California residents and residents from other states who earn income in California must file annual California income tax returns if their annual state gross or adjusted incomes exceed the state’s annual thresholds. Gross income in California includes all income received that is not exempt from either federal or state income taxes before adjusting for credits and deductions. California taxes are due at the same time as federal taxes. Taxpayers who are required to file their tax returns must complete and file their California 540 or 540A Forms.
Who Must File?
For the 2010 tax year, single taxpayers and heads of household tax filers must file their California tax returns if their California gross income is $14,754 or more and they are under 65 years old. Taxpayers in this bracket with one qualifying dependent must file a tax return if their California gross income is $18,054 or more. California taxpayers with two or more dependents, under age 65, who are single or head of household filers, must file their tax returns if their annual state gross incomes exceed $20,529. Taxpayers age 65 or older must file using the same guidelines if they earned more than $19,704. Taxpayers who are head of household or single filers, age 65 or older with at least two dependents, must file if their California gross incomes exceed $24,159. Married taxpayers filing jointly and separately are subject to higher filing thresholds.
California uses a graduated tax rate schedule. The Franchise Tax Board of California taxes income using a flat percentage plus a flat tax fee based on the taxpayer’s filing status. Although some taxpayers may not be required to file their state taxes if they do not meet the state’s income thresholds, taxpayers who do not file returns are subject to an unlimited statute of limitations period allowing the Franchise Tax Board to assess taxes for underreported income or underreported tax withholdings. Generally, California has four years to assess taxes against taxpayers who file their state returns.
As of 2010, the tax rates for single taxpayers and married taxpayers filing separately were a flat $89.05 plus 2.25 percent for income between $7,124 and $16,890. The 2.25 percent applies only to the amount exceeding $7,124. Taxpayers who earn between $16,890 and $26,657 may expect to pay $308.79 in taxes plus an additional 4.25 percent. For income over these threshold amounts, the income tax increases slightly, with a maximum tax of $2,175.92 plus an additional 9.55 percent on taxable income exceeding $46,766 annually. Taxpayers filing jointly and qualifying widow or widowers with dependent children are subject to the same tax rates, but their income thresholds are slightly higher. These taxpayers will pay 9.55 percent plus $4,351.84 in taxes on income exceeding $93,532. Taxpayers filing as head of household are also subject to the same tax rates but pay maximum income taxes of $2,484.77, plus 9.55 percent on income exceeding $63,657.
California Tax Credits
California offers almost two dozen tax credits, including a head of household tax credit for seniors, reducing their taxable income by 2 percent, limited to a total credit of $1,196. Taxpayers who work in federal or state enterprise zones may qualify for a 5 percent tax reduction from income earned from enterprise employers. Californians may apply for child adoption credits to reduce their tax liabilities by claiming state tax credits limited to 50 percent of adoption costs. California also offers a first-time homebuyer credit limited to 5 percent of the purchase price or $10,000, which taxpayers may use in equal increments over three years.
Since tax laws can frequently change, you should not use this information as a substitute for legal or tax advice. Seek advice through a certified accountant or tax attorney licensed to practice law in your jurisdiction.
- CA.gov: Franchise Tax Board: 2010 California Tax Rates and Exemptions
- CA.gov: Franchise Tax Board: Instructions for Form 540/540A – California Resident Income Tax Return (2010 and 2011)
- CA.gov: Franchise Tax Board: Law Summary Statute of Limitations and Assessments
- State of California Franchise Tax Board. "Spousal Support." Accessed July 23, 2020.
- State of California Franchise Tax Board. "Deductions." Accessed July 23, 2020.
- IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2019." Accessed July 23, 2020.
- Mental Health California. "California Mental Health Services Act (MHSA)." Accessed July 23, 2020.
- State of California Franchise Tax Board. "Standard Deductions, Exemption Amounts, Tax Rates, and Doing Business Thresholds Updated for 2019." Accessed July 23, 2020.
- State of California Franchise Tax Board. "Nonrefundable Renter's Credit." Accessed July 23, 2020.
- State of California Franchise Tax Board. "Joint Custody Head of Household." Accessed July 23, 2020.
Jill Stimson has worked in various property management positions in Maryland and Delaware. Stimson worked for the top three property management companies in the commercial industry and focuses her career on property building logistics and tenant relationships. She holds a Juris Doctor and a Bachelor of Science in psychology.