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How have California's top income tax brackets changed over the past decade and what triggered those changes?
Executive summary
California’s top statutory individual income tax rate has been 13.3% for several years, with an additional 1% “mental health services” surtax above $1 million, and recent 2025 legislative action (Assembly Bill 1219) changed bracket structures and paused inflation indexing for 2025—moves tied to budget and payroll-tax policy debates (legislative text and summaries) [1] [2] [3]. Multiple outlets also report proposals or implementations that combine payroll-tax expansions and uncapped payroll levies to produce an “all‑in” top burden in the mid‑14% range on wage income, though exact figures vary across reports [4] [5] [1].
1. A decade of the top statutory rate: from 2015–2025, 13.3% as the anchor
For much of the past decade California’s highest statutory marginal individual rate has been 13.3%; that top statutory rate is the baseline used across tax guides and state analyses in recent years [1] [6] [7]. Multiple consumer and tax‑prep websites list the upper regular bracket at 12.3% or 13.3% depending on the year and filing status, but authoritative summaries and the Tax Foundation identify 13.3% as the top marginal statutory rate entering the mid‑2020s [1] [6].
2. The extra 1% surtax above $1 million: Mental Health Services Act and its role
On top of the statutory top bracket, California imposes an additional 1% surtax on taxable income above $1 million (the Mental Health Services Tax), which effectively raises the top combined statutory marginal rate for very high incomes to roughly 14.3% when counting both pieces in many presentations [1] [5] [8]. Reporting and guides consistently single out that surtax as the source of the “extra” percent paid by million‑dollar earners [8].
3. Payroll‑tax innovations and “all‑in” top rates in 2025: differing accounts
Some recent coverage and firm blogs describe a 2025 payroll‑tax expansion or uncapped payroll tax that would raise the all‑in top rate on wage income to between roughly 14.4% and 14.63% for wages over $1 million; these accounts attribute the increase to changes in payroll taxes layered atop income tax rates [4] [5] [9]. The Tax Foundation and other analyses use the phrase “top marginal individual income tax rate of 13.3 percent is compounded by a 1.1 percent uncapped payroll tax, bringing the all‑in top rate to 14.4 percent on wage income,” showing variance in how contributors measure the payroll levy [5] [1]. Note: detailed FTB or statutory tables for 2025-2026 should be consulted for official computation; some commercial sites note California had not yet issued final guidance when they published [4].
4. AB 1219 and the one‑time pause of inflation indexing: what changed and why
Assembly Bill 1219 is cited in legislative text and summaries as replacing the income‑tax bracket schedule for taxable years beginning Jan. 1, 2025, and the legislative package suspended inflation indexing for 2025—an explicit policy choice that can create “bracket creep” and increase revenues without raising nominal rates [2] [3]. Tax advisory pieces frame these revisions as part of multi‑year rate and bracket adjustments (2025–2029) intended to address state revenue needs and program funding, and to simplify or recalibrate withholding and payroll compliance [3].
5. Why these changes happened: budget pressure, revenue concentration, and policy choices
Analysts and interest groups point to California’s budget needs and the concentrated role of high earners in state revenue as part of the rationale: the top 1% historically pays a large share of personal income tax, so changes targeting top incomes materially affect receipts [10]. Legislative choices—extending surtaxes, altering payroll tax ceilings, or pausing indexation—are framed as ways to shore up revenue for health programs and other spending priorities rather than uniform across‑the‑board rate hikes [3] [10].
6. Competing perspectives and limits of current reporting
Some sources emphasize that the nominal bracket structure remains familiar and indexed annually (until the 2025 pause) and that changes largely affect payroll treatment or surtax application [11] [12]. Others (firm blogs, tax‑prep sites) highlight potentially higher “all‑in” effective top rates because of payroll changes; those figures vary (14.4% vs. 14.63%) depending on assumptions about payroll levies and wage thresholds [4] [5]. Available sources do not provide a single definitive official table reconciling every component for 2025—readers should consult the Franchise Tax Board’s final guidance and the enacted text of AB 1219 for authoritative computations [2] [13].
7. What taxpayers and advisers should watch next
Practitioners recommend reviewing withholding updates, employer payroll systems, and whether inflation indexing resumes or remains paused after 2025—since those operational and timing choices determine whether ordinary raises push taxpayers into higher brackets [3] [14]. For confirmation of rates and payroll‑tax mechanics, the Franchise Tax Board and enacted bill text (AB 1219) are the primary references cited in current reporting [2] [13].