Understanding California State Income Tax (2025 Edition)
California is known for its beautiful coastlines, booming tech industry, and—unfortunately for many residents—its high taxes. The state operates a progressive income tax system with rates that climb as high as 13.3% for top earners in 2025.
Navigating the Golden State's tax code can be tricky. Unlike the federal system, California doesn't index its brackets for inflation in quite the same way, leading to what economists call "bracket creep" over time. However, for 2025, there have been critical adjustments to standard deductions and tax brackets that might impact your take-home pay. This guide breaks down everything from the new 1.2% SDI rate to the expanded standard deduction.
California Tax Brackets for 2025
California divides taxable income into nine brackets. The logic is simple: you pay a lower rate on your first chunk of income, and higher rates only on the income that exceeds specific thresholds.
Single & Married Filing Separately (2025)
| Taxable Income Range | Tax Rate |
|---|---|
| $0 – $11,079 | 1% |
| $11,080 – $26,264 | 2% |
| $26,265 – $41,452 | 4% |
| $41,453 – $57,542 | 6% |
| $57,543 – $72,724 | 8% |
| $72,725 – $371,479 | 9.3% |
| $371,480 – $445,771 | 10.3% |
| $445,772 – $742,953 | 11.3% |
| $742,954+ | 12.3% |
The Millionaire's Tax
Earn more than $1,000,000? California adds a 1% Mental Health Services Tax on top of the 12.3% rate, bringing the true top marginal rate to 13.3%. This applies to taxable income, not gross revenue.
Standard Deductions & SDI (2025)
Two things significantly reduce or impact your final tax bill: the standard deduction (which lowers your taxable income) and SDI (which comes out of your paycheck).
Standard Deductions
- Single / Married Sep.$5,706
- Married Joint / HoH$11,412
SDI Tax (Disability)
Important: As of 2024/2025, there is no longer a wage cap on SDI. You pay 1.2% on every dollar of wages, even if you earn millions.
Unlike the federal system, California offers Exemption Credits instead of personal exemptions. For 2025, this is approximately $163 per person. A credit is better than a deduction because it reduces your tax bill dollar-for-dollar.
Strategic Moves for 2025
Living in a high-tax state requires proactive planning. Here are three strategies to keep more of your money:
1. Maximize "Above-the-Line" Deductions
Since California's standard deduction is relatively low ($5,706 for singles), maximizing 401(k) and HSA contributions is critical. These potential deductions lower your relevant income before state taxes are calculated.
2. Tax-Loss Harvesting
If you have investments, selling losing positions to offset gains can significantly lower your capital gains tax liability. California taxes capital gains as regular income—there is no special lower rate for long-term holdings.
3. The SALT Cap Workaround
Business owners should ask their CPAs about the Pass-Through Entity (PTE) Elective Tax. This allows you to pay state taxes at the entity level, bypassing the federal $10,000 SALT deduction cap.
Advanced Concepts: Beyond the Basics
The "Proposition 55" Surcharge
You might hear talk about "Prop 30" or "Prop 55". These voter-approved measures are what established the higher tax tiers for high earners. Originally temporary, these rates were extended through 2030 by Proposition 55. This is why income over roughly $370,000 is taxed at rates above 10%, and income over $1 million sees that extra surtax. Unlike commercial property taxes which are governed by the famous Prop 13, income tax rates can and do fluctuate with voter approval.
California vs. Texas vs. New York
How does the Golden State stack up?
| State | Top Rate | Capital Gains | Other Hits |
|---|---|---|---|
| California | 13.3% (or 14.4% projected) | Taxed as Income | 1.2% SDI Tax (Uncapped) |
| New York | 10.9% (State) + 3.8% (NYC) | Taxed as Income | High Property Tax |
| Texas | 0% | 0% | Highest Property Taxes |
Note: While Texas has no income tax, its property taxes are effectively double those of California (approx 1.8% vs 0.73%), which can balance the scales for homeowners with moderate incomes.
Stock Options: ISOs vs NSOs in California
Tech workers face a unique trap. Non-Qualified Stock Options (NSOs) are taxed as ordinary income when you exercise them—meaning you pay the full CA state rate on the "bargain element" (difference between strike price and fair market value). Incentive Stock Options (ISOs) are generally not taxed at exercise for regular state tax purposes, but they are an adjustment for the Alternative Minimum Tax (AMT). Yes, California has its own state-level AMT, and exercising a large block of ISOs can trigger a massive unexpected bill. Always consult a tax pro before a liquidity event.
Beyond Income Tax: The Hidden Costs
State income tax is just one piece of the puzzle. When evaluating the "California Premium," you must look at property taxes and sales taxes to get the full picture.
Understanding Proposition 13 (Property Tax)
This is the "third rail" of California politics. Passed in 1978, Prop 13 caps property taxes at 1% of the assessed value at the time of purchase, and limits annual increases in that assessed value to 2% max.
The "Welcome Stranger" Effect
Because of Prop 13, two identical neighbors can pay vastly different taxes. The retiree who bought in 1990 might pay $2,000/year, while the young family who bought the house next door in 2025 pays $20,000/year. When calculating your budget, do not rely on Zillow's "tax history"—calculate 1.1% to 1.25% of your purchase price.
Sales Tax: It Adds Up
California has the highest statewide sales tax base rate in the country (7.25%). But that's just the floor. District taxes pile on top.
Los Angeles
9.50%
San Francisco
8.625%
Alameda
10.25%
Orange County
7.75%
Gas Tax and Vehicle Fees
California consistently has the highest gas prices in the US, partly due to the 59.6-cent-per-gallon excise tax (as of mid-2025). Additionally, registering a vehicle is not cheap. The "Vehicle License Fee" (VLF) is 0.65% of the car's value, plus registration fees, weight fees, and smog abatement fees. Registering a new $50,000 car can easily cost $600-$800 in the first year.
Sources & Verification
- •California Franchise Tax Board (FTB): 2024-2025 Tax Rates & Inflation Adjustments
- •Employment Development Department (EDD): 2025 SDI Rate Announcement (1.2%)
- •Dept of Industrial Relations: Minimum Wage & Payroll Tax Updates
California Tax FAQ
Do I have to pay California tax if I work remotely?
If you are a California resident, you are taxed on all of your income, regardless of where your employer is located. If you are a non-resident but work for a California company remotely from another state, you generally do NOT pay California tax on that income (unlike New York's convenience rule). However, if you perform services physically within California for any period of time, that specific income is taxable by California.
What is the "Mental Health Services Tax"?
This is a 1% surcharge on taxable income over $1 million. It was passed by voters as Proposition 63 in 2004. It funds county mental health programs. It is strictly an income tax surcharge, meaning if your taxable income is $1,000,001, you pay the extra 1% only on that $1. It brings the top marginal rate from 12.3% to 13.3%.
Is Social Security taxable in California?
No. California is one of the states that completely exempts Social Security benefits from state income tax. This applies even if your benefits are taxable at the federal level.
Are capital gains taxed lower in California?
No. California does not have a separate long-term capital gains tax rate. All capital gains are taxed as ordinary income. This means if you sell a house or stock for a large profit, that income is stacked on top of your salary and taxed at your highest marginal bracket (potentially up to 13.3%).
What is the renter's credit?
California offers a small nonrefundable tax credit for renters. To qualify, you must have an adjusted gross income of $50,746 or less (single) or $101,492 or less (married). The credit amount is $60 for singles and $120 for couples. It's not huge, but every bit helps given the state's high cost of housing.