If you’ve spent any time looking at a California paycheck, you’ve probably felt that sharp sting of the "Sunshine Tax." It’s real. California is famous for having some of the highest state taxes in the country, but honestly, the raw numbers don't tell the whole story. Most people just glance at a headline and think they’re losing 13% of their money.
That’s not how it works. Not even close for most of us.
Basically, the percentage of income tax in California is a moving target. It is a progressive system, which is a fancy way of saying the more you make, the more the state takes from your last dollar. For the 2025 tax year (the ones you're dealing with in early 2026), those rates are sticking to their usual nine-bracket structure. But there’s a lot of noise right now about "Billionaire Taxes" and mental health surcharges that make it kinda confusing.
The Real Breakdown: California Income Tax Brackets
California’s tax rates start at a tiny 1% and climb all the way to 12.3%. If you’re a high-flyer making over a million bucks, you get slapped with an extra 1% for the Mental Health Services Act. That brings the top effective rate to 13.3%.
But let’s be real—most of us aren't in that bracket.
For a single filer in 2026, the brackets are roughly adjusted for inflation every year. You pay 1% on your first $10,756 of taxable income. Then it jumps to 2% for the next chunk, and 4% after that. By the time you’re earning between $70,000 and $360,000, you’re likely sitting in the 9.3% bracket.
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Why your "Effective Rate" is what actually matters
Don't panic when you see the 9.3% number. If you earn $100,000, you aren't paying $9,300 to Sacramento. You pay 1% on the first bucket of money, 2% on the second, and so on. This is where people get tripped up. Your effective rate—the actual percentage of your total income that goes to the state—is usually much lower than your top bracket.
For instance, a single person making $80,000 might only have an effective state tax rate of around 5% or 6% after they take their standard deduction. Speaking of which, for the 2025 tax year, that standard deduction is about $5,363 for individuals. It's not massive, but it helps.
The "Billionaire Tax" and the 2026 Drama
You might have heard about the "2026 Billionaire Tax Act." It’s been all over the news lately because some labor unions and activists are pushing for a one-time 5% wealth tax on people worth over $1 billion. This isn’t an income tax in the traditional sense, but it’s part of the reason everyone is talking about the percentage of income tax in California right now.
Governor Gavin Newsom has been pretty vocal about fighting this, calling it a "job killer" and worrying that it’ll drive the tech elite out of Silicon Valley. Whether it passes or not in the November 2026 election, it highlights just how much the state relies on the top 1% of earners. They already provide about half of the state’s personal income tax revenue.
Surcharges you might not see coming
There is also the Mental Health Services Act. Since 2004, California has added a 1% surcharge on taxable income exceeding $1 million. This is why you see that 13.3% figure quoted so often. It’s effectively a "millionaire's tax." If you're a couple filing jointly, that threshold remains the same—it doesn't double just because there are two of you.
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Common Misconceptions About California Taxes
A lot of people think California taxes everything at the same high rate. Wrong.
First, California doesn't tax Social Security benefits. That’s a huge relief for retirees. However, if you have a private pension or a 401(k) withdrawal, the state treats that just like regular income. You’ll pay the same graduated rates we discussed earlier.
Another big one: the "Exit Tax." You’ve probably heard rumors that if you move to Texas or Nevada, California will keep taxing you for ten years. That’s mostly a myth, though the Franchise Tax Board (FTB) is notoriously aggressive. If you earn money from a California-based business or sell a house there after you move, they will absolutely want their cut of that specific "California-source" income.
Comparison: Is it really that bad?
Sure, compared to Florida or Nevada (which have 0% state income tax), California looks expensive. But compared to New York or Oregon? It’s competitive for middle-income earners. The real killer in California isn't always the income tax; it's the cost of living and the 7.25% (or higher, depending on your city) sales tax.
Actionable Steps for Your 2026 Tax Season
If you're trying to lower that percentage of income tax in California, you've got a few levers to pull.
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Check your residency status. If you spent half the year working remotely from another state, you might be overpaying. California uses a "safe harbor" rule for certain workers, but you have to document your days spent outside the state meticulously.
Maximize your 401(k) or 403(b) contributions. These reduce your federal Adjusted Gross Income (AGI), which California uses as a starting point. Lower AGI means you fall into a lower bracket.
Look at the California Competes Tax Credit. If you own a small business, there are state-specific credits for hiring and staying in California that most people ignore because they think they're only for big corporations like Intel or Disney.
Don't forget the SALT cap. While federal law limits your State and Local Tax deduction to $10,000, California has a "Pass-Through Entity Elective Tax" (PTE tax) that allows some business owners to circumvent this. It’s a bit technical, so you’ll want to talk to a CPA, but it can save you thousands.
The bottom line is that the percentage of income tax in California is manageable for most, but brutal for the ultra-wealthy. Keep an eye on the November 2026 ballot—that's when we'll find out if the "Sunshine Tax" is about to get even brighter for the billionaire class.