California combines the most progressive state income tax in the country with some of the most distinctive business charges: a minimum tax that is owed even when a company earns nothing, an annual fee that scales with LLC revenue, and employee-paid disability insurance with no wage cap. It also does not mirror federal law on everything, so a clean federal return does not guarantee a simple California one. Here is how the main pieces fit together for residents, nonresidents, employers and business owners.
Individual income tax
For 2025, the Franchise Tax Board's rate schedules show nine rates: 1, 2, 4, 6, 8, 9.3, 10.3, 11.3 and 12.3 percent. A single filer reaches 12.3 percent above $742,953 of taxable income, and joint filers above $1,485,906. California adds a 1 percent Behavioral Health Services Tax (formerly the Mental Health Services Tax) on taxable income over $1,000,000. California taxes capital gains as ordinary income, with no preferential rate, which makes the timing of a stock sale or home sale especially important.
California taxes residents on all income from any source, and nonresidents on California-source income such as wages for work done in the state, property and business income. The FTB's test for residency looks at domicile and at whether you are in the state for more than a temporary or transitory purpose; Publication 1031 lists the factors. Moving into or out of California mid-year deserves care, as does the situation of a visa holder whose domicile is unclear. See H-1B and visa holders.
California does not follow federal law on everything. U.S. Social Security benefits and railroad retirement are among the items that the FTB's booklet treats as differences on Schedule CA, and Schedule CA is also where other federal-state differences show up. Filing thresholds are based on income, filing status, age and dependents: for 2025, a single person under 65 with no dependents must file above $22,941 of California gross income, and a married couple under 65 above $45,887.
Business taxes
Every corporation incorporated, registered or doing business in California pays the $800 minimum franchise tax, with a first-year exception for newly incorporated or qualified corporations from 2020 onward. An LLC doing business or organized in California pays an $800 annual tax, due even if the LLC is not conducting business, until it is cancelled. The exemption for an LLC's first year applied only to tax years beginning in 2021 through 2023. LLCs earning more than $250,000 also owe an additional annual fee based on income, estimated by the 15th day of the sixth month of the tax year. California also requires the LLC's tax classification to match its federal classification.
The PTE elective tax lets qualifying partnerships, LLCs and S corporations pay state tax at the entity level for taxable years beginning on or after January 1, 2021 and before January 1, 2031. The election is made annually on a timely filed original return using FTB 3804, and it is irrevocable for that year. For years 2022 onward an initial payment is due by June 15 of the election year, and for 2026 through 2030 a missed June 15 payment no longer voids the election but reduces the owners' credit. Because California lets owners claim a credit for the entity-level payment, it is a common way to work around the federal cap on state and local tax deductions; see SALT deduction and property taxes.
Sales and use tax
The statewide rate is 7.25 percent, according to the California Department of Tax and Fee Administration (CDTFA). In most areas, local district taxes of 0.10 to 2.00 percent are added, and some areas have more than one, so the combined rate depends on the location of the sale. CDTFA publishes guidance on district taxes for sales delivered into California, which online sellers should review. See our sales tax service and sales tax nexus guide.
Payroll in California
The Employment Development Department (EDD) administers payroll taxes. For 2026:
- Unemployment insurance (UI): the taxable wage limit is $7,000 per employee, new employers are assigned a 3.4 percent rate for two to three years, and the rate schedule in effect provides rates from 1.5 to 6.2 percent.
- Employment Training Tax: 0.1 percent on the same $7,000.
- State disability insurance (SDI): an employee withholding rate of 1.3 percent, and since January 1, 2024 all wages are subject to it with no wage limit. SDI also funds Paid Family Leave benefits; see state paid family and medical leave.
- Personal income tax withholding: employers withhold and report California income tax separately from UI and SDI.
Most of these are reported through EDD's online services. Employers with remote staff in several states should also read multi-state payroll.
Cities, counties and local taxes
California cities set their own business taxes. The City and County of San Francisco administers a Gross Receipts Tax, a Homelessness Gross Receipts Tax and an Overpaid Executive Gross Receipts Tax, while the City of Los Angeles uses a Business Tax Registration Certificate system run by its Office of Finance. Local sales tax districts, along with transactions and use taxes, are administered by CDTFA. Property tax is run by counties, and Proposition 13 limits how much assessed value can rise each year. See our guides to the Bay Area and Los Angeles markets, and our overview of local payroll taxes.
How we can help
We prepare California resident, part-year and nonresident returns, review residency questions for people moving in or out, evaluate the PTE election, and handle LLC fee and minimum-tax filings. If you receive a notice from the FTB, EDD or CDTFA, see state tax notices and representation. Contact us to discuss your situation; this page is general information only.
Frequently asked questions
Does California tax Social Security benefits?
California does not tax U.S. Social Security benefits, which appear as an adjustment on Schedule CA.
Do I owe the $800 minimum tax if my LLC lost money?
Generally yes. An LLC doing business or organized in California owes the annual tax even if it earned nothing, until it is formally cancelled.
Is California's PTE tax mandatory?
No. It is an annual election, made on a timely filed original return using FTB 3804, and available for taxable years through 2030.
Does California have a state disability insurance tax paid by employees?
Yes. For 2026 the SDI withholding rate is 1.3 percent, and it applies to all wages without a cap.
Official sources
- Franchise Tax Board: 2025 California tax rate schedules
- Franchise Tax Board: Pass-through entity elective tax
- Franchise Tax Board: Limited liability company
- CDTFA: California city and county sales and use tax rate information
- EDD: Contribution rates, withholding schedules and wage limits
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.