California’s top marginal income tax rate is 13.3%. That figure combines the state’s 12.3% top income bracket with a 1% surcharge on taxable income above $1 million, and it applies only to the dollars that fall inside the top slice. Everything below is taxed at lower rates on the way up.
How the 13.3% Is Built
The rate is two separate provisions stacked together.
The 12.3% base is the top of California’s regular progressive bracket structure. Voters created the 10.3%, 11.3%, and 12.3% brackets through Proposition 30 in 2012 and extended them through 2030 with Proposition 55 in 2016.1California Legislative Analyst’s Office. Personal Income Tax Rates for High-Income Taxpayers – Ballot Analysis They sit in Revenue and Taxation Code Section 17041.
The extra 1% is a flat surcharge on every dollar of taxable income above $1 million, imposed by Revenue and Taxation Code Section 17043.2California Legislative Information. California Code RTC 17043 – Imposition of Tax Voters enacted it through Proposition 63 in 2004 to fund mental health services. Two features matter: the $1 million threshold is fixed and does not adjust for inflation, and it applies at the same level regardless of filing status. Credits against the regular income tax do not reduce the surcharge.
When both layers hit the same dollar, the combined marginal rate on that dollar is 13.3%.
Where the Top Rate Actually Starts
The income level where the 12.3% base bracket kicks in is adjusted each year for inflation. For 2025, the Franchise Tax Board sets the thresholds at:3Franchise Tax Board. 2025 California Tax Rate Schedules
- Single or married filing separately: $742,953
- Head of household: $1,010,417
- Married filing jointly: $1,485,906
Because the surcharge threshold ($1 million) is fixed while the bracket thresholds move with inflation, the two don’t line up, and the gap looks different depending on how you file.
For single filers, taxable income between $742,953 and $1 million sits in the 12.3% bracket but is still below the surcharge. The full 13.3% only applies after income crosses $1 million.
For joint filers, the pattern reverses. Their 12.3% bracket does not start until $1,485,906, which is already past the surcharge trigger. Income between $1 million and $1,485,906 is taxed at the 11.3% bracket rate plus the 1% surcharge, which also totals 12.3%. The full 13.3% kicks in once joint income passes $1,485,906.
Head-of-household filers hit the full combined rate just past $1,010,417, where the 12.3% bracket and the surcharge overlap almost immediately.
Capital Gains Pay the Same Rate
California does not give long-term capital gains a preferential rate. The state taxes all capital gains as ordinary income, so a gain that pushes your taxable income above $1 million faces up to 13.3% at the state level.4State of California Franchise Tax Board. Capital Gains and Losses For founders selling equity, retirees unwinding concentrated stock positions, or anyone selling appreciated California real estate, this is often the most expensive single feature of the state’s tax code, because the federal preferential rate on long-term gains gives you no corresponding break in Sacramento.
State Disability Insurance Adds Another 1.3% on Wages
Starting in 2024, California removed the wage cap on State Disability Insurance contributions. For 2026, SDI is withheld at 1.3% on all wages with no ceiling.5Employment Development Department (EDD). Contribution Rates, Withholding Schedules, and Meals and Lodging Values Before 2024, SDI only applied to roughly the first $153,000 of wages. A W-2 employee earning $2 million now pays SDI on the full amount, which adds about $26,000 that would not have existed two years earlier.
SDI is not an income tax, and it does not apply to self-employment income or investment income. On W-2 wages above $1 million, though, it stacks on the 13.3% rate, bringing the state-level marginal bite on those wages to roughly 14.6%.
Estimated Tax Rules Change at $1 Million
Once your California adjusted gross income reaches $1 million, the safe harbor most taxpayers rely on disappears. Below that threshold, you can generally avoid an underpayment penalty by paying 100% of your prior-year tax liability. Above it, you must pay at least 90% of your current-year California tax liability.6State of California Franchise Tax Board. 2025 Instructions for Form 540-ES Estimated Tax for Individuals You cannot base payments on last year’s return when this year’s income is higher. You have to project in real time.
California also front-loads the payment schedule. Roughly 30% of the required annual payment is due with the April installment and about 70% cumulatively by June. The FTB’s underpayment interest rate for 2026 is 7%, so a miss early in the year compounds. For taxpayers with volatile income from stock sales, business distributions, or large bonuses, the timing of payments trips people up more often than the rate itself does.
What the 13.3% Means Alongside Federal Tax
The state rate does not sit on its own. For 2026, the top federal marginal rate is 37%, applying to single filers above $640,600 and joint filers above $768,700. High earners with investment income also face the 3.8% federal net investment income tax once modified AGI crosses $200,000 for single filers or $250,000 for joint filers.
The federal SALT deduction partially offsets state income tax, but it has been capped since 2018, and the cap plus income-based phase-downs limit the benefit at these income levels. A California resident in the top state bracket, the top federal bracket, and with investment income subject to the NIIT can face a combined marginal rate above 50% on ordinary income. The number runs higher still on long-term capital gains, which California taxes as ordinary income while the federal system applies its own preferential rate plus the NIIT.
That combined load is why planning for high-income California residents tends to focus on retirement contributions, the timing of capital gains across tax years, charitable giving structured for deduction value, and in some cases a hard look at whether changing domicile would save enough to justify the move. The 13.3% rate is the starting point for those conversations.