California State Income Tax: A Comprehensive Guide

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Taxes may not be not be a part of your California dreamin’, but do you know if you owe taxes in the Golden state? Now may be as good a time as any for that inquiry, especially considering that most Californians have until November 16, 2023, to file their 2022 returns.

The due date for your California state tax return and payment is April 15, 2024. You get an extension until October 15, 2024, to file, but pay by April 15. No form needed for the extension.

Quarterly estimated tax payments for 2024:

  • 1st quarter: April 15, 2024
  • 2nd quarter: June 17, 2024
  • 3rd quarter: September 16, 2024
  • 4th quarter: January 15, 2025

To avoid penalties, pay and file on time. Use CalFile or other online filing options

In this post, we’ll discuss who owes state income tax in California, what rate applies to you, and what the consequences of non-filing are.

Do You Owe California State Income Tax?

You may owe California state income tax if you meet certain criteria:

  • Income from California sources: If you have income derived from California sources

    Note: Income derived from California sources includes, but is not restricted to:

  • Income from services rendered in California

  • Rental income from real property situated in California

  • Income from the sale or transfer of real property in California

  • Earnings from a business, trade, or profession conducted in California

  • Federal filing requirement: If you are required to file a federal income tax return

  • Income threshold: If your income exceeds a specific amount, triggering the obligation to pay state taxes in California

If you are a resident of California, all your income will be subject to income tax; this includes income from sources outside California.

Part-year residents are taxed on all of their income, i.e., regardless of the source, while they are residents and on income from California sources for the period during which they are nonresidents.

Nonresidents of California are taxed only on income from California sources. Also, nonresidents are not taxed on pensions received after December 31, 1995.

Residency Status Taxable Income
Resident All income - regardless of source
Part-year resident Income from all sources for the period of residency and income derived from California sources for the period of nonresidency
Nonresident Income from California sources

Filing to claim a refund

Even if you do not owe taxes or need to file a return, you might be eligible to receive a refund, which you can claim only by filing a return. You should see if you are eligible to receive a refund in circumstances like the following:

  • If you meet the criteria for the California earned income tax credit (EITC), you could receive up to $3,417.
  • If state taxes were withheld from your paycheck, you may be eligible for a refund.

Estates and Trusts

Filing and payment dates for estates or trusts:

  • Calendar year: April 15, 2024
  • Fiscal year: 15th day of the 4th month after the taxable year ended

Bankruptcy Estates

Filing and payment dates for bankruptcy estates:

  • Calendar year: April 15, 2024
  • Fiscal year: Within a fiscal year period of receiving income but not exceeding 12 months

Allocation of Estimated Tax Payments

Form 541-T filing by the 65th day after the taxable year's close to allocate payments to beneficiaries.

Outside the USA

If abroad on April 15, 2024, file and pay taxes by June 17, 2024, with an automatic extension till December 16, 2024. No application needed. To avoid penalties, pay by June 17, 2024.

Farmers or Fishermen

For those earning 2/3 of gross income from farming or fishing:

  • Pay all estimated tax by January 15, 2024
  • File 2023 tax return on or before March 1, 2024, and pay total tax due
  • Use form FTB 5805F (coming soon) to confirm required estimated tax payments. Attach to the tax return if needed.

By When Should You File Your Returns?

You must file your California income tax return by April 15 at the end of each tax year. Now, if this deadline coincides with a Saturday, Sunday, or legal holiday, the due date is extended to the subsequent business day, as it was last year - April 18, 2023.

Extensions to file

California provides an automatic 6-month extension from the original due date to file your return. There is no need to submit an application for an extension to file.

For an extension, send payment if not ready to file by April 15, 2024, using FTB 3519 by mail or free Web Pay. Estimated tax is paid quarterly. Use Form 540-ES by mail or web for payments.

Pay by April 15, 2024 to avoid penalties and interest.

Last year, the extended due date was October 16, 2023, though the payment was still required by the original due date, April 18, 2023. This is because an extension to file does not give you an extension to pay your taxes.

Extended deadline in disaster-affected counties

As part of a disaster-relief measure (55 counties were affected by winter-related natural disasters), those in counties other than Lassen, Madoc, and Shasta, have until November 16, 2023, to file and pay their 2022 taxes to avoid penalties.

What Is the California Income Tax Rate?

In California, the income tax rate ranges from 1% to 12.3% - nine brackets. The taxes you will have to pay depend on factors such as your taxable income, tax-filing status, and state residency status.

