California Income Tax, Explained

California's brackets apply to your California taxable income, which is your federal adjusted gross income after California's own adjustments and its (small) standard deduction. These are marginal rates: crossing into a bracket only changes the rate on the dollars inside that bracket, not your whole income.

Single and married filing separately, 2025 tax year (returns filed in 2026):

Married filing jointly, 2025 tax year (thresholds are double the single brackets):

Notice how wide the 9.3% bracket is. A joint filer hits 9.3% at $145,449 of taxable income and stays there until $742,958. That single bracket covers almost every dual-income professional household in the state, which is why most of the planning conversation in California happens at 9.3%, not 13.3%. The brackets, standard deduction, and credits are all indexed each year using the June-to-June change in the California CPI (the 2025 adjustment was 3.0%), and the FTB publishes the next year's figures in the fall. So the 2026 brackets do not exist yet as official numbers; they will look like the tables above with modestly higher thresholds.

One boundary note: this page covers ordinary income. California taxes capital gains as ordinary income under these same brackets, with no preferential rate, and the specifics (basis, exit timing, the sting of a sale in your final California year) live in our California capital gains tax guide.

The 13.3% headline rate is really two pieces. The regular brackets top out at 12.3%, and then the Mental Health Services Tax adds 1% on taxable income over $1,000,000. Two things about that surcharge surprise people. First, the $1 million threshold is the same for every filing status; it does not double for joint filers, so a married couple hits it at the same point a single filer does. Second, it applies to taxable income, which includes capital gains. A founder selling a company or a household with a one-time liquidity event can cross $1 million in a single year and owe the surcharge once, even if their normal income never gets close.

The quieter change is SDI, California's State Disability Insurance payroll tax. Through 2023, SDI stopped at an annual wage cap, so high earners paid it on only the first slice of their salary. Senate Bill 951 removed the cap entirely starting January 1, 2024. The employee rate is 1.2% for 2025 and 1.3% for 2026, withheld on every dollar of wages. For a W-2 physician or executive earning $800,000, that is roughly $10,400 of SDI in 2026 that did not exist in this form three years ago. It functions as an extra income tax on wage earners that never appears in any bracket table, and it does not apply to self-employment income, which quietly changes the W-2 versus K-1 math for owners.

California's standard deduction is small: $5,706 for single filers and $11,412 for joint filers in 2025, versus a federal standard deduction several times that size. And instead of exemption deductions, California gives flat exemption credits that reduce tax directly: $153 for a single filer, $307 on a joint return, and $475 per dependent for 2025. Because the standard deduction is so small, plenty of Californians itemize for state purposes even in years they take the federal standard deduction; the two elections are independent.

The itemized rules diverge from federal too. California never adopted the federal SALT cap for its own return (you cannot deduct California income tax to California anyway, but property taxes are deductible without the federal $10,000 ceiling), and California still phases down itemized deductions for high-income filers under its own limitation. The result is that your federal Schedule A and your California deductions can look meaningfully different in the same year.

Three buckets. Residents owe California tax on worldwide income, no matter where it was earned. Part-year residents owe tax on everything received while resident, plus California-source income for the rest of the year. Nonresidents file Form 540NR and owe tax only on California-source income: wages for days physically worked in California, rental income from California property, income from a California business or partnership, and gains on California real estate. The sourcing rule for wages follows your body, not your employer's address, which is exactly the issue traveling professionals run into; we walk through the multi-state mechanics for physicians in our locum tenens California tax guide.

A wrinkle worth knowing: California is a community property state. If you file separately, or one spouse lives in California while the other does not, community property rules can split earnings 50/50 between spouses regardless of whose name is on the paycheck. Couples where one spouse relocates for work while the other stays in California often owe more California tax than they expect for exactly this reason.

And leaving is harder than arriving. California residency turns on where your closest connections are, your home, spouse and kids, time in state, doctors, business ties, not on where your mail goes. The FTB examines residency changes, and a move announced shortly before a large income event, a business sale, a vesting cliff, an IPO, is the classic fact pattern that draws attention. If a move is part of your plan, it needs to be a real move, documented, and ideally completed well before the income shows up.

