California Tax Guide: CA State Tax Information & Rates

California Tax Guide: CA State Tax Information & Rates
There are so many reasons that make California a wonderful place to live. A great climate, redwoods, mountains, desert, and a gorgeous coastline; what more could you ask for! But if you live in or are planning to move to the Golden State, be prepared to pay some of the highest taxes in the nation.    Living in California isn’t cheap, and it’s not just because of the expensive real estate and higher cost of living. Residents pay a state income tax, state sales tax, capital gains tax, and state property tax. In fact, California’s top marginal income tax rate of 13.3% is the highest in the country.  

California State Income Tax

California’s state income tax rates have a large range, from 1% to 12.3%. Another 1% surcharge, the mental health services tax, is collected from taxpayers whose incomes are over $1 million per year. This makes California’s top marginal income tax rate a whopping 13.3%!  However, only a small percentage of the population pays that, with the majority of taxpayers falling somewhere in the middle of the tax rate range.  To figure out how much income tax you’ll be expected to pay, you’ll need to become familiar with California tax brackets and use a tax calculator.

Estimate Taxes with a California Tax Calculator

Use a California tax calculator to estimate how much you’ll pay in income tax. You’ll need to enter your financial details, such as household income, your zip code, and your filing status. You’ll want to take a close look at your paycheck and make sure you have the right amount of deductions, allowances, and withholdings set up. Knowing all of this will help you not only determine your tax liability, but also enable you to keep as much of your income as possible.   Understanding California tax brackets can be confusing, but it’s important to study them and know where you fall on the range. California has ten marginal tax brackets, ranging from 1% to 13.3%.   The higher your income, the more you will pay in taxes. Your tax bracket is the one in which your last earned dollar in any given tax period falls. You pay the tax rate for your income level, plus a marginal percentage of any amount you earned over that. Again, if all of this makes your head spin, a tax professional can make sense of this for you.

California Sales Tax

The California state sales tax rate is 7.5%, making it actually one of the lowest in the country.   But don’t get too excited about that yet. Cities and counties can charge an additional sales tax of up to 2.5%, making the maximum sales tax rate 10%, which is among the highest in the country.   In California, only groceries, some prescription drugs, and some alternative energy equipment are exempt from sales tax. Otherwise, sales tax applies to all sales of tangible goods.  If you like to indulge in things that are deemed unhealthy by the state, be prepared to pay more for them. Items like alcohol, cigarettes, and gasoline are subject to various California excise taxes, in addition to the sales tax. Candy and soda, however, are considered groceries and are not taxed.   California sales taxes are used to supplement almost half of the state’s general fund to pay off Economic Recovery Bonds, support local criminal justice activities, healthcare, and social services programs. A small percentage goes to city or county operations and county transportation funds.

Capital Gains Tax Rate California

Californians pay some of the highest capital gains taxes not only in the nation, but in the entire world! The state taxes all capital gains as income, and does not give any tax breaks for them.  This pushes many taxpayers into a higher tax bracket and, subsequently, a higher tax rate.  To make matters even more complicated (and expensive), even if you move out of California, you could still be responsible for paying California taxes on your capital gains. You can still be considered a resident of California for up to eighteen months after moving away. The Golden State has some strict rules for determining residency, so you should consult the Franchise tax board for the guidelines on this and any other tax questions you may have.

California State Property Tax

Property taxes are a big deal for homeowners. They seem to always be on the rise for various reasons: laws may change, home values increase, or the value of land in your area is reassessed. The average tax bill in 2017 saw a 3% increase from the previous year. This can result in a hefty tax bill and leave taxpayers feeling burdened by home ownership. Property taxes are based on the purchase price of the property. The assessed value is equal to the purchase price, and the assessed value increases every year by the rate of inflation, with a max increase allowance of 2%. As a general rule, if you are trying to calculate what your property taxes will be, multiply your purchase price by 1.25%. This covers the base rate of 1% plus additional local taxes.   If you’re doing your best to understand all of this, but find that you need additional time to file, you are entitled to a state tax extension.  Be sure to take advantage of this option if you truly need to (not simply as a way to procrastinate), as you don’t want to incur penalties for filing after the deadline.

California State Tax Filing Deadline

As with all other continental U.S. states, California’s state tax filing deadline is April 15th. This coincides with the federal tax filing deadline. In the event that April 15th falls on a weekend or a holiday, the tax filing deadline may change. 

2020 California State Tax Filing Deadline 

Due to the Coronavirus pandemic, the 2020 California state tax filing deadline was automatically extended to July 15th, 2020 for all California taxpayers. 

How to E-file My California State Income Tax

Many California residents opt to e-file their California state income taxes each year. Not only can this be more convenient than filing by paper, but it also allows you to file instantly, without needing to wait for your return to be postmarked and delivered to the IRS.    There are many different options for e-filing your california state tax return, several of which are free. 

California State Automatic Tax Filing Extension

If you require additional time to file your California state income tax, the state of California will automatically grant you a 6-month extension on filing without the need for paperwork, pushing your filing deadline out to October 15th. Note that this extension is only for filing your state taxes, and not for paying your state taxes. Your state income tax must still be paid by April 15th in order to qualify for automatic filing extension. If your taxes are not paid by the April 15th deadline, you will be subject to tax penalties.    If you are unsure of your exact income tax payment by the April 15th deadline, it’s always better to overestimate your owed tax amount. Once your taxes are filed, the IRS will review your tax payment and return any overpayment to you. 

Filing an Amended California State Tax Return 

If you realize you’ve made a mistake or omission on your California state tax return, it’s imperative that you file an amended tax return with the correct information. There are a number of different reasons you may need to file an amended California state tax return, including errors in regards to your: 
  • Income
  • Credits 
  • Deductions 
  • Filing status 
  If you need to make a change to your tax return, you’ll need to complete Schedule X, the California Explanation of Amended Return Changes, as well as a corrected 540 and any additional documents.    You can either file your amended tax return online via e-filing software, or send it by mail. 

California Amended State Tax Return Address 

Send your amended california state tax return by mail to:   
  • Franchise Tax Board 
  • PO Box 942840
  • Sacramento, CA 94240-0001

Get Help with Filing your California State Income Tax 

Figuring out your taxes can be a daunting experience, to say the least. Trying to make sense of California taxes is overwhelming for many Americans, so hiring a professional can often be your best option.    Community Tax offers help to anyone in the Golden State. From Los Angeles tax help to San Francisco debt resolution, we’re a great resource to get some help. We know the ins and outs of California tax laws and can find ways to save you money that you may not even be aware of. Let us help you take advantage of every tax credit you’re entitled to so you can keep as much of your money as possible when tax season rolls around.

Need Tax Relief?

If you’re seeking tax relief for your federal income taxes or local tax debt relief, Community Tax can help. We offer tax resolution services and assistance with tax hardship, to help get you back on your feet. Whether you are seeking a tax repayment program, or need to utilize a program under the Fresh Start Initiative, we can find the right solution for your needs. Contact us today.