2023 Tax Rates

2022 Tax Rates

Here are the income tax rates for your 2022 taxes.

Single or married filing separately

Tax Rate Income Bracket Taxes Owed
1% $0 to $10,099 1% of taxable income
2% $10,100 to $23,942 $100.99 + 2% of the amount over $10,099
4% $23,943 to $37,788 $377.85 + 4% of the amount over $23,942
6% $37,789 to $52,455 $931.69 + 6% of the amount over $37,788
8% $52,456 to $66,295 $1,811.71 + 8% of the amount over $52,455
9.3% $66,296 to $338,639 $2,918.91 + 9.3% of the amount over $66,295
10.3% $338,640 to $406,364 $28,246.90 + 10.3% of the amount over $338,639
11.3% $406,365 to $677,275 $35,222.58 + 11.3% of the amount over $406,364
12.3% $677,276 and over $65,835.52 + 12.3% of the amount over $677,275

Married filing jointly or qualifying surviving spouse

Tax Rate Income Bracket Taxes Owed
1% $0 to $20,198 1% of taxable income
2% $20,199 to $47,884 $201.98 + 2% of the amount over $20,198
4% $47,885 to $75,576 $755.70 + 4% of the amount over $47,884
6% $75,577 to $104,910 $1,863.38 + 6% of the amount over $75,576
8% $104,911 to $132,590 $3,623.42 + 8% of the amount over $104,910
9.3% $132,591 to $677,278 $5,837.82 + 9.3% of the amount over $132,590
10.3% $677,279 to $812,728 $56,493.80 + 10.3% of the amount over $677,278
11.3% $812,729 to $1,354,550 $70,445.15 + 11.3% of the amount over $812,728
12.3% $1,354,551 and over $131,671.04 + 12.3% of the amount over $1,354,550

Head of household

Tax Rate Income Bracket Taxes Owed
1% $0 to $20,212 1% of taxable income
2% $20,213 to $47,887 $202.12 + 2% of the amount over $20,212
4% $47,888 to $61,730 $755.62 + 4% of the amount over $47,887
6% $61,731 to $76,397 $1,309.34 + 6% of the amount over $61,730
8% $76,398 to $90,240 $2,189.36 + 8% of the amount over $76,397
9.3% $90,241 to $460,547 $3,296.80 + 9.3% of the amount over $90,240
10.3% $460,548 to $552,658 $37,735.35 + 10.3% of the amount over $460,547
11.3% $552,659 to $921,095 $47,222.78 + 11.3% of the amount over $552,658
12.3% $921,096 and over $88,856.16 + 12.3% of the amount over $921,095

Are You a California Resident?

Residency is significant because it determines what income is taxed by California. In general, your state of residence is defined by your “closest ties and connections.”

If you end up relocating from your state of residence, it becomes crucial to figure out whether your presence in another state is temporary or transitory. The purpose and duration of your stay are essential factors in determining your residency status.

Resident status

An individual is a California resident if they meet any of the following criteria:

  • Present in California for other than a temporary or transitory purpose
  • Domiciled in California, but outside California for a temporary or transitory purpose

Residents should file California Resident Income Tax Return (Form 540) or California Resident Income Tax Return (Form 540 2EZ).

What is a temporary or transitory purpose?

If you visit California for a vacation, conduct a transaction, or are merely passing through, your intention is temporary or transitory and you will not be considered a resident.

But if your presence in California is for a purpose other than temporary or transitory, you are considered a California resident. This applies even if you have ties in any other state. This could include situations such as the following:

  • Being assigned by your employer to a California office for an extended or indefinite period
  • Relocating to California upon retirement without specific plans to leave
  • Staying in the state for an indefinite recuperation period due to illness
  • Spending more than 9 months in the state during a taxable year, which automatically leads to the assumption that you are a California resident

In such cases, your residency status makes you subject to California taxation on income from all sources.

What is domicile?

For tax purposes, domicile is the location where you voluntarily set up your home and family. This isn’t for a specific or restricted reason but is marked by your intention to make it your real, stable, and permanent residence—the place you consider home. Essentially, your domicile is the place to which you intend to return whenever you are away. If your marital home is in California, that is a significant indicator of your domicile in the state.

What happens if you leave California?

Any individual who is a resident of California continues to be a resident even if they are absent from the state for a temporary or transitory purpose.

Suppose you accept a work contract in Spain for a 14-month period. You rent an apartment close to your workplace, and your employment agreement specifies that your employer will coordinate your return to California once your contract comes to an end. Meanwhile, your spouse/registered domestic partner and children continue to live in California in the home you own.

