2019 Guide to California Income Tax

California Tax Rates, Deductions, and Credits

Cyclists at Santa Monica, California beach

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California's income tax system differs from the federal tax system in several ways. Many federal deductions are limited or disallowed in California, but the Golden State does have some of its own deductions and credits that you might benefit from.

Income Exempt from California Tax

Certain types of income are exempt from income tax in California, although they are taxable on your federal return. These sources of income include:

  • Social Security and railroad retirement benefits, but not other private, state, local, and federal pensions
  • Interest earned on federal bonds
  • State income tax refunds
  • Distributions from health savings accounts (HSAs)
  • Unemployment compensation
  • Paid family/maternity leave
  • California state lottery winnings

Taxable Income in California

The flip side is that you'll have to pay taxes in California on some types of income that aren't taxed at the federal level, such as foreign-earned income that you can exclude on your federal tax return. Interest earned on municipal, state, and local bonds from outside California is also taxable.

Alimony you receive is taxable income in California, although it's no longer taxable at the federal level. Likewise, the spouse paying alimony or spousal support is entitled to a tax deduction for that amount.

California Itemized Deductions

California doesn't allow several federal deductions, including those for contributions to HSAs, adoption expenses, educator expenses, qualified higher education expenses, and paid state, local, or foreign income taxes. The amount of other federal deductions such as IRA contributions and charitable giving are also limited in California. 

California has a few additional deductions of its own, however:

  • Interest on loans from utility companies is deductible when the loan is used to purchase and install energy efficient equipment or products
  • The limit on mortgage indebtedness for the home mortgage interest deduction is $1 million in California as of the 2019 tax year, whereas the federal limit was reduced to $750,000 in 2018 under the terms of the Tax Cuts and Jobs Act (TCJA)
  • Medical expenses

You can only deduct the portion of your medical expenses that exceed 7.5% of your federal adjusted gross income (AGI) in the 2019 tax year. This same percentage applies to the federal deduction.

California differs from federal law in that the state allows a deduction for the medical expenses of a registered domestic partner and that partner's dependents.

The California Standard Deduction

The California standard deduction is markedly less than what's offered by the IRS. As of the 2019 tax year—the return you'll file in 2020—the state-level standard deductions are:

  • $4,537 for single taxpayers, as well as married and registered domestic partner (RDP) taxpayers who file separate returns
  • $9,074 for married and RDP taxpayers who file jointly, as well as heads of household and qualifying widow(ers)

The 2019 standard deductions at the federal level are $12,200 for single taxpayers and married taxpayers filing separately, $18,350 for heads of household, and $24,400 for married taxpayers filing joint returns and qualifying widow(ers).

You can also claim a $1,050 standard deduction for each of your dependents in California. The TCJA eliminated a similar tax break, personal exemptions, from the tax code in 2018.

California Tax Rates

California income tax rates have varied somewhat from year to year. They're levied on California residents’ income and non-residents’ income from California sources.

California also charges a mental health services surcharge tax of 1% on incomes over $1 million in addition to the regular tax rate for residents with incomes over that threshold.

The state has a total of nine tax brackets as of the 2019 tax year, the return you'd file in 2020. The top individual income tax rate in California is 12.3% on annual incomes over $590,742 for single taxpayers and married or RDP taxpayers filing separately. The 12.3% threshold for married and RDP partners filing jointly is $1,181,484, and it's $803,410 for head of household filers.

The lowest rate is 1% on annual incomes of up to $8,809, $17,618, and $16,629 respectively.

California Tax Credits

Tax credits are deducted directly from any tax you owe the government, which makes them more advantageous than deductions. Some of California's income tax credits include:

  • Renters Credit: This is a $60 credit for single renters whose annual incomes fall below $42,932. It increases to $120 for married/RDP taxpayers who file jointly and whose annual incomes fall below $85,864 as of the 2019 tax year. The credit is nonrefundable and you must pay rent in the state of California for half the year or more.
  • Child and Dependent Care Credit: A percentage of the federal credit is allowed for qualified child and dependent care expenses. This credit is refundable. Its rules largely mirror those for the federal Child and Dependent Care Credit.
  • Joint Custody Head of Household Credit: Taxpayers who are single and married/registered domestic partners who file separately and have a child can qualify for this credit worth up to $484 for the 2019 tax year.

Filing Your Return

All the forms you'll need can be found on the California Franchise Tax Board (FTB) website. The FTB lists free web-based tax preparation services on their website as well. Those who meet eligibility criteria can use CalFile, the state’s free online return preparation tool.

Article Sources

  1. State of California Franchise Tax Board. "Spousal Support." Accessed July 23, 2020.

  2. State of California Franchise Tax Board. "Deductions." Accessed July 23, 2020.

  3. IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2019." Accessed July 23, 2020.

  4. Mental Health California. "California Mental Health Services Act (MHSA)." Accessed July 23, 2020.

  5. State of California Franchise Tax Board. "Standard Deductions, Exemption Amounts, Tax Rates, and Doing Business Thresholds Updated for 2019." Accessed July 23, 2020.

  6. State of California Franchise Tax Board. "Nonrefundable Renter's Credit." Accessed July 23, 2020.

  7. State of California Franchise Tax Board. "Joint Custody Head of Household." Accessed July 23, 2020.