Does California Really Have the Highest State Tax Rates?

California state tax rates stand as one of the highest tax rates in the US.

California is the state that has always ended up on movie screens. The Golden State offers just about everything; beaches, mountains and great weather. Who wouldn’t want to live there? The answer is not rhetorical. Anyone who hates paying high taxes wouldn’t want to live in California. California is in fact known as the third worst state for taxes.

In all of the United States, the west coast state of CA has the highest state sales tax and some of the highest income tax rates. If you live in California, before filing your taxes, it would be helpful to learn about the California tax rates.

California Income Tax Rates

California’s personal income tax system is composed of  ten brackets. The state actually ranks as the highest income tax rate among states who levy an individual income tax and seventh highest income taxes among all US states.

California Income Tax Rates as of 2013 for single and married filing separately taxpayers are as follows:

  • 1% on the first $7,455 of taxable income.
  • 2% on taxable income between $7,456 and $17,676.
  • 4% on  $17,677 and $27,897.
  • 6% on  $27,898 and $38,726.
  • 8% on $38,727 and $48,942.
  • 9.3% on $48,943 and 250,000.
  • 10.3% on $250,001 and 300,000.
  • 11.3% on $300,001 and $500,000.
  • 12.3% on $500,001 and $1,000,000.
  • 13.3% on $1,000,001 and above.

The Golden State adds on a 1% surcharge (Mental Health Services Tax) on taxable incomes of $1 million and more.

California Personal Income Tax Credits:

If you live in California, state tax credits are available including:

  • An exemption credit for yourself and dependents ($98/each)
  • Renters credit ($60 if your income is under $34,412 and $120 if married and income is $68,824 or less)
  • Adoption credit of 50% of the qualified costs of the adoption
  • A credit for single parents or divorced parents (30% of tax liability up to $387).
  • A credit for people who have a dependent parent

Unfortunately, California’s income tax system is quite different from the federal tax laws meaning if you live in California many federal deductions won’t be allowed or may be limited.

Income Exempt from California Income Tax

California exempts certain types of income from tax. However, some of these may be taxed on your federal return.

The California income tax exemptions include:

  • Social security benefits
  • Railroad retirement benefits.
  • State income tax refunds
  • Earned interest on federal bonds
  • Unemployment compensation
  • Distributions from a Health Savings Account (HSA)
  • Un-employment compensation
  • California state lottery winnings
  • Paid maternity/family leave

California Sales Tax

The California sales tax is the highest state sales tax in the country. Not to mention, there are additional sales taxes for specific items.

  • Sales Tax: Sales tax is 8.25% and cities and counties are allowed to charge an additional sales tax. Sales tax rates In California can reach up to 10.50% in some cities.
  • Cigarette Tax: On a pack of 20, there is a 87 cent cigarette tax.
  • Gasoline Tax: For each gallon of gas there is a 46.6 cent tax.

The bottom line is California state taxes are higher than most states. However, it’s good to know there are unique state exemptions and tax credits in California as well as peace at mind that California cities are not allowed to add on extra taxes. California state tax forms can be found on the California state’s website.

When filing your federal and state taxes, you can file your federal and/or California State Taxes on RapidTax. By knowing these taxes specific to California, filing your taxes will easier than ever before. That means, just like the state of California, you’ll be golden! 

Photo via Ken Lund on Flickr

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