California nonresident income tax: complete 2026 guide for non-residents
California taxes nonresidents on all income derived from California sources, and the state applies the same graduated rate schedule used for residents – with the top marginal rate reaching 13.3%, the highest of any US state. Nonresidents file Form 540NR for tax year 2025.
The following four points summarize how California tax for non-residents works:
- California taxes nonresidents only on California source income – not worldwide income.
- The state uses nine graduated brackets ranging from 1% to 12.3%, plus an additional 1% Behavioral Health Services Tax on taxable income above $1,000,000 – bringing the effective top rate to 13.3%.
- Nonresidents and part-year residents file California Form 540NR for tax year 2025, due April 15, 2026.
- The tax is computed on total income from all sources, then prorated using the California income ratio – the share of income sourced to California divided by total income.
Who is a California nonresident? Residency vs. domicile explained
The California Franchise Tax Board defines a nonresident as any individual who is not a California resident for any part of the tax year, but domicile and physical presence are evaluated separately and can produce surprising results.
Domicile is the permanent home you intend to return to – the place where your strongest personal and economic connections are centered. Residence, by contrast, is a question of physical presence.
California can assert residency even during extended absences abroad if your closest ties remain in the state. The FTB lays out the full set of factors in FTB Publication 1031.
California non-resident tax applies only to California source income. Residents owe tax on worldwide income.
The FTB recognizes three categories for a given tax year:
- Resident. A person domiciled in California, or physically present in California for other than a temporary or transitory purpose. A person present in California for more than nine months in a tax year is presumed to be a resident under R&TC §17016.
- Nonresident. A person who is not a California resident for any part of the tax year. Taxed only on California source income.
- Part-year resident. A person who was a California resident for part of the year and a nonresident for the rest. Worldwide income is taxable during the resident period; only California source income is taxable during the nonresident period.
California resident vs nonresident taxes differ sharply on one point: scope. Residents owe tax on income from all sources worldwide. Nonresidents owe tax only on income that California treats as having a California source.
See our TFX guide to residency categories for how US tax law classifies residents, nonresidents, and citizens differently.
California safe harbor rule for expats and extended absences
California provides a safe harbor under which a resident who leaves the state under an employment-related contract for an uninterrupted period of at least 546 consecutive days may be treated as a nonresident for that period.
The rule is codified in R&TC §17014(d). It does not apply to retirees, investors, or anyone who moves abroad without qualifying employment facts.
The safe harbor requires all of the following conditions to be met simultaneously:
- You are absent from California for at least 546 consecutive days under an employment-related contract.
- Your return visits to California total no more than 45 days during any taxable year covered by the contract.
- Your intangible income – interest, dividends, capital gains, royalties – does not exceed $200,000 in any covered taxable year.
- The principal purpose of your absence is not to avoid California personal income tax.
Failing even one condition voids the protection. This is a common issue for TFX clients who retain California rental properties or investment accounts that push intangible income above the $200,000 cap.
The safe harbor applies to the worker. A spouse who accompanies the worker must also be absent for at least 546 consecutive days to receive safe harbor treatment independently.
See our California safe harbor guide for working expats for a detailed walkthrough of the conditions and common audit triggers.
What counts as California source income for a nonresident?
California source income is any income that has its origin in California – meaning wages earned for services performed in California, rent from California real property, and gains from the sale of California business assets are all taxable to nonresidents regardless of where the taxpayer lives.
A California nonresident is taxed on California source income by the FTB under state sourcing rules that differ from federal rules. The type of income determines which sourcing method applies.
The following income categories count as California source income for a nonresident:
- Wages and salaries. Compensation for services physically performed in California is California source income. The sourcing follows where the work is done, not where the employer is located or where the paycheck is issued.
- Business income. Net income from a trade or business conducted in California, including sole proprietorships and professional practices with California operations.
- Real property income. Rent, gain on sale, or other income from California real estate is always California source income.
- Pass-through entities. A nonresident's distributive share of California source income from a California partnership, S corporation, or LLC is taxable.
- Stock options and deferred compensation. Options and RSUs earned while working in California can be partially sourced to California based on the ratio of California workdays during the vesting period to total workdays.
California nonresident income tax rates for tax year 2025
California applies the same graduated rate schedule to nonresidents as to residents, with nine brackets ranging from 1% on the lowest income tier up to 12.3% on income above the top bracket threshold – plus an additional 1% Behavioral Health Services Tax on taxable income exceeding $1,000,000, bringing the effective top rate to 13.3%.