In this case, you have many significant connections with California, as your spouse and children continue to reside in your California home while you are away. Your intention is to return to California, and your absence is considered temporary and transitory. Consequently, your California residency is maintained during this period, making you liable for taxation on income from all sources, including your earnings from Spain.

Part-year resident status

A part-year resident is someone who resides in California for a portion of the year and is a nonresident for another part of the year.

Let’s say that you get a job offer in France for a permanent position, which you accept. You then sell your house in California and move all of your belongings to France. You and your spouse and children move to France on May 5, 2022. When you reach France, you get an apartment on lease, enroll your kids in a local school, etc. Most of all, you have no intention of returning to California.

In this case, your residency status is classified as part-year. Up to May 5, 2022, you were a California resident, and from May 5, 2022, onward, you became a nonresident. All income earned during your residency in California is subject to taxation by the state. However, while you are a nonresident, only income sourced from California is taxable by the state.

Non-resident status

As the term suggests, if you don’t qualify as a California resident, you are a nonresident. Typically, nonresidents are individuals who are:

  • Just passing through California
  • In California for a brief period or vacation
  • In the state for a brief time to carry out one or more of the following:
    • Employment
    • Transactions
    • Contractual work

Nonresidents or part-year residents are required to file Nonresidents or Part-Year Residents (540NR).

What Are the Income Tax Deductions in California?

Deductions help you reduce your taxable income. You can choose one of two options, i.e., whichever leads to a greater reduction of your taxable income:

  • Claim a standard deduction
  • Report itemized deductions

Standard deduction

Filing Status Standard Deduction
Single or married/registered domestic partner (RDP) filing separately $5,202
Married/RDP filing jointly, head of household, or qualifying widow(er) $10,404

Itemized deductions

Consider itemizing your deductions if:

  • The total of your itemized deductions exceeds your standard deduction
  • You are ineligible to claim the standard deduction

California allows for itemized deductions such as the following:

  • Medical and dental expenses that exceed 7.5% of your federal AGI
  • Home mortgage interest on home purchases up to $1,000,000
  • Job expenses and certain miscellaneous itemized deductions for expenses that exceed 2% of your federal AGI
  • Gambling losses, deductible to the extent of gambling winnings

What Are the Income Tax Credits in California?

Tax credits represent a form of tax advantage that reduces the amount of taxes you owe by the credited sum. Certain credits may also be refundable, meaning that if the credit amount surpasses your tax liability, you could potentially get the excess as a refund.

Here are some tax credits available in California for the 2022 tax year.

California earned income tax credit (CalEITC)

As a working individual or family with an annual income of up to $30,000, you could qualify for the California earned income tax credit for an amount of up to $3,417 for the 2022 tax year.

Child adoption costs credit

If you have adopted a child in California, you are eligible to receive a credit amounting to 50% of the adoption expenses. To qualify, the adopted child must meet the following criteria:

  • Be a US citizen or legal resident
  • Be in the custody of a California agency or political subdivision

You may be eligible if you incurred expenses on the following:

  • Fees from the Department of Social Services or a licensed adoption agency
  • Medical costs that were not covered by insurance
  • Travel expenses

The maximum credit you can claim is $2,500 per child within a tax year. If your adoption costs exceed this amount, you can carry over the remaining credit to subsequent years until it is fully utilized.

College access tax credit

This credit is available until tax year 2027. You may be able to claim it if you contribute to the California Access Tax Credit (CATC) Fund. This fund helps provide financial aid to low-income college students. You will receive a tax credit of 50% of your contribution.

Child and dependent care expenses credit

You are eligible to receive this credit if you incurred expenses for the care of your:

  • Child
  • Spouse/Registered domestic partner (RDP)
  • Dependent

To qualify, you need to have earned income during the year. It’s important to note that this credit does not result in a refund. You may meet the criteria if you made payments for care while you were working or actively looking for work. If you qualify, you may only claim expenses up to:

  • $3,000 for 1 person
  • $6,000 for 2 or more people

You will receive a percentage of the amount you paid as a credit.

What If You Fail to File Your Return?

You will incur a penalty, which is 5% of the amount due:

  • From the original due date of your tax return
  • After applying any payments and credits made, on or before the original due date of your tax return, for each month or part of a month unpaid

The maximum penalty is 25%. Interest also accrues.

