset gains, reducing your taxable income. If your losses exceed your gains, you can deduct up to $3,000 of the net loss against other income in that year. Excess losses carry forward to future years.

Residency and nonresident tax obligations

California considers you a resident if you live in the state or spend more than nine months there in a year. Residents pay tax on all income, regardless of where it is earned. A California resident working remotely for a company in another state still owes California tax on those wages.

Nonresidents pay California tax only on income earned from California sources. If you live in Arizona but work three days a week at an office in Los Angeles, you owe California tax on the portion of your income earned in the state. If you own rental property in California but live in Oregon, you owe tax on the rental income.

The Franchise Tax Board uses several factors to determine residency: where you own a home, where your family lives, where you are registered to vote, and where you hold a driver's license. If you move out of California or move in, you should notify the state to may support you are filing the correct form.

Frequently Asked Questions

Do I owe California tax if I moved out of state?

Not on income earned after you move, provided you establish residency in the new state. You must file a nonresident return for the year you move to report income earned only while you were a California resident. The Franchise Tax Board may contact you if you continue filing as a resident after moving.

What is the difference between the standard deduction and a tax credit?

A deduction reduces the income you pay tax on. A credit reduces the actual tax you owe. A $1,000 deduction saves you roughly $130 in tax if you are in the 13% bracket. A $1,000 credit saves you exactly $1,000 in tax, making credits more valuable.

Can I deduct federal taxes I paid from my California income?

No. California does not allow you to deduct federal income tax, federal self-employment tax, or federal payroll taxes. You pay California tax on your full income before federal taxes are subtracted.

What happens if I do not file a California return when I owe one?

The Franchise Tax Board can assess penalties and interest on unpaid taxes. If you owe a significant amount, the state can place a lien on your property or intercept your federal refund. Filing late is better than not filing at all, because the penalties for not filing are steeper than penalties for late payment.

Does California tax retirement income differently?

Social Security benefits are not taxed in California. Distributions from traditional IRAs, 401(k)s, and pensions are taxed as ordinary income. Roth IRA withdrawals are not taxed. If you are over 59½, you do not receive any special age-based deduction on retirement income.