California's tax burden is the result of high income tax rates, sales tax, and spending on education, healthcare, and infrastructure

California has the highest state income tax rate in the country at 13.3 percent for top earners, plus a sales tax that ranges from 7.25 to 10.75 percent depending on your county. Combined with federal taxes, a high earner in California pays more of their income to the state than residents of most other states. The reason is straightforward: California spends heavily on public schools, Medicaid (called Medi-Cal here), prisons, and transportation infrastructure, and the state funds most of this through income and sales taxes rather than property taxes or other sources.

The state also has a larger population than any other state and a higher cost of living, which means both more people paying taxes and higher nominal salaries that push earners into steeper tax brackets. A software engineer earning $200,000 in California pays state income tax at a much higher rate than the same engineer in Texas, where there is no state income tax at all.

Key Takeaways

  • California's top income tax rate of 13.3 percent is the highest in the nation, and applies to income over $680,000 for single filers as of 2024.
  • Sales tax varies by county but averages around 8.6 percent statewide, making the combined state and local sales tax burden higher than in most states.
  • The state spends roughly 40 percent of its general fund on K-12 education and community colleges, and another 30 percent on Medi-Cal, the state's Medicaid program.
  • Property taxes are capped at 1 percent of home value under Proposition 13, so the state relies more heavily on income and sales taxes than states that fund schools through property taxes.
  • California's population of nearly 40 million people and high average wages mean the state collects more total tax revenue, but also has more people and services to fund.

How California's income tax brackets work

California uses a progressive tax system, meaning the tax rate increases as your income rises. For the 2024 tax year, the rates start at 1 percent on the first $10,000 of taxable income and climb to 13.3 percent on income over $680,000 for single filers. Married couples filing jointly hit the top rate at $1,360,000. These thresholds adjust slightly each year for inflation.

The 13.3 percent rate applies only to income above the threshold, not to all your income. A single person earning $700,000 pays 13.3 percent only on the $20,000 above $680,000, not on the entire amount. Still, the cumulative effect is steep: a person earning $500,000 in California pays roughly $65,000 in state income tax, compared to $0 in Texas or Florida.

California also taxes capital gains—profits from selling stocks or real estate—as ordinary income rather than at a lower rate. This means investors and business owners often face the full 13.3 percent rate on investment profits, which is unusual among states.

Why sales tax is high across California counties

The state sales tax base is 7.25 percent, but most counties add local sales taxes on top of that. Los Angeles County adds 2.25 percent, bringing the total to 9.5 percent. San Francisco adds 1.25 percent for a total of 8.5 percent. Some counties in the Central Valley reach 10.75 percent. These local additions fund county services, transit systems, and school districts.

Sales tax applies to most goods and some services. Groceries are exempt, but prepared food, clothing, and electronics are taxed. This means a family buying back-to-school supplies or a car pays noticeably more in California than in a state with no sales tax or a lower rate. Over time, the difference adds up.

Education spending and Medi-Cal drive the state budget

California's general fund—the money available for discretionary spending—totals roughly $200 billion per year. Education consumes about 40 percent of that: roughly $80 billion goes to K-12 schools and community colleges. Medi-Cal, the state's health insurance program for low-income residents, takes another 30 percent, or about $60 billion. Together, these two programs account for 70 percent of the state budget.

California's Medi-Cal program covers more people than most state Medicaid programs. It includes undocumented immigrants, which increases the cost. The program also covers dental, vision, and mental health services more broadly than Medicaid in other states. These choices reflect state policy decisions to spend more on healthcare than other states do.

The remaining 30 percent of the budget funds prisons, courts, transportation, environmental protection, and other services. California's prison system is large and expensive, and the state has committed to maintaining extensive environmental regulations that require funding to enforce.

Proposition 13 and why property taxes don't fund schools

In 1978, California voters passed Proposition 13, which capped property taxes at 1 percent of home value and froze the assessed value of a home until it is sold. This means a house worth $1 million generates only $10,000 per year in property tax, compared to $15,000 to $20,000 in many other states. The cap was meant to protect homeowners from rising property values, but it also meant schools lost a major funding source.

