If you leave California, can the state say you really didn’t and keep taxing you? Yes, and it happens more than you might think. California taxes have always been high, and for that reason, many people do their best to try to avoid paying them. This is especially true for someone expecting a big spike in income. Some people vote with their feet, although in some cases, California can assess taxes no matter where you live. How high are California taxes? After decades of high taxes, things got worse in 2012, and then worse still in 2018.
In 2012, California’s Proposition 55 placed a temporary extension (through 2030!) on a 13.3% tax rate on California’s high-income earners. It applies to 1.5% of Californians, singles with an income of $263,000, or joint filers with incomes of $526,000. It is still the highest marginal tax rate in the nation. As a result, tax-free states such as Nevada, Texas, Washington, and Florida can hold considerable allure.
Many millionaires fled California after the 2012 tax increase, with one report saying that, “We estimate that California lost 0.04 percent of its top earner population over the two years following the tax change.” The 2012 tax change is now old news, and yet there is still talk about its impact. The 2018 tax changes made it worse, since now only $10,000 of state and local taxes can be claimed as deductions on a federal tax return.