California Tax Guide 2026

Income tax brackets (2026, single — MFJ doubles thresholds)

California taxable income brackets for 2026 (single filer, inflation-indexed estimates): • 1% — up to ~$10,800 • 2% — to ~$25,500 • 4% — to ~$40,200 • 6% — to ~$55,800 • 8% — to ~$70,600 • 9.3% — to ~$360,700 • 10.3% — to ~$432,900 • 11.3% — to ~$721,500 • 12.3% — over ~$721,500 • +1.0% Mental Health Services Tax surcharge on taxable income over $1,000,000 → effective 13.3% top rate MFJ thresholds are roughly double single. HoH is in between. Confirm against current FTB tax tables before filing.

Business taxes — LLC fee, S-corp surcharge, and beyond

Every California LLC pays: • $800 annual minimum franchise tax (CA R&T §17941) — even at zero income, first year fee waived for LLCs formed 2021+ • Annual LLC fee on gross receipts: $900 (>$250k), $2,500 (>$500k), $6,000 (>$1M), $11,790 (>$5M) S-corps pay the $800 minimum PLUS 1.5% of net income (CA R&T §23802). C-corps pay 8.84% with $800 minimum. The $800 minimum is the country's most punishing entity floor — it disqualifies California from being a casual entity-formation state for solo operators with sub-$50k profit.

SDI uncapping under SB 951

Before 2024, California State Disability Insurance withholding was capped at the SDI wage base (~$153,164 in 2023). SB 951 removed the cap effective 1/1/2024. The 2026 rate is 1.2%, applied to ALL employee wages with no ceiling. For a $500,000 W-2 earner that is $6,000/year (vs ~$1,800 under the old cap). Self-employed taxpayers are exempt unless they elect into the disability insurance elective coverage program.

Sales tax (state + district)

Base state rate: 7.25%. Counties and cities layer district taxes (typically 0.10%–3.5%). Representative combined rates: Los Angeles 9.75%, San Francisco 8.625%, San Jose 9.375%, Sacramento 8.75%, San Diego 7.75%–8.75%. Top combined rates approach 10.75% (e.g., parts of Alameda County). Sales tax is destination-sourced for in-state sellers as well as out-of-state.

Property tax — Proposition 13

Prop 13 (1978) caps the property tax rate at 1% of assessed value plus voter-approved bonds (typical effective ~1.1–1.25%). Assessed value can only increase by 2%/year while held — reassessment to market value occurs ONLY on a change of ownership. The effect: long-held properties bear far lower tax burdens than recently-sold neighbours. Statewide average effective rate ~0.73%, among the lower in the US for nominal rate, but absolute dollar bills are high because of market values. Proposition 19 (2020) restricts the parent-to-child reassessment exclusion to the parent's principal residence used as a principal residence by the child.

Local income tax

California has NO general local income tax (unlike NY/PA/OH). San Francisco imposes a Gross Receipts Tax on businesses (not on wages). Los Angeles has business license taxes. Wage earners only owe state income tax, not city.

Residency rules

California residency is fact-based, not days-based, and aggressively enforced. The FTB looks at: • Domicile (true permanent home) — voter registration, driver's license, doctor, dentist, family location • Closer connection — where do bank accounts, professional memberships, gym memberships sit? • Physical presence over multi-year periods, not just current year Leaving California for a low-tax state requires a clean break — sell or rent out the CA home, change all professional ties, register and vote elsewhere, and minimise return days. CA can claim residency for years after a purported move if the break is incomplete (Bragg v. FTB; Noble v. FTB).

Non-conformity — what California taxes that the IRS does not

California decouples from several federal preferences: • NO §199A QBI deduction — fully taxable • NO §1202 QSBS gain exclusion — full state tax on the same gain federal excludes • NO 100% bonus depreciation — CA still uses pre-2017 MACRS • Limited §179 — $25,000 expensing cap (vs $2.56M federal) • Adds back federal NOL changes Founders contemplating a §1202 exit often establish residency in a no-income-tax state (TX, NV, WA, FL, TN) at least one full tax year before sale.

Self-employed regulatory landscape

AB-5 codified the Dynamex ABC test in CA Labor Code §2775: workers are presumed employees unless ALL three prongs are met (free from control, work outside hirer's usual business, customarily engaged in independent trade). 100+ professional carve-outs (lawyers, dentists, photographers under specified limits, freelance writers under specified limits). Most app-based platforms (rideshare, delivery) reclassified by Prop 22 (2020), upheld 2024. Most professionals (medical, legal, accounting, design, contracting) need state-issued licenses. City business license required in addition (LA, SF, San Diego — each their own).

Worked example: Mei Tanaka, freelance UX designer (Oakland, CA, single, S-corp election)

Mei's S-corp nets $185,000 in 2026. She pays herself $110,000 W-2 reasonable comp + $75,000 distribution. No other income.

Federal layer (skipped for brevity, but ~$28k federal + ~$8.4k FICA on owner wages). California layer: S-corp 1.5% tax on net income: 1.5% × 185,000 = 2,775; min $800 — pay 2,775 Mei's personal CA taxable income: 110,000 W-2 + 75,000 K-1 distribution = 185,000 (before state SD) Less CA std deduction: ~5,540 CA TI: 179,460 CA tax (2026 brackets, single): roughly Stair-stepping through 1–8% then 9.3% bracket → ~$14,400 No CA QBI deduction. SDI on $110k W-2: 1.2% × 110,000 = 1,320 Total CA state cost: 2,775 (S-corp) + 14,400 (personal) + 1,320 (SDI) = $18,495 Add Oakland combined sales tax (10.25%) on any merchandise resale activities if applicable (n/a for service-only UX).

Statute references

• $800 LLC minimum franchise tax — Cal. Rev. & Tax Code §17941
• 1.5% S-corp tax — Cal. Rev. & Tax Code §23802
• Mental Health Services Tax (1% over $1M) — Cal. Rev. & Tax Code §17043
• SDI uncapping — SB 951 (2022); CUIC §984
• ABC test for worker classification — Cal. Labor Code §2775 (Dynamex / AB-5)
• Property tax cap (Prop 13) — Cal. Const. art. XIII A
• Elective Pass-Through Entity Tax — Cal. Rev. & Tax Code §17052.10, §19900

Related pages

• State Tax Comparison →
• Multi-State Tax Guide →
• PTET Analyzer →
• LLC vs S-Corp Guide →