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. Property taxes aren't particularly high. But income tax rates can hit you hard, as can sales tax rates.
- California's income tax adds a "millionaire's tax," a 1% surcharge to incomes of $1 million or more for single taxpayers and $1,198,024 for married taxpayers who file jointly.
- The state's sales tax was the highest in the nation in 2021 at 7.25%.
- California's property taxes are less harsh, with an effective rate of 0.74% as of 2022.
- The state doesn't have an inheritance tax. Its estate tax was repealed in 2005.
California State Income Tax
California has 10 personal income tax rates, ranging from 1% to 13.3% as of 2022. The highest rate of 13.3% begins at incomes of $1 million or more for single filers as of 2022. This increases to incomes of $1,250,738 or more for spouses or registered domestic partners who file jointly. The 13.3% rate is referred to as the "millionaire's tax." It's an added 1% surcharge over the top 12.3% rate that applies to other taxpayers.
The lowest 0% rate is reserved for single earners of less than $8,932 in taxable income in 2021, and of less than $17,864 for married and RDP (registered domestic partnership) taxpayers filing jointly and head of household earners.
Income taxes are levied on both residents' incomes and on income earned in the state by nonresidents. Many states have reciprocity agreements with other states that allow nonresidents to work there without paying income tax except to their home state. But California isn't one of them. However, the state does offer a tax credit for income taxes paid to another state, so you're not taxed twice on the same income.
Some local jurisdictions in California also impose a variety of taxes.
California Tax Deductions
The state's standard deduction is a fairly decent $4,803 per person if you're single, increasing to $9,606 if you're married or in an 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 at 7.25% as of 2021. And this is 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 8.68% as of 2021. California's average local tax rate is 1.43% as of 2021. The highest local tax rate comes in at 2.5%.
Other California Excise Taxes
California is known for tacking additional excise taxes on certain products. You'll pay an extra 33% if you buy fruit from a vending machine there.
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 there as of July 2021. The tax used to be 87 cents. Legislation ramped it up by an additional $2 on April 1, 2017.
Gasoline will run you an additional 51.1 cents a gallon under legislation that began increasing the tax incrementally effective November 1, 2017. That's the highest rate in the country. In 2021, the average California driver paid $4.65 per gallon compared to the national average of $3.32.
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 aren't all that bad. The effective rate is 0.74% as of 2022. 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. 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.
Capital Gains Tax in California
Unlike federal law, the state doesn't give you a break for long-term gains on assets you hold onto for over a year. 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 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. The legislation eliminated California's estate tax when federal estate tax laws changed on January 1, 2005. The state has no inheritance tax. At least you can die there tax-free.
Frequently Asked Questions (FAQs)
Does California still reimburse property taxes for some homeowners?
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.
What are California's capital gains tax rates?
California taxes gains, but its tax law includes no provisions for a specific capital gains tax. Gains are taxed as regular income.