Round-number illustration, not a projection: a married couple filing jointly, both W-2 earners, $400,000 of combined wages in 2025, no itemizing, no kids. Start by taking the California standard deduction of $11,412, leaving $388,588 of taxable income, then walk it up the 2025 joint brackets:

Add SDI. At the 2025 rate of 1.2% on all $400,000 of wages, that is another $4,800 withheld from their paychecks, bringing the total state-level hit to roughly $33,500.

The two numbers to internalize: this household's marginal rate is 9.3% (10.5% counting SDI on the next dollar of wages), but their effective rate is about 7.2% of gross income on the income tax alone, roughly 8.4% with SDI. Every planning decision, a 401(k) deferral, a pass-through election, timing a bonus, gets evaluated against the marginal rate, because that is what the next dollar saves. Numbers are illustrative and rounded; your actual return will differ with itemized deductions, credits, and income mix.

California does not copy the federal four-equal-quarters system. If you expect to owe more than $500 after withholding ($250 married filing separately), your required installments are 30% by April 15, 40% by June 15, nothing in September, and 30% by January 15. That means 70% of the year's estimated tax is due by mid-June, months ahead of the federal pace. People who move to California, or whose income jumps, get caught by the June installment constantly because their federal habits say 25/25/25/25.

The safe harbors have a California twist too. The base rule mirrors federal: pay the lesser of 90% of the current year's tax or 100% of last year's, and that prior-year number becomes 110% once AGI tops $150,000 ($75,000 married filing separately). But California cuts the rope entirely at the top: if your California AGI is $1,000,000 or more ($500,000 married filing separately), the prior-year safe harbor is not available at all. You must pay in 90% of the current year's actual tax, which means estimating a liquidity-event year in real time rather than coasting on last year's number.

Withholding, by contrast, is treated as paid evenly through the year no matter when it happens, so a December bonus withholding adjustment can cure an earlier shortfall in a way a December estimated payment cannot. The federal side runs on its own schedule and its own safe harbors; our estimated tax payments guide covers that layer and how the two calendars interact.

You cannot deduct your way out of a 9.3% to 13.3% system, but three levers reliably matter for the people who read this far.

1. The PTET election for business owners. If you own an S corporation, partnership, or an LLC taxed as either, California's pass-through entity elective tax lets the entity pay a 9.3% tax on its qualified net income and hand you a matching California credit. The point is federal: the entity-level tax is a business deduction, which restores the state-tax deduction the federal SALT cap otherwise limits. The election was extended by Senate Bill 132 in June 2025 and now runs through the 2030 tax year, with a June 15 prepayment requirement whose penalty for underpaying softened starting in 2026 (a shortfall now trims the credit rather than voiding the election). Owners whose marginal California rate is above 9.3% need to model the gap, and the credit carries forward five years if it exceeds one year's tax. If you are still deciding on structure, start with how to set up an S corp in California.

2. Retirement deferrals, especially if you might leave someday. California conforms to the federal treatment of 401(k) and similar deferrals, so every dollar you defer skips California tax now at your marginal rate. Here is the asymmetry: federal law prohibits any state from taxing the qualified retirement distributions of someone who no longer lives there. Defer at 9.3% or higher while working in California, retire in a state with no income tax, and the California layer on that income is gone for good, not merely postponed. What California does tax when you retire in state is covered in our California retirement taxes guide. The HSA is the exception to the deferral logic here, as covered above: it saves federal tax but not California tax.

3. Timing income around a residency change. If a move out of California is genuinely happening, sequence matters: income recognized while you are still a resident is California's, and income recognized after a bona fide move generally is not, subject to sourcing rules that keep California-connected income taxable (deferred compensation, California rentals, equity vested for California workdays all have their own rules). The gain side of this, including how a sale in your last California year gets taxed, lives in the capital gains guide. The residency change itself must be real and documentable, per section 4 above.