California Taxes Are Among the Highest in the Nation
A Guide to California State Taxes
California taxes are known for being among the highest in the country. The state gives residents a break when it comes to inheritance and estate taxes and property taxes aren't particularly high, but income tax rates are significant, as are sales tax rates.
California State Income Tax
California has 10 personal income tax rates, ranging from 0% to 13.3% as of 2020. The highest rate of 13.3% begins at incomes of $1 million or more for single filers as of 2020. This increases to incomes of $1,181,484.00 or more for spouses or registered domestic partners who file jointly. The 13.3% rate is referred to as the "millionaire's tax" and is an added 1% surcharge over the 12.3% rate for other taxpayers.
The lowest 0% rate is reserved for single earners of less than $8,932 in taxable income, and for married and RDP taxpayers filing jointly and head of household earners of less than $17,864.
Income taxes are levied on both residents’ incomes and on income earned in the state by non-residents. Many states have reciprocity agreements with other states that allow non-residents to work there without paying income tax except to their home state, but California isn't one of them. The state does offer a tax credit, however, for income taxes paid to another state so you're not taxed twice on the same income.
California Tax Deductions
The state's standard deduction is a fairly decent $4,601 per person if you're single, increasing to $9,202 if you're married or in a registered domestic partnership (RDP) and filing jointly, or head of household or qualifying widow(er).
Many federal deductions are limited or disallowed in California, but other state tax credits are available, including an exemption credit for yourself and your dependents, a credit for renters, a credit for single or divorced parents, and a credit for people who have dependent parents.
California Sales Tax
California's state level sales tax rate remains the highest in the nation as of 2018 at 7.25%. And this is actually a decrease from what it once was—7.5% until Proposition 30 expired. Combined with local sales taxes, the rate can reach as high as 10.25% in some California cities, although the average is 8.66% as of 2020. California's average local tax rate is 1.41% as of 2020 and the highest local tax rate comes in at 2.5%.
Other California State Excise Taxes
California is known for tacking additional excise taxes onto certain products. You'll pay an extra 33% if you buy fruit from a vending machine here.
And, like most states, California also adds an additional tax to cigarettes and gasoline. A pack of cigarettes will cost you an extra $2.87 here. The tax used to be just 87 cents, but legislation ramped it up by an additional $2 on April 1, 2017.
Gasoline will run you an additional 12 cents a gallon under legislation that began increasing the tax incrementally effective November 1, 2017. That's the highest rate in the country. As of 2020, the average California driver pays $2.93 per gallon compared to the national average of $1.90.
The issue went to the ballot in November 2018 when opponents of the tax sought to implement a law that would prohibit any new transportation fuel taxes without a majority public vote. The measure was defeated.
California Property Tax
The state's property taxes actually aren't all that bad. The effective rate is .74% as of 2020. That ranks as the 35th lowest.
Property in California is assessed at 100% of its full cash or fair market value, but you might catch a few property tax breaks provided for under state law:
- Under Proposition 13, the maximum tax on real estate is limited to 1% of its full cash value, and taxes can't increase more than 2% over the previous year.
- Homeowners who live in their homes as their principal residences qualify for a $7,000 reduction in the taxable value of their property under the state's homestead program.
- Senior citizens, the blind, and the disabled have been able to postpone their property taxes for their principal places of residence under the property tax postponement program that began on September 1, 2016.
Unfortunately, the state's homeowner and rental assistance program, which effectively reimbursed qualified taxpayers for a portion of property taxes paid on their homes or as part of their rental payments, has been discontinued.
Capital Gains Tax in California
California tax law includes no special provisions for capital gains tax, so the state doesn't give you a break for long-term gains on assets you hold onto for over a year unlike federal law. You'll pay taxes on your profits at your personal income tax rate regardless of the duration of ownership if you sell any property or asset for more than your tax basis or investment in it.
You'll end up paying the second-highest capital gains tax rate in the world—a combined 32.3%—if your sale is such that you must also pay the federal long-term capital gains tax rate of 20%.
California Inheritance and Estate Taxes
This is one area in which California residents get a tax break. When federal estate tax laws changed on January 1, 2005, the legislation eliminated California's estate tax, and the state has no inheritance tax. At least you can die here tax-free.
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State of California Franchise Tax Board. "Standard Deductions, Exemption Amounts, and Tax Rates for 2020 Tax Year." Accessed Dec. 29, 2020.
State of California Franchise Tax Board. "Other State Tax Credit." Accessed Dec. 29, 2020.
Tax Foundation. "State and Local Sales Tax Rates, 2020." Accessed Dec. 29, 2020.
California Department of Tax and Fee Administration. "Sales and Use Tax Regulations." Accessed Dec. 29, 2020.
California Department of Tax and Fee Administration. "Tax Rates – Special Taxes and Fees, Cigarette and Tobacco Products Tax." Accessed Dec. 29, 2020.
California State Controller's Office. "Gasoline Tax Refund - Excise Tax Rates/Refund Rate." Accessed Dec. 30, 2020.
AAA. "State Gas Price Averages." Accessed Dec. 29, 2020.
Tax Foundation. "How High Are Property Taxes in Your State?" Accessed Dec. 29, 2020.
Los Angeles County Office of the Assessor. "Real Property Assessments." Accessed Dec. 30, 2020.
California State Board of Equalization. "Homeowners' Exemption." Accessed Dec. 29, 2020.
California State Controller's Office. "Property Tax Postponement." Accessed Dec. 29, 2020.
IRS. "Topic No. 409 Capital Gains and Losses." Accessed Dec. 29, 2020.
California State Controller's Office. "California Estate Tax." Accessed Dec. 29, 2020.