Ocity Logo ocity
Official Tax Guide

California Taxes 2025: Income, Sales, and Property Tax Guide

Complete guide to California state taxes. Income tax (1% - 13.3%), sales tax, and what you need to know before moving.

Updated January 15, 2026
5 min read

State Tax Guide 2025: California

Moving to California offers incredible lifestyle benefits, from stunning coastlines to vibrant cities. However, understanding the state’s tax structure is crucial for effective financial planning. California relies heavily on income tax, which is among the highest in the nation. This guide breaks down what new residents can expect in 2025.

1. Income Tax

California’s income tax system is progressive, meaning tax rates increase as income rises. It is not a flat tax. For the 2025 tax year, the rates range from 1% to 13.3%.

Key Details:

  • Progressive Structure: You only pay the higher rate on the portion of your income that falls into a higher tax bracket.
  • Brackets: While specific dollar thresholds are adjusted annually for inflation, the rate structure remains consistent.
  • High Earners: California imposes the highest marginal tax rate in the country on its wealthiest residents (13.3%). This applies to single filers earning over $1 million and joint filers earning over $2 million (thresholds subject to annual inflation adjustment).

Filing Status: Rates vary slightly depending on whether you file as single, married filing jointly, head of household, or married filing separately.

2. Sales Tax

California’s statewide sales tax rate is 7.25%. However, this is just the base rate.

  • Local Add-ons: Counties and cities can (and usually do) add district taxes. This means the total sales tax rate you pay at the register is often higher than the state rate, typically ranging from 7.25% to 10.75% depending on the location.
  • What’s Taxed: Most tangible personal property is taxable, including groceries (though exceptions exist for certain staple items like unprepared food).
  • Services: Generally, labor for repairs is taxable, while many professional services are not.

3. Property Tax

California property taxes are governed by Proposition 13, which provides stability for long-term homeowners but can be complex for new buyers.

  • Assessment Value: Property taxes are limited to 1% of the assessed value of the property at the time of purchase (plus any bonds or voter-approved levies).
  • Annual Increases: The assessed value can only increase by a maximum of 2% per year, regardless of how much the market value rises.
  • Effective Rate: While the base rate is 1%, the effective tax rate (total tax paid as a percentage of market value) usually falls between 0.7% and 1.1% statewide, depending on local bond measures.
  • Transfer Tax: When selling or buying property, a transfer tax is levied based on the sale price. This varies by county but can be significant (e.g., $1.10 per $500 in many counties).

4. Other Taxes

Beyond income and sales, California has several other notable taxes:

  • Gas Tax: California has some of the highest gas taxes in the U.S. In 2025, expect the state excise tax to be approximately $0.59 per gallon, plus federal taxes. Prices at the pump are further influenced by cap-and-trade programs and local sales taxes.
  • "Sin" Taxes:
    • Cigarettes: The excise tax is $2.87 per pack.
    • Alcohol: Taxes vary by type (e.g., beer is taxed at $0.20 per gallon, wine at $0.05 per gallon).
    • Cannabis: Adult-use cannabis is subject to state excise tax (15%), cultivation taxes (per ounce), and local sales taxes.
  • Inheritance/Estate Tax: California does not have a separate state inheritance or estate tax. However, federal estate taxes apply to estates exceeding the federal exemption limit (which is historically high but subject to change).
  • Vehicle Registration: The "Vehicle License Fee" (VLF) is roughly 0.65% of the vehicle's value. Registration fees also include various other surcharges (e.g., for environmental programs).

5. Retiree Taxes

California is generally not friendly to retirement income regarding state taxes.

  • Social Security: While California does not tax Social Security benefits directly, the income from Social Security counts toward your "combined income." If your income exceeds certain thresholds, a portion of your Social Security benefits becomes taxable at the federal level.
  • 401(k)s and IRAs: Withdrawals from traditional 401(k)s, IRAs, and pensions are fully taxable as ordinary income at California’s high rates.
  • Proposition 19: For retirees moving within California, Prop 19 allows those over 55 (or disabled) to transfer their property tax base to a new home of equal or lesser value, offering significant savings if moving to a more affordable area.

6. Comparison to Neighboring States

  • Nevada: Nevada has no state income tax, making it highly attractive to high earners. However, sales tax rates are comparable to or slightly higher than California's, and housing costs in major metros like Las Vegas and Reno have risen sharply.
  • Arizona: Arizona has a flat income tax rate of 2.5% (as of 2025), significantly lower than California’s top rate. Sales tax rates are generally lower, though property taxes are moderate.
  • Oregon: Oregon has no sales tax, which is a major draw for consumers. However, it has a high progressive income tax (top rate of 9.9%), though generally lower than California’s top bracket.

Summary: California offers high public services and infrastructure, funded by high taxes. While income and gas taxes are steep, the lack of an estate tax and specific protections for property owners (Prop 13) provide some financial predictability.

Disclaimer: Tax laws change frequently. This guide is for informational purposes only and does not constitute financial or legal advice. Consult a Certified Public Accountant (CPA) or tax professional for advice specific to your situation.