How to File a California Tax Return

Published: 29th January 2021

Are you a new resident of California? Wondering if you need to file a California tax return?

Like many other states in the U.S., California taxes their residents to help fund state government operations. State taxes pay for programs like Education, Health, and Human Services.

California has one of the highest tax burdens in the country. They rank 5th in income tax and 13th in overall taxes.

If you live in California, then you likely need to file taxes there. Continue reading to learn more about California tax law and how it affects you.

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California Income Tax

How To File A California Tax Return - Tax season is quickly approaching. If you live in California and are filing for the first time, this is what you need to know about California tax return.

You can file your California tax return on April 15th the same as your federal income tax return. (The deadline may be different if the 15th falls on a Sunday or holiday.)

California recognizes many of the same filing statuses as the federal government. You can file as Single, Married filing Jointly or Married filing Separately, Head of Household, or as a Qualifying Widow(er).

California also recognizes registered domestic partnerships. You can file a jointly or separately. Most people will file the same status on their California return as on their Federal return. Unless, of course, they have a status not recognized on Federal returns.

Difference Between Your Federal vs California Tax Return

California allows some income to be exempt that would not be on your Federal return. This includes Social Security and Railroad Retirement benefits, interest on federal bonds, and distributions from health savings accounts (HSAs).

In addition, you won't pay California tax on income from your state tax refunds or unemployment compensation. And, if you happen to win the California state lottery, you won't be taxed on your winnings!

However, if you have foreign-earned income or alimony, California taxes that. And, California taxes the interest you earn on state, local, or municipal bonds outside of the state.

California Tax Brackets

California levies taxes on residents' income and also on non-residents on any income earned in the state. The tax rates will vary from year to year.

There are currently nine different tax brackets in California, ranging from 1% to 12.3%. It's possible that more than one tax rate could apply to you. Your highest tax bracket will determine your marginal tax rate.

California Standard Deduction

California allows you to take either a standard deduction or itemize your taxes. The standard deduction for the 2020 tax year is $4,601 for single taxpayers and married or registered domestic partners filing separately. For joint returns, heads of household, and qualifying widow(ers), the standard deduction is $9,202.

This is much lower than the federal standard deduction. The federal deduction for single and married filing separately taxpayers is $12,400. Heads of household get an $18,650 standard deduction and the deduction for everyone else is $24,800.

Personal Exemption

California does offer personal exemptions of $122 for taxpayers and spouses. There's also $378 for up to three dependents. There are additional exemptions if you or your spouse is blind or over 65.

Mortgage Interest and Mortgage Interest Credit Deductions

If your mortgage interest is higher than the amount allowed on federal taxes you may be able to deduct the overage on your California tax return. In addition, if you had to reduce your mortgage interest deduction because of a credit, you can deduct that amount on your California return.

Health Savings Account Distributions

Federal taxes allow you to deduct the first 7.5% of your HAS distribution for qualified expenses. In California, you can deduct any portion exceeding that limit. You can also deduct any nonqualified expenses from your California return.

One thing to note however is that HSA deductions are deductible on federal taxes. They are not, however on California state taxes.

Credits in California

There are some credits you can include when making your California tax calculation. Unlike a deduction that reduces your income, credits are deducted from any taxes you owe the government.

One of which, the Earned Income Tax Credit, offers credit for lower-income working people. The amount of the credit depends on your income and the number of qualifying children.

You can receive a credit of 50% for qualified adoption costs. Or if you're attending college and receiving a Cal Grant through the College Access Tax Credit Fund, you can also take a credit for 50% of those contributions.

California also offers a nonrefundable Renter's Credit for residents. You qualify by your income and need to have paid rent for at least half the year.

There is also a Child and Dependent Care Credit that is similar to the federal credit with the same name. And you may be eligible for a Joint Custody Head of Household credit that's worth $484 in 2020.

How to File a California Tax Return

There are many different ways to prepare, file, and pay your California return. The California Franchise Tax Board has all of the forms you need. You can e-file and pay for free on their website.

Most online tax-filing services work in California for most returns. And, of course, you can hire a professional CPA or lawyer to manage your taxes and filing.

If you prefer to mail your forms in and you don't owe any taxes or will receive a refund, you can send them to the Franchise Tax Board, PO Box 942840, Sacramento, CA 94240-0001. If you need to send in a payment, you can both your tax return and payment to PO Box 942867, Sacramento, CA 94267-0001.

California does offer the ability to set up an installment plan if you can't pay your tax bill. If you owe less than $25,000 you can apply for this agreement online, by mail, or by phone.

There are fees to set up an installment plan and it must be completed within 60 months. Interest and penalties will also accrue on the balance until it's paid in full.

Always Double-Check Your Return Before You File

Whether you're new to the state or not it's always a good idea to double-check the rules and regulations. Things change from year to year and you want to make sure you're filing your California tax return correctly.

And it's never too late to start preparing for next year! Visit our site to plan your Federal and State Withholding with our special calculators.