3 Tax Laws Every Californian Needs to Know

Filing your California state income tax return doesn't have to be stressful. If you plan ahead and make sure you understand a few basic differences between California and federal income taxes, you'll be more likely to have a happy tax season.

Let's look at a few high-level tax laws and state income tax rules that California taxpayers need to know.

1. California Tax Rate Schedules (California tax brackets)

Before you fill out your California tax return, it's often a good idea to take a look at the California Tax Rate Schedules.

As of 2023, the highest California marginal income tax rate is 12.30%. But unless you make lots of money, you won't have to pay that much. For single filers, the top California tax rate doesn't apply until you have a taxable income of more than $698,271.

For example, a single person in California with taxable income of $100,000 in 2023 would be in the 9.30% California tax bracket. A married couple filing jointly with $120,000 of taxable income would be in the 8.00% tax bracket.

You can calculate your 2023 California income tax at the California Franchise Tax Board (FTB) website. Here is an example calculation based on the 2023 California Tax Rate Schedules:

John is a single filer with a taxable income of $150,000 for 2023. This puts him in the 9.30% California tax bracket. The total tax that John owes for 2023 is calculated this way:

$3,009.40 + 9.30% of the amount over $68,350

So let's do the math:

• $150,000 - $68,350 = $81,650
• $81,650 x 0.093 = $7,593.45
• $7,593.45 + $3,009.40 = $10,602.85, rounded up to $10,603

John's total California income tax for 2023 is $10,603. This is about 7.1% of John's taxable income. Ideally, he had enough money withheld from his paychecks so he can get a refund when he files taxes.

2. Which California tax breaks are different from the IRS

It's important to note that not every IRS tax break is going to count on your California income taxes. California doesn't have all the same tax laws as the federal government.

Here are a few deductions that are different in California, compared to what you'd expect from your federal taxes.

Lower standard deduction

The California standard deduction is significantly lower than the IRS. For example, single filers in California have a state income tax standard deduction of $5,363 for 2023, compared to $13,850 for federal taxes.

No deduction for health savings accounts (HSAs)

If you put money into a health savings account (HSA), you can deduct that full amount for federal tax purposes. But California doesn't allow this HSA deduction. It's still good to get that federal tax break, but it won't save you money on California taxes.

No deduction for local taxes (property taxes)

Federal taxpayers are allowed to deduct (if they itemize) up to $10,000 of state and local taxes, including real estate taxes or property taxes. This is called the "SALT deduction," and it's a popular federal tax break for homeowners who can itemize deductions. But California doesn't allow any deduction for state, local, or property taxes.

Higher limit for deducting home mortgage interest

You can't deduct your property taxes in California, but if you own a home with a million-dollar mortgage, you can deduct your mortgage interest. California allows deductions for home mortgage interest on purchases up to $1 million, while the federal limit is only $750,000.

3. California tax-filing deadlines

The deadline for filing California state income tax returns for the 2023 tax year is April 15, 2024. But if you need more time, don't worry: the state gives everyone an automatic deadline extension of six months (until Oct. 15, 2024) to file your state tax return. (Isn't that such a laid-back, open-minded, stereotypically "California-style" thing to do?)

But remember: that automatic six-month deadline extension is only for filing your California tax return. If you didn't have enough California income tax withheld from your paychecks or you owe additional state income tax for 2023 for any reason, your tax bill must be paid by April 15, 2024, regardless of when you file. Paying on time will help you avoid extra fees and penalties.

Bottom line

California doesn't offer all of the same deductions that you can get on your federal income taxes. Make sure you understand the general landscape of which deductions you can take, what to expect, and how much tax you'll owe based on your income. Along with the limitations of its tax laws, California offers some tax breaks that are more generous than the feds, and a built-in six month filing deadline extension.

The best tax software can help you make the most of your California state tax return. Higher-income Californians with more complex tax situations might want to hire professional tax help.