Because property tax revenue is limited, California shifted the burden to income and sales taxes. States like Texas and New York fund schools heavily through property taxes, which means they can keep income tax rates lower. California chose the opposite path: low property taxes, high income and sales taxes. This decision, made 45 years ago, still shapes the state's tax structure today.

Proposition 13 also means that two neighbors in the same house can pay very different property taxes if one bought decades ago and the other bought recently. A house purchased in 1980 for $100,000 might be assessed at $100,000 today, while an identical house next door purchased last year for $2 million is assessed at $2 million. The newer homeowner pays 20 times more in property tax.

How California compares to other high-tax states

California's top income tax rate of 13.3 percent is higher than New York's 10.9 percent, Hawaii's 11 percent, and Vermont's 8.75 percent. Only Washington D.C., which is not a state, has a higher top rate at 14.75 percent. However, some states have no income tax at all: Texas, Florida, Nevada, South Dakota, Tennessee, Washington, and Wyoming collect no state income tax.

When you combine income tax, sales tax, and property tax, California's overall tax burden ranks high but not always at the very top. A middle-income family in California may pay less total tax than a similar family in New Jersey or Connecticut, which have high property taxes. A high-income earner in California almost certainly pays more state tax than in any other state.

The comparison also depends on what you earn and where you live. A retiree living on Social Security in California pays no state income tax on that income. A tech worker earning $300,000 in San Francisco pays far more in state tax than the same worker in Austin, Texas.

Why the state doesn't lower taxes significantly

California faces a structural budget problem: spending commitments, especially for education and Medi-Cal, grow faster than tax revenue in many years. The state also has a large unfunded pension liability for public employees, meaning it has promised retirement benefits that will cost billions in future years. Lowering taxes would shrink revenue without reducing these obligations, forcing cuts to services or larger deficits.

Politically, raising taxes is difficult, but so is cutting education or healthcare. The result is that tax rates have remained relatively stable for decades, even as the cost of living in California has risen sharply. Voters have rejected several ballot measures to raise taxes further, but also rejected measures to cut spending significantly.

Some economists argue that California's tax structure discourages business investment and high earners from staying in the state. Others argue that the state's tax revenue funds services that make California attractive, and that the relationship between taxes and population movement is weaker than critics claim. This debate continues, but the tax rates themselves have not changed substantially in recent years.

Frequently Asked Questions

Do I pay California state income tax if I work remotely for a company in another state?

Yes, if you live in California and work remotely, you owe California state income tax on your wages. The state taxes income earned by residents, regardless of where the employer is located. If you move out of state, you stop owing California tax on future income, but you must file a final return for the year you leave.

Are there any deductions that lower California income tax?

California allows the standard deduction, which is $4,783 for single filers in 2024, and itemized deductions for mortgage interest, property taxes, and charitable donations. However, California does not allow a deduction for state income taxes paid, unlike the federal return. You can also claim credits for dependent children and education expenses.

Why does California tax capital gains as ordinary income?

California treats capital gains—profits from selling stocks, real estate, or other assets—as regular income subject to the full 13.3 percent rate. The federal government taxes long-term capital gains at lower rates, but California does not. This means selling a rental property or stock portfolio can trigger a large state tax bill in addition to federal taxes.

Can I deduct sales tax on my California state return?

No. California does not allow a deduction for sales tax paid. You can deduct sales tax on your federal return only if you itemize deductions and choose to deduct sales tax instead of state income tax, but most filers use the standard deduction. This means sales tax is a true additional cost with no tax offset.

What happens if I move out of California—do I still owe taxes?

You owe California income tax only on income earned while you were a resident. Once you establish residency in another state, you file a final California return for the partial year and then owe no further state income tax to California. However, the state may challenge your residency claim if you maintain a home or business ties in California.