California does things a little differently than most states when it comes to its state taxes, such as how taxes are created in the first place. Before a tax can go into effect, there must be either a two-thirds vote from the California State Legislature or a majority-approved initiative from voters in a statewide election.
Not only does California have specific, unique laws for its residents, it also has some of the highest taxes in the country. This includes not only sales tax, but also personal income and corporate taxes.
There is plenty you need to know before you file your tax return next year. Here’s your guide to paying California state taxes in 2020.
Table of Contents
California Income Tax
According to the California Taxpayers Association, California’s personal income tax is among the highest in the country and is the state’s largest source of revenue. Income tax funds a number of public programs. California makes so much money from income tax because it taxes such a wide array of income. This state of affairs makes it possible to use your federal income tax to calculate your California state taxes.
Residents must pay tax on all earned worldwide income, which includes wages, salaries, and business income. Interest, dividends, and capital gains are also taxed. To determine what you owe in California’s personal income tax, you must use your federal adjusted gross income (AGI) to show total income and deductions.
Non-California residents whose income is sourced from California, either in whole or in part, must pay income tax, too. This is also known as California-source income and requires either a Form W-4 or DE-4 for tax reporting.
The total California income taxes depends on factors such as your income and filing status. There are several tax brackets that determine what rate you will pay, with a maximum 13.3% income tax rate.
California State Income Taxes
|Filing Status||Tax Rate|
|Up to $8,544||1%|
|$572,981 and more||12.3%|
California Sales Tax
Like many other states, California assesses both state and local sales taxes. This tax is assessed on your retail purchase and then paid to the state by the retailer.
Sales tax is overseen by the California Department of Tax and Fee Administration and carries a 7.25% combined state and local sales and use tax.
That’s not all, however. Several other cities, counties, and districts impose their own sales tax. The exact rate depends on where you live, with 10.25% being the highest combined sales tax in the state.
Sales tax is distributed based on two classifications:
- Bradley-Burns Uniform Local Sales and Use Tax, which refers to sales at a retailer’s place of business, and;
- Local district transactions and use tax, or local add-ons, which refer to online purchases and benefit the customer’s jurisdiction based on their shipping address.
Local city and county governments are permitted to also assess their own additional sales and use taxes, but exact requirements vary.
California Property Tax
California has some of the highest property values in the country, so it makes sense that it would incur some of the highest property tax, as well.
In California, real property tax is calculated by multiplying the assessed value of the property by the 1% tax rate. Proposition 13 seeks to limit the burden on how much homeowners can pay, but property taxes consider many more factors than the average property assessment. In California, expensive parcel taxes determine your property taxes based on things like school districts and other districts.
The California Board of Equalization oversees the assessment and collection of property tax through its property tax department. They ensure county assessors remain in compliance and monitor over 58 county assessment programs, while also regulating statewide property tax laws.
Property Tax Postponement Program
California offers the Property Tax Postponement Program (PTPP), which allows residents to defer their property tax payments at a 7% interest rate each year. The bill AB 1090 (Chapter 369, Statutes of 2011) came into effect in 2012, allowing counties to implement their own PTPP for properties within their jurisdiction.
In 2014, AB 2231 (Statutes of 2014, Chapter 703) allowed for the reinstatement of the State Controller’s PTPP, a program that allows senior citizens and disabled residents the opportunity to defer property tax payment if they make less than $35,000 in annual income.
To qualify for the Property Tax Postponement Program, there are several requirements. For example, you must be at least 62 years of age unless you suffer from blindness or another disability. The property postponement must be for your primary, full-time residence, and you cannot have a total income of more than $35,000.
New to the program in the 2019 tax year is the inclusion of manufactured homes.
California Estate Tax
Death is never easy, but it’s only further complicated by estate tax law that determines how someone’s inheritance will be handled. In California, estate law is run by the State Controller’s Office, Tax Administration Section. Since 2005, a California Estate Tax Return is not required unless you are filing a federal tax return for a death that took place between 1982 and 2005.
Inheritance tax is tricky, too. While newer legislation has all but removed inheritance tax, not all estates are grandfathered in. You still must continue to pay inheritance tax for all deaths prior to June 8, 1982. There is also a gift tax that applies to gifts made before the same date.
Other Taxes in California
California makes a distinction in its taxation of property, and it’s important to know before you approach your taxes. There are three kinds of property that California recognizes:
- Real property, such as homes and buildings;
- Tangible personal property, such as computers, cars, and boats, and;
- Intangible personal property, which includes things like your bank account and stock portfolio.
Intangible property is not subject to property tax in California, but there are stringent guidelines regarding the taxation of real and personal property tax. There are exemptions and additions, shifting and fluctuating at county lines with laws that change with each election. If you’re not careful, you can end up reporting far less than what you owe and end up in a serious financial jam.
Proposition 13 allows counties flexibility when it comes to taxation, with tax law changes granted by either state statute or public election. Terms are specific, and taxation will closely reflect the value of your home or property. Whenever there is a new owner or new construction, a new property assessment shall take place to update the property’s value in county and state records.
There are some exceptions, such as property given from parent to child, so it’s important to check with a tax professional for the most personalized advice.
The state of California also provides excellent resources, including its online FTB tax filing system. It allows you to track your refund status in real-time for the most up-to-date information on your tax return. There’s even a mobile app to keep you informed while you’re on the go.
Calculating taxes in California is far more complicated than the more simple state tax laws of Texas. A financial tax consultation can help with filing your annual taxes, and we’ll do our part to keep you updated as the laws change.
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