Nonresidents do not receive a separate, lower schedule. Instead, tax is computed on total income from all sources, then the California income ratio prorates the result to arrive at the tax owed to the state.
| Rate | Applies to |
|---|---|
| 1% | Lowest income tier |
| 2% | Second tier |
| 4% | Third tier |
| 6% | Fourth tier |
| 8% | Fifth tier |
| 9.3% | Sixth tier |
| 10.3% | Seventh tier |
| 11.3% | Eighth tier |
| 12.3% | Ninth tier – the top bracket |
| +1% | Behavioral Health Services Tax on taxable income above $1,000,000 |
The bracket dollar thresholds are the tax year 2025 inflation-adjusted amounts published by the FTB and vary by filing status. Verify the current thresholds on the FTB website or in the Form 540NR instructions.
California nonresident income tax filing requirements
A nonresident must file a California income tax return for tax year 2025 if their California gross income exceeds the FTB filing threshold for their filing status and age, or if California income tax was withheld and a refund is owed.
The filing thresholds are adjusted annually by the FTB. Verify the tax year 2025 amounts on the FTB's nonresident filing page or in the Form 540NR instructions rather than relying on prior-year figures.
The following three triggers require a nonresident to file:
- Gross income test. Your California gross income exceeds the applicable filing threshold for your filing status and age.
- Adjusted gross income test. Your California adjusted gross income exceeds the applicable threshold.
- Tax owed test. You have any California source income and you owe California tax after applying all credits and withholding.
Even if you fall below the filing thresholds, consider filing Form 540NR if California tax was withheld from your income – such as through real estate withholding on Form 593 or pass-through entity withholding – since filing is the only way to claim a refund of amounts overwithheld.
Form 540NR: the California nonresident income tax return
Nonresidents and part-year residents file California Form 540NR for tax year 2025, which calculates tax on total worldwide income and then applies the California income ratio to arrive at the tax owed to the state.
Schedule CA (540NR) reconciles federal and California income differences and computes the income ratio in Part IV.
California nonresident income tax forms for a complete filing typically include the following five items:
- Form 540NR. The main return. Reports total taxable income and computes the California tax using the income ratio method.
- Schedule CA (540NR). Adjusts federal income to California income and computes the California income ratio in Part IV – the ratio of California source income to total income from all sources.
- Schedule S. Claims the other-state tax credit if applicable. Generally used by California residents, though nonresidents can claim it in limited circumstances.
- Form 593. Attached as supporting documentation if real estate withholding was paid on a California property sale.
- Form 592-B. Reports withholding amounts that a pass-through entity or other payer remitted on the nonresident's behalf.
The return is due April 15, 2026 for calendar-year filers. California offers an automatic extension to file until October 15, 2026 – though an extension to file is not an extension to pay. Any tax owed must still be paid by April 15, 2026, or interest accrues from that date.
California withholding tax for nonresidents: what payers must do
California requires payers to withhold state income tax on California source income paid to nonresidents – including wages, real estate sale proceeds, and distributions from pass-through entities – to ensure the FTB collects tax before funds leave the state.
The FTB's withholding guidelines set out the specific rules by income type. The following four categories cover the main requirements:
- Wages. Employers withhold California income tax from wages paid for services performed in California using the standard payroll withholding rules and Form DE 4.
- Real estate proceeds. Real estate withholding is reported on Form 593 and is generally 3⅓% of the gross sales price, or an alternative amount calculated based on gain. The buyer or escrow agent is responsible for withholding and remitting to the FTB.
- Pass-through entity distributions. S corporations, partnerships, and LLCs must withhold on California source income allocated to nonresident members. Entities report withholding using Form 592-PTE and provide Form 592-B to each payee showing amounts withheld. A waiver from the FTB can reduce or eliminate the withholding requirement.
- Nonwage payments. California imposes a 7% withholding rate on nonwage California source payments to nonresidents – including rents, royalties, and independent contractor payments – once total annual payments to the nonresident exceed $1,500. The withholding agent reports using Form 592.
The IRS separately requires withholding on certain US source income paid to nonresident aliens at the federal level. California withholding is a state-level requirement in addition to any federal withholding.
California capital gains tax for nonresidents
California does not have a preferential long-term capital gains rate – nonresidents pay ordinary income tax rates on California source capital gains, which means gains from selling California real estate or a California business can be taxed at rates up to 13.3%.
The California tax on a stock sale by a nonresident depends on whether the stock represents an intangible asset or a California business interest. The IRS treats capital gains separately at the federal level, but California applies no such distinction.
The following three categories clarify which gains are California source and which are not:
- Real property gains. Gains from selling California real estate are always California source income for a nonresident. There is no exemption for long-term holdings – the full gain is taxed at ordinary rates.
- Business asset gains. Gains from selling California business assets or an interest in a California partnership or S corporation that holds California real property may be partially or fully sourced to California under FTB rules.
- Stock and securities gains. Gains from selling publicly traded stock are generally not California source income for a nonresident, because intangible assets follow the taxpayer's state of residence. The exception applies to stock in an entity with significant California business operations or California real property..
