The following are common examples of when most people pay taxes.
When you buy stuff (except groceries), you usually pay sales tax. The seller adds the tax to the cost of your purchase and sends the tax to the California Department of Tax and Fee Administration (CDTFA).
Get Paid for Working
When you get paid for working as an employee, you must report your wages (salary, bonuses, commissions, etc.) to the Franchise Tax Board (FTB) and Internal Revenue Service (IRS) and pay taxes every year.
- Fill out an IRS Form W-4 (PDF) to tell your employer how much federal and California income tax to deduct from your paychecks. If you want your California withholding to be different from your federal withholding, fill out an Employment Development Department (EDD) DE 4 (PDF), too. Your first job has more information about this.
- Your employer deducts other taxes (social security, Medicare, and State Disability Insurance) in addition to income taxes and pays all these withholdings to EDD and IRS.
- By April 15 each year, you must file State and federal income tax returns, which will tell you if you still owe more income taxes or if you paid too much for the year. Tip: Try FTB and IRS efile and file your taxes over the internet.
Have a Business
When you have a business, report your net income and pay California and federal income taxes.
- Make estimated tax payments to FTB and IRS each quarter when you don't have an employer to deduct and pay income taxes for you.
- File your California and federal income tax returns each year, and find out if you still owe income taxes or if you paid too much for the year.
- If you have employees, deduct payroll taxes including income taxes from their wages, and pay the taxes to EDD and IRS. You also have to report new employees to the EDD.
- If you pay people other than employees to do work for you, you may have to report information on these independent contractors to EDD, FTB, and IRS.
- Pay sales tax on the items you sell. Generally, you add the amount of tax to the purchase price, then pay the tax to CDTFA.
- If you own personal property that you use in your trade or business, it is taxable and its cost must be reported every year to the city or county assessor’s office.
When you own property, you must pay property taxes to your city or county assessor’s office.
- If you own your home, your mortgage company may pay the taxes for you out of your escrow impound account.
- If you rent your property to others, you must report the income to FTB and IRS as well as pay property taxes.
Why are Taxes Necessary?
- You pay income taxes to pay for schools, highways, law enforcement, parks, forests, waterways, and other public services. In California, state and local revenue for such services also comes from sales and use taxes, special taxes, and property taxes.
- You pay payroll taxes to provide social security, Medicare, unemployment insurance, and disability insurance (including Paid Family Leave) benefits for yourself and your family.
Find out more about how your taxes are used:
These four tax agencies work together to bring you the California Tax Service Center:
- California Department of Tax and Fee Administration (CDTFA) – Sales and use and special taxes.
- Employment Development Department (EDD) – California payroll taxes.
- Franchise Tax Board (FTB) – California personal and business income taxes.
- Internal Revenue Service (IRS) – Federal personal and business income taxes and federal payroll taxes.