Paying income tax is never a pleasant experience, but California is especially tough. Not only do you have to deal with the state’s highest marginal rate of 13.3%, but also the most complex set of brackets and exemptions that can leave you scratching your head.
It doesn’t help that California law requires every taxpayer to file an annual return of their federal adjusted gross income (AGI) plus any adjustments made for special items on page 1 of their 1040 form.
This means they’re not just filing taxes once per year–they may be required to submit quarterly estimates as well, which are due by January 31, April 30, July 31, and October 31–or else incur penalties and interest charges if they don’t pay enough or are late.
What is the Franchise Tax Board?
The Franchise Tax Board (FTB) is a state agency with administrative powers to collect taxes from corporations and most individuals. The FTB also has the authority to audit most businesses, withholding and employer’s quarterly tax returns. In addition, the FTB operates several types of volunteer programs that aim to help taxpayers comply with their filing requirements.
Who needs to file?
Everybody who lives in California for a “particular” period over a consecutive 12-month period is considered a California resident for that year–and therefore files a resident return–regardless of where he or she claims residency on his/her federal income tax return.
The majority of people are considered residents; however, there are some exceptions, including nonresidents employed by the California government, military personnel on active duty, and most students.
California has nine state income tax brackets, ranging from 1% to 13.3%. On top of that, there’s a 1.5% surcharge for taxpayers whose adjusted gross income is more than $1 million (single) or $2 million (married filing jointly).
How Is Income Tax Calculated in California?
The first step is determining a taxpayer’s “net” or “adjusted” California taxable income. This includes federal taxable income, plus or minus certain additions and subtractions, which gives you an amount taxed at different rates depending on the bracket.
To figure out your taxable income for each tax bracket, use this online tax calculator .
Net Taxable Income = Federal AGI + Adjustments – Personal Exemptions – Dependent Deductions
California has nine tax brackets with marginal rates from 1% to 13.3%. In other words, there are nine levels of income at which point a new bracket begins:
The exact Tax income brackets in California are as follows:
Single/Married Filing Separate – 3 Brackets
Single/Married Filing Jointly or Widower– 5 Brackets
Head of Household – 3 Brackets
Married Filing Separate – 6 Brackets
It’s important to note that in California, special rules apply when you and your spouse file a joint return and one spouse has no income (for example, a stay-at-home spouse). In this case, the non-income-earning spouse is typically taxed at the lowest rate possible based on the number of exemptions they qualify for.
If you use the standard deduction, you will need to complete a worksheet that determines your taxable income and then figure out your tax based on those numbers.
What is Included in California Taxable Income?
How to File Your California Income Tax Return
You have a few different options for filing your California income tax return:
1. e-file using CalFile,
2. File a paper return, or
3. use a paid preparer.
If you choose to file a paper return, you can download the forms from the California Franchise Tax Board’s website. The instructions are also available on the website and include examples to help you through the process.
You can also file your California income tax return electronically using CalFile. This is a free service offered by the state and is available to taxpayers who have simple returns. You will need to have your social security number, dates of birth for you and your spouse (if applicable), and total income from all sources (not just taxable income). You can download the forms from the California Franchise Tax Board’s website.
When using an online service like CalFile, you will need to know which tax year you are filing for (the latest tax year you were required to file is 2021 for calendar year filers), your adjusted gross income (from your federal return), and any other relevant information. In addition, the program will automatically fill in your social security number, date of birth, etc., if they are already on file with the state.
CalFile is easy to use and only takes about 10-15 minutes. However, it does not allow for a change in math errors made on a prior-filed return, nor does it allow for refunds/payments with a credit card or debit card.
Underpayment and Penalties For Tax In California
If you don’t pay enough tax during the year, you may pay the penalty. This is known as the “underpayment of the estimated tax penalty.” The penalty is usually 0.5% of the underpaid amount for each month (or part of a month) that the tax is not paid. However, the penalty cannot be more than 25% of the total amount that should have been paid.
There are a few exceptions to this rule, including:
The penalty is figured separately for each payment period. This means that any unpaid tax at the end of your first tax year can be applied to your second-year estimated taxes.
You may want to avoid the underpayment penalty if you are in one of these situations:
There you go, some basic information on how to go about filing your California income tax. As always, if you have any questions, the Franchise Tax Board website should be able to help you out.