California is known for having one of the highest tax rates in the country, with substantial income and sales tax burdens. While long-term homeowners benefit from relatively low property tax rates, new homeowners or those who recently moved face significantly higher tax obligations. The tax structure also extends to retirement income, making California’s taxation policies some of the most comprehensive in the U.S.
Tax Relief for Disaster-Affected Residents
For residents impacted by the devastating January 2025 wildfires, both state and federal tax deadlines have been extended to October 15, 2025. Individuals, households, and businesses in these disaster-designated areas are eligible for specific relief measures, such as extended filing and payment deadlines.
Key Tax Categories in California
1. Income Tax Rates
California operates on a progressive tax system with nine tax brackets ranging from 1% to 12.3%, and an additional 1% surcharge for individuals earning over $1 million (the Mental Health Services Tax). For example, single filers earning $80,000 in taxable income will see their income taxed incrementally:
1% on the first $10,756
2% from $10,756 to $25,499
4% from $25,499 to $40,245, and so on.
2. Property Taxes
Thanks to Proposition 13, property tax rates are capped at 1% of assessed value, with the average property tax rate being 0.68% as of 2022. However, reassessments occur upon changes in ownership or significant new construction. Programs such as the Senior Property Tax Postponement and Proposition 19 offer valuable tax savings for older or long-term homeowners.
3. Sales Taxes
With a base sales tax rate of 7.25%, California ranks high in the U.S. for sales taxes. Local district taxes can push this rate to 10% or more in certain areas, with the average combined rate being 8.85%. Essential groceries, like fresh produce, are tax-exempt, while prepared foods and alcoholic beverages are taxable.
4. Taxation of Retirement Income
Retirement income, including withdrawals from 401(k)s, IRAs, and government pensions, is taxed as regular income. While Social Security benefits are exempt from state taxes, federal taxes may apply depending on overall income levels.
Income Taxes in California: A Detailed Breakdown
California’s income tax operates on a progressive tax system, which means the more you earn, the higher the percentage you pay. In 2025, the state has nine tax brackets for individuals and joint filers.
Income Tax Brackets for Single Filers:
$0 – $10,756: 1%
$10,757 – $25,499: 2%
$25,500 – $40,245: 4%
$40,246 – $55,866: 6%
$55,867 – $70,606: 8%
$70,607 – $360,659: 9.3%
$360,660 – $432,787: 10.3%
$432,788 – $721,314: 11.3%
$721,315 or more: 12.3%
If your income exceeds $1 million, there’s also a 1% surcharge due to the Mental Health Services Tax.
Income Tax Brackets for Joint Filers:
$0 – $21,512: 1%
$21,513 – $50,998: 2%
$50,999 – $80,490: 4%
$80,491 – $111,732: 6%
$111,733 – $141,212: 8%
$141,213 – $721,318: 9.3%
$721,319 – $865,574: 10.3%
$865,575 – $1,442,628: 11.3%
$1,442,629 or more: 12.3%
These rates apply to taxable income, which is your gross income after deductions.
How Does California Tax Retirement Income?
Unlike some states, California taxes all retirement income. Withdrawals from pensions, 401(k)s, IRAs, and other retirement accounts are treated as regular income and taxed at the applicable income tax rates.
The state does not tax Social Security benefits, which can be a relief for many retirees. However, federal taxes may still apply depending on your overall income level. Up to 85% of your Social Security benefits can be taxed by the federal government if your total income exceeds certain thresholds.
Special Taxes and Exemption
Military Benefits: Military retirement income is taxed, though active-duty pay is taxed based on residency status. Military spouses may qualify for exemptions under the Military Spouses Residency Relief Act.
Investment Income: Capital gains are taxed as ordinary income, except for home sale profits under $250,000 (single) or $500,000 (joint).
Lottery Winnings: Lottery prizes are exempt from state taxes, but federal income taxes still apply.
Filing Deadlines and Extensions
The standard tax filing deadline for both California and federal taxes is April 15, 2025. However, California automatically grants a six-month extension for filing returns until October 15, 2025, though payments are still due by the April deadline.
For wildfire-affected regions, the extended deadline for filing and payments is October 15, 2025, providing affected taxpayers much-needed time to recover and comply with tax obligations.
Navigating California’s Complex Tax System
California’s intricate tax system requires careful planning, particularly for high-income earners, retirees, and property owners. With high taxes but targeted relief programs, staying informed and taking advantage of available exemptions and credits can make a significant difference in managing your tax liabilities. Always consult a tax professional for personalized guidance.
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