Does California tax social security?

If you plan to retire in the Golden state, you may have heard that California is not a relatively tax-friendly state. California has one of the highest income tax rates across the US, and this means that a chunk of your retirement income could go into paying taxes. However, not all retirement incomes are subject to income taxes in California.

California exempts social security benefits from state income taxes, but you will owe federal income taxes on the social security income you receive. If you have other retirement incomes like pension and retirement plan distributions, you will pay state income taxes on the combined retirement income.

Is social security income taxable in California?

Social security benefits, including survivor and disability benefits, are not taxed by the state of California. However, you will pay federal income taxes on your social security benefits at your tax bracket.

Social security taxes are collected in the form of a payroll tax that FICA or SECA mandates. This tax applies to self-employed and employed taxpayers who work in a job covered by social security. The taxes collected are used to fund social security benefits.

How much are federal income taxes on social security?

While you won’t pay state income taxes on social security income in California, you will owe federal income taxes on the social security benefits you receive. The IRS requires individuals who receive social security benefits to pay income taxes on a portion of their benefits based on their income and filing status. 

If you are a single taxpayer filing individually, you will pay federal income taxes on up to 50% of your benefits if your combined income falls between $25,000 to $34,000. If the combined income exceeds $34,000, you will pay income taxes on up to 85% of your benefits.

If you are married and file a joint return, you and your spouse will pay federal income taxes on up to 50% of your social security benefits if your combined income ranges from $32,000 and $44,000. If the combined income exceeds $44,000, you will pay federal income taxes on up to 85% of your benefits.

When determining how much federal income taxes you will pay on social security benefits, you can use Form SSA-1099 as a baseline. The IRS sends this form annually, and it shows all the social security benefits you received in the past year.

Does California tax retirement incomes?

Although California exempts social security benefits from state income taxes, other retirement incomes are considered taxable incomes. If you have pension income, IRA withdrawals, 401(k) withdrawals, and other forms of retirement income, you will pay state income taxes at your tax bracket. Depending on the income you have, the state income tax rate ranges from 1% to 13.3%.

If you take an early distribution from your pre-tax retirement plan, you will pay a 2.5% state penalty in addition to the 10% federal penalty for early withdrawals. If you received retirement income from private, public, and military retirement plans, you will pay state income taxes at your state income tax bracket.

An exemption is railroad retirement benefits; these benefits are generally exempted from state income taxes. However, you will pay state income taxes on Tier 2 benefits paid by individual railroad plans.

How much are income taxes in California?

California has a graduated-rate income tax system, where the top earners pay higher taxes whereas low-income earners pay lower taxes. Typically, you are required to file a California state return if you were a resident of California for any part of the year and earned an income during that period.

The amount of taxes you pay depends on your income level and filing status. California has 10 income tax brackets that start from 1% up to 13.3%, making it one of the highest state income tax rates in the United States. The top marginal tax rate is 13.3%, and it applies to single filers, head of household, and married taxpayers filing separately with incomes over $1 million, or married taxpayers filing jointly with incomes above $2 million.

Generally, you pay state income taxes on the adjusted gross income. This equals actual income less any exemptions and applicable deductions. You may be eligible for a standard deduction of up to $4,803 if you are a single filer, or $9,606 if you are married filing jointly.

How much are property taxes in California?

California has relatively low property tax rates, with the average effective property tax rate across the state being 0.73%. Proposition 13 set the highest allowable property tax rate at 1% of the property’s assessed value and limited increases in assessed property value to 2% each year except in select circumstances. Typically, the median property tax is $742 per $100,000, and the average homeowner in California pays about $4,100 annually.

If you are above age 62, blind, or have a disability, you can defer paying property taxes on your primary residence under the Property Tax Postponement Program. To qualify for this program, your home must have at least 40% equity and an annual household income of more than $45,810. Additionally, homeowners get an exemption of up to $7,000 in the assessed value of a qualified owner-occupied home. You will be eligible for this exemption if your home is the principal place of residence on January 1and in subsequent years.