Personal Finance & Estate › Income, gift, estate & real-estate taxes › Income tax (federal & California)
California income tax (top rate 13.3%)
Since 1935· Tax rule
Law or rule (2026)Set by statute, regulation or the agency; numbers change yearly.
California's state income tax, with rates from 1% to 13.3%, the highest top rate in the United States.
See it on the Personal Finance & Estate map →How it works
California taxes residents on all income worldwide and nonresidents on California-source income, including rent and sale gains from California property. Nine brackets run 1% to 12.3%, plus a 1% mental-health surcharge on income over $1 million. Capital gains get no lower rate. It often departs from federal rules: no bonus depreciation and no HSA deduction, but Social Security is exempt. Escrow withholds 3⅓% on many real-estate sales. Returns go to the Franchise Tax Board.
Why it matters for you
With federal tax, top earners pay about half of each extra dollar of ordinary income; moving away or timing a sale draws scrutiny from FTB residency audits.
Rules, limits and sources (2026)
The Personal Income Tax Act of 1935; Prop 63 (2004) added the 1% surcharge; Props 30 (2012) and 55 (2016) set the top brackets through 2030; the FTB publishes yearly rates.
Watch out for
Prop 55's top brackets expire after 2030 unless voters extend them; whether high earners are leaving California because of taxes is hotly debated.
Inside this (1)
Connections (5)
▸California income tax (top rate 13.3%) is the state layer of Income tax (federal & California)Law or rule (2026)
How they connect
California's Form 540 starts from federal AGI, then adjusts on Schedule CA: it adds back items California doesn't recognize, like HSA deductions and bonus depreciation, and subtracts others, like Social Security benefits. Then its own brackets apply. State tax paid is federally deductible only within the SALT cap.
When it applies
California enacted its income tax in 1935, during the Depression, and has conformed to federal law selectively ever since.
The rule
FTB Schedule CA (540) instructions list each difference; California's Revenue and Taxation Code adopts the federal code only as of a fixed date.
Watch out for
Whether California adopts parts of the 2025 federal law, such as 100% bonus depreciation, is up to the legislature; historically it rarely follows.
▸California pass-through entity (PTE) elective tax is a SALT workaround in California income tax (top rate 13.3%)Standard practice
How they connect
Inside California's income tax, the PTE tax shifts who pays: the entity prepays 9.3% on owners' share of income, and owners get a dollar-for-dollar credit on their personal California return. The state collects about the same; owners gain a federal deduction the SALT cap would otherwise block.
When it applies
Enacted by AB 150 in July 2021 for 2021–2025; a 2025 budget law extended it through 2030. The Franchise Tax Board administers it.
How sure?
California Revenue and Taxation Code sec. 19900–19906; FTB Form 3893 for payments and Form 3804 for the election.
Watch out for
Unused credits carry forward five years; interaction with California's alternative minimum tax and other credits can limit the value.
▸California income tax (top rate 13.3%) is collected by California Franchise Tax Board (FTB)Law or rule (2026)
How they connect
The Franchise Tax Board runs California's personal income tax: it processes Form 540, collects estimated payments and withholding, audits residency, and collects LLC taxes and fees. It can generally assess up to four years back, versus the IRS's usual three, and pursues former residents who claim to have moved.
When it applies
Created in 1950 in Sacramento; its board is the State Controller, the Director of Finance and the Board of Equalization chair.
The rule
Revenue and Taxation Code Sec. 19057 sets the four-year limit; FTB annual reports list collections and audits.
Watch out for
How strict residency audits are for people who move, and what evidence proves a move, fuels frequent appeals at the Office of Tax Appeals.
▸California income tax (top rate 13.3%) gives no discount to Capital gains tax (short- vs. long-term)Law or rule (2026)
How they connect
California has no lower capital-gains rate: long- and short-term gains are taxed like wages, up to 13.3%. So a top-bracket Californian's combined rate on long-term gains reaches about 37.1% (20% + 3.8% + 13.3%). California also taxes nonresidents on gains from California real estate, so moving away doesn't avoid it.
When it applies
California ended its partial capital-gains exclusion in 1987, conforming to the 1986 federal reform, and never restored a preference.
The rule
FTB Schedule D (540) instructions treat gains as ordinary income; FTB Form 593 handles withholding on California real-estate sales.
Watch out for
Proposals for a California capital-gains break, or for a wealth tax on billionaires, surface regularly; whether high taxes drive investors away is debated.
▸Bonds: Treasuries, T-bills, TIPS, I bonds & munis are partly exempt from California income tax (top rate 13.3%)Law or rule (2026)
How they connect
Federal law bars states from taxing interest on US Treasuries, including T-bills, TIPS and I bonds, and California exempts interest on its own municipal bonds. Out-of-state munis and corporate bonds are fully taxed by California, which matters at rates up to 13.3%.
When it applies
Applies to every California resident; funds pass the exemption through only if at least half their assets are exempt bonds at each quarter end.
The rule
31 U.S.C. 3124; Franchise Tax Board guidance on government and municipal interest; fund year-end tax letters list exempt percentages.
Watch out for
Whether a Treasury fund or a California muni fund pays more after tax depends on the bracket and yields at the time.