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- California personal income-tax rates
- Who files Form 540?
- Residents, part-year residents, and nonresidents
- Federal income and California adjustments
- California deductions and credits
- Capital gains in California
- California withholding and estimated tax
- Corporation franchise and income tax
- Notices, payments, and account records
- Sources
Key Facts
- California: California personal income tax uses state taxable income and progressive state rates rather than federal rate brackets.
- California: For 2025 returns filed in 2026, personal rates range from 1% through 12.3%, with an additional 1% tax on taxable income over $1 million.
- California: Residents generally report income from all sources; nonresidents and part-year residents use California-source and residency rules.
- California: Schedule CA reconciles many differences between federal and California income or deductions.
- California: Corporations and other business entities use entity-specific taxes, rates, returns, and minimum-tax rules.
- Federal level: A California return does not replace the separate federal return, payment, or withholding system.
“California state tax” can mean personal income tax, corporation franchise tax, LLC tax and fee, sales and use tax, payroll tax, or property tax. This guide focuses on California income and franchise taxes administered by the Franchise Tax Board.
The first step is separating California rules from federal rules. California often begins with federal return information, but it has its own rates, residency rules, adjustments, deductions, credits, filing forms, and conformity dates.
California personal income-tax rates
California imposes progressive personal income-tax rates. For tax year 2025, the Form 540 schedules run from 1% through 12.3%, with bracket thresholds determined by filing status.
An additional 1% tax applies to taxable income over $1 million, producing a maximum personal rate of 13.3% on that portion. A marginal rate applies only to income within its bracket, not to every dollar of taxable income.
The 2025 brackets apply to 2025 returns generally filed in 2026. Later tax years require their own FTB schedules because California indexes brackets and can change other amounts.
Who files Form 540?
California residents generally use Form 540 or, when eligible, Form 540 2EZ. Filing requirements depend on gross income, adjusted gross income, filing status, age, dependents, and other circumstances listed in the current booklet.
A filing obligation can exist even when no tax remains after withholding or credits. Filing can also be necessary to claim a refund or refundable state credit.
Residents, part-year residents, and nonresidents
A full-year California resident generally reports income from all sources. A nonresident generally reports California-source income, while a part-year resident applies resident rules during residency and source rules outside that period.
Part-year residents and nonresidents generally use Form 540NR. California computes a tax rate using total income and applies the statutory ratio to California taxable income, subject to detailed allocation and sourcing rules.
Federal income and California adjustments
California uses federal adjusted gross income as a starting point for many individuals, then applies state additions and subtractions on Schedule CA. Federal treatment does not automatically control when California has not conformed or has modified a provision.
Common adjustment areas can include retirement income, health savings accounts, depreciation, capital gains, business losses, disaster provisions, deductions, and credits. The exact adjustment depends on the tax year and facts.
Recent federal legislation should never be assumed to apply identically in California. The FTB publishes conformity summaries and updates state forms when California law differs.
California deductions and credits
California provides its own standard deduction and itemized-deduction rules. Schedule CA adjusts federal itemized amounts where state law differs.
State credits can reduce California tax, and some are refundable or carry forward under their own rules. Eligibility may depend on income, dependents, residency, qualified expenses, and filing status.
Capital gains in California
California generally taxes net capital gain as ordinary income under its personal income-tax rates rather than providing separate lower long-term capital-gain brackets. Federal holding-period and rate benefits therefore do not establish the California rate.
Basis, residency, source, installment sales, business assets, and California-specific adjustments can change the amount reported to the state.
California withholding and estimated tax
California wage withholding is separate from federal income-tax withholding. Employers remit each system to the appropriate agency.
Taxpayers with insufficient state withholding may need California estimated payments. Due dates, required installments, safe harbors, electronic-payment rules, and penalties are state-specific.
Corporation franchise and income tax
California corporations can be subject to franchise or income tax depending on organization, qualification, doing business, or California-source income. General corporations, S corporations, financial corporations, and exempt organizations use different provisions.
Revenue and Taxation Code section 23153 generally imposes an $800 minimum franchise tax on covered corporations, subject to statutory exceptions. The minimum can apply even when the entity has little or no net income.
California S-corporation treatment is not simply the federal shareholder result. The entity can owe a California tax, and shareholders separately report state pass-through items and adjustments.
Notices, payments, and account records
FTB notices identify the tax year, proposed change, balance, response deadline, and protest or appeal route. A federal IRS response does not answer a separate California notice.
Keep filed returns, Schedules CA, wage and information statements, payment confirmation, basis records, entity documents, and correspondence. MyFTB can provide account access, but taxpayer-controlled copies remain useful.
