Who Has to Pay California State Taxes?

California’s state income tax operates under rules separate from the federal system. Your requirement to pay California income tax depends on your residency status, the source of your income, and whether you meet specific income thresholds. Understanding these elements is the first step in determining your obligation to the state.

Determining Your California Residency Status

Your relationship with California for tax purposes is defined by your residency status, which falls into one of three categories: resident, nonresident, or part-year resident. The California Franchise Tax Board (FTB) uses these classifications to determine how your income is taxed. A California resident is someone present in the state for anything other than a temporary or transitory purpose. This status is also connected to the concept of “domicile,” which is your true, fixed, permanent home and the place to which you intend to return whenever you are away.

A nonresident is any individual who is not a resident. This applies to people who live outside of California but may have income from within the state. A part-year resident is an individual who moves into or out of California during the tax year. For the period you lived in California, you are treated as a resident, and for the period you lived outside the state, you are treated as a nonresident.

In ambiguous situations, the FTB applies the “closest connections test” to evaluate whether your connection to California is stronger than your connection to any other state. The FTB weighs several factors, with no single one being decisive, including:

• The location of your family
• The location of your home, whether owned or rented
• Where you have your business affiliations and professional contacts
• The jurisdiction where your bank accounts are held
• Where you are registered to vote
• The state that issued your driver’s license
• Where your vehicles are registered

For example, a software engineer who takes a six-month contract job in California but whose family, home, and bank accounts remain in another state would likely be considered a nonresident. Conversely, an individual who moves their family, enrolls their children in a local school, and registers to vote in California has demonstrated clear intent to establish residency.

Income Subject to California Tax

Once your residency status is established, the next step is to identify which portion of your income is subject to California’s income tax. California residents are taxed on all of their income, from every source, worldwide. This means that whether you earned wages from a California employer or received investment income from a New York-based fund, it is all reportable on your California return.

Nonresidents are only required to pay California tax on their “California-source income,” which is income derived from sources within the state. Common examples include wages for services performed in California, rent from real property located in the state, and income from a business conducted in California. Capital gains from the sale of California real estate are also taxable by the state, even if the seller is a nonresident.

Part-year residents face a hybrid set of rules. For the portion of the tax year that you were a California resident, you are taxed on your total worldwide income. For the portion of the year that you were a nonresident, you are taxed only on your California-source income. This calculation is managed on Schedule CA (540NR), the California Adjustments form for nonresidents and part-year residents, which helps allocate income between the two periods.

California Filing Requirements

An obligation to pay California tax is separate from the requirement to file a state tax return. You may be required to file a return even if you do not owe tax or expect a refund. The FTB establishes income thresholds that trigger this filing requirement based on your gross income, adjusted gross income (AGI), filing status, and age.

For the 2024 tax year, a single individual under 65 with no dependents is required to file if their California AGI exceeded $17,818 or their total gross income was more than $22,273. These amounts change based on your filing status, age, and the number of dependents you have. A person who is 65 or older or blind is allowed a higher income level before being required to file a return.

Even if your income falls below the filing thresholds, filing a California tax return can be beneficial. If your employer withheld state income taxes from your paycheck, you must file a return to claim a refund. You may also be eligible for certain refundable tax credits, such as the California Earned Income Tax Credit (CalEITC) or the Young Child Tax Credit, which require you to file a return to receive them.

Calculating Your California Tax Liability

The calculation of your final California tax liability follows a structured formula that starts with your federal tax return and makes state-specific adjustments.

Starting with Federal AGI

The starting point for the California tax calculation is your federal Adjusted Gross Income (AGI). You must then make adjustments on Schedule CA, California Adjustments, to account for the differences between federal and state tax law. Some types of income are taxable at the federal level but not by California, and vice versa, requiring specific subtractions or additions to arrive at your California AGI.

Deductions

After determining your California AGI, you can reduce it by taking either the standard deduction or itemized deductions. California’s standard deduction amounts are fixed based on your filing status and differ from federal amounts. For the 2024 tax year, the standard deduction is $5,540 for single filers and $11,080 for married couples filing jointly. You can itemize on your state return even if you take the standard deduction on your federal return.

Calculating Taxable Income and Tentative Tax

Subtracting your deductions from your California AGI yields your California taxable income. California has a progressive tax system with nine tax brackets and rates ranging from 1% to 12.3%. An additional 1% Mental Health Services Tax is applied to incomes over $1 million, bringing the top marginal rate to 13.3%. Your taxable income is applied to these brackets to determine your tentative tax.

Applying Tax Credits

The final step involves applying any tax credits you are eligible for. Unlike deductions, which reduce your taxable income, credits directly reduce your tax liability on a dollar-for-dollar basis. California offers a variety of credits, such as the renter’s credit and the credit for child and dependent care expenses. After all applicable credits are subtracted, the remaining amount is your final tax liability or the refund you are due.

Paying California Taxes and Filing Your Return

The FTB provides several methods for filing your completed California tax return. You can use CalFile, the state’s free online filing service, an FTB-approved commercial tax software program, or mail a paper return.

If you have a balance due, FTB Web Pay allows you to authorize a direct payment from your bank account without any service fees. You can also pay using a major credit card, though a third-party processing fee will apply. Another option is to pay by check or money order, which should be mailed with Form 3582 to ensure proper crediting. If you file electronically, you can schedule an electronic funds withdrawal for a future date.

For most taxpayers, the deadline to file a California state tax return and pay any tax owed is April 15th. If you have income that is not subject to withholding, such as from self-employment, you may be required to make quarterly estimated tax payments. These payments are due on April 15th, June 15th, September 15th, and January 15th of the following year to avoid underpayment penalties.