If your tax return shows a balance due of $540 or less, the penalty is either:

  • $135
  • 100% of the amount due

Whichever amount is less.

What If You Fail to Pay Your Taxes?

The penalty for failing to pay your taxes is as follows:

  • 5% of the unpaid tax (underpayment)
  • 0.5% of the unpaid tax for each month or part of the month it’s unpaid, not to exceed 40 months (monthly)

This is capped at 25% of the total unpaid tax.

What Is the Sales Tax Rate in California?

The statewide sales tax rate in California is 7.25%. But some cities and counties impose local taxes, which could bring the sales tax rate up to 10.75% in some regions.

Filing Tips

  • Determine your residency status: California taxes residents on all income, regardless of where it is earned. If you live in California for more than nine months in a year, you are generally considered a resident for tax purposes.
  • Choose the right tax form: Most individuals use Form 540, but there are variations such as Form 540A and 540EZ for other tax situations.
  • Check for deductions and credits: Be aware of available deductions and credits that can help reduce your taxable income or offset your tax liability. Common deductions include mortgage interest, student loan interest, and medical expenses.
  • Understand California’s tax brackets: California has a progressive income tax system with several tax brackets. Know the tax rates and where your income falls to calculate your tax liability accurately.
  • Report all income: Ensure that you report all sources of income, including wages, self-employment income, rental income, and investment income. Failure to report all income can result in penalties.
  • Consider e-filing: Electronic filing (e-filing) is a fast and secure way to submit your tax return. It also allows for quicker processing and can help you receive any refund due to you more promptly. Paper filing may take up to 3 months to process.
  • Review changes in tax laws: Tax laws can change, so be aware of any updates or modifications that may impact your filing. Stay informed about any new credits or deductions that could benefit you.
  • Keep accurate records: Maintain organized and accurate records of your income, expenses, and any supporting documentation. This will help you provide the necessary information in case of an audit.
  • Utilize free filing options: California offers the CalFile system, which is a free online tax filing service for eligible individuals. Check if you qualify to use this service to save on filing fees. If you are above 60 or have limited income, you may get free help e-filing your tax return through the Voluntary Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) program.
  • Seek professional help if needed: If your tax situation is complex, consider consulting with a tax professional or using tax software to ensure accuracy and take advantage of all available deductions.

Key Takeaways

  • Most Californians had until November 16, 2023, to file their 2022 tax returns.
  • Criteria for owing California state income tax include income from California sources, federal filing requirement, and surpassing a specific income threshold.
  • Residents are taxed on all income, including income from outside California. Part-year residents are taxed on all income during residency and income from California sources during nonresidency. Nonresidents are taxed only on income from California sources.
  • Filing is advised if you are eligible to receive refunds, such as the California earned income tax credit (EITC), or if state taxes were withheld from the paycheck.
  • California’s income tax rates range from 1% to 12.3%, with nine brackets based on taxable income, filing status, and residency status.
  • Residency status is crucial, determining what income is taxed by California. Factors include the purpose and duration of stay, with domicile playing a significant role.
  • Nonresidents are individuals passing through, in California for a short period, or for specific purposes.
  • Deductions, including the standard deduction and itemized deductions, help reduce taxable income in California.
  • Various tax credits are available, such as the California earned income tax credit (CalEITC), child adoption costs credit, and college access tax credit.
  • California offers free filing options like CalFile for eligible individuals, and those above 60 or with limited income may qualify for free help through VITA and TCE programs.
  • The statewide sales tax rate in California is 7.25%, with local taxes potentially increasing the total sales tax to 10.75% in some areas.
  • Failure to file incurs a penalty of 5% of the amount due, increasing by 5% each month, with a maximum penalty of 25%.
  • Failure to pay taxes incurs a penalty of 5% of the unpaid tax and 0.5% per month, not exceeding 40 months. This is capped at 25% of the total unpaid tax.

Conclusion

Navigating California’s intricate tax landscape involves understanding your residency status, income tax rates, deductions, and available credits. As most Californians are granted an extended deadline until November 16, 2023, for filing their 2022 tax returns, it is an opportune time to delve into the nuances of state taxation. Residents, part-year residents, and nonresidents face different tax implications, emphasizing the importance of determining one’s status accurately.

With penalties in place for non-compliance, understanding the California tax landscape becomes not just a financial necessity but a key element in responsible fiscal management. As individuals navigate their tax obligations, staying informed and seeking professional guidance can contribute to a more informed and financially sound approach to taxation in the Golden state.