Stock options and deferred compensation: California's long reach
California uses a vesting-period apportionment formula to tax nonresidents on stock options and restricted stock units earned while working in California, even if the shares vest or are exercised years after the employee has left the state.
The apportionment works as follows: California calculates the ratio of California workdays during the period between the grant date and the vesting date to total workdays during that same period. That ratio is applied to the income recognized at vesting or exercise.
Based on a common TFX client scenario
A software engineer works in California for three years, then transfers to an office in Texas. She received an RSU grant during her California employment. The grant vests two years after her move. Of the four-year period between grant and vesting, three years – 750 of 1,000 total workdays – were spent in California.
California sources 75% of the RSU income to California. She reports this on Form 540NR even though she has no other California income and has lived in Texas for two years.
Remote work and California taxes: are you still taxable?
If you physically performed services in California, those wages are California source income regardless of where you live now or where your employer is headquartered.
Wages earned entirely outside California for a California-based employer are generally not California source income for a nonresident. The distinction turns on where the work was done, not who signs the paycheck.
Remote work raises three distinct scenarios:
- Worked in California, then moved. Wages earned while physically in California are California source income regardless of your current state of residence. The sourcing is based on where the work was performed, not when you received the payment.
- Never worked in California, but employer is California-based. If you perform all services from another state, those wages are generally not California source income for a nonresident – even if the employer's headquarters, payroll, or management is in California.
- Worked in California temporarily. Short-term assignments in California create California source income for the days worked in the state. The FTB may require you to file Form 540NR and allocate wages based on California workdays divided by total workdays.
Part-year resident California tax: when you move in or out mid-year
A part-year resident files Form 540NR and is taxed as a resident for the portion of the year they lived in California and as a nonresident for the remainder.
Worldwide income is taxable during the resident period. Only California source income is taxable during the nonresident period.
The following four steps summarize how to compute part-year resident tax liability for tax year 2025:
- Establish the move date. Document the exact date of departure or arrival with contemporaneous evidence – lease agreements, utility records, vehicle registration changes, and travel records. The FTB may challenge the claimed change-of-residency date.
- Compute income for each period. Report worldwide income earned during the California resident period. Report only California source income earned during the nonresident period.
- Complete Schedule CA (540NR). Reconcile federal and California income for each period and compute the California income ratio.
- Apply the tax rate to total income, then prorate. Form 540NR calculates tax on total income from all sources, then applies the California income ratio to arrive at California's share.
Rental income from California property owned by nonresidents
Rental income from California real property is always California source income, meaning nonresident landlords must file Form 540NR for tax year 2025 and report net rental income.
Allowable deductions include mortgage interest, property taxes, depreciation, and repairs – the same categories available to resident landlords.
The following four-item compliance checklist covers the key requirements:
- File Form 540NR. Report net California rental income even if you have no other California source income. The filing requirement applies if rental income exceeds the FTB's filing threshold for your status.
- Withholding on rent. Property managers or tenants paying rent directly to a nonresident owner must withhold unless the owner obtains a full waiver from the FTB using Form 588 (Nonresident Withholding Waiver Request). To reduce – but not eliminate – withholding, the owner may instead submit Form 589 (Nonresident Reduced Withholding Request).
- Report withholding on Form 592. The payer reports and remits the withholding to the FTB using Form 592 and Form 592-V. The nonresident owner receives Form 592-B showing amounts withheld.
- Claim a credit. The nonresident owner claims the withholding as a credit on Form 540NR. If the withholding exceeds the tax owed, the owner receives a refund.
Pass-through entities: S corporations, partnerships, and LLCs with nonresident members
California requires S corporations, partnerships, and LLCs to withhold on California source income allocated to nonresident members and to file a composite return or obtain consent agreements.
Failure to comply can result in penalties assessed against the entity, not just the individual member.
The following three entity types each have specific obligations:
- S corporations. Must withhold on California source income distributed to nonresident shareholders. The entity uses Form 592-PTE to report withholding and provides Form 592-B to each shareholder.
- Partnerships. Same withholding and reporting structure as S corporations. Partnerships with foreign partners must also comply with federal Section 1446 withholding requirements – a separate obligation from California's state-level withholding.
- LLCs. LLCs taxed as partnerships follow the same rules. The California nonconsenting nonresident members tax requires the LLC to pay tax on behalf of any nonresident member who has not signed a consent agreement on Form FTB 3832 – the tax is computed at the highest individual marginal rate on the member's California source share.
Nonresident members who file their own Form 540NR can claim credit for amounts withheld by the entity. The credit appears on Form 592-B, which the entity provides after year-end.
Military nonresident California tax: special rules under the SCRA
Under the federal Servicemembers Civil Relief Act, active-duty military members do not lose or acquire California domicile solely by being stationed in California.
A service member domiciled in another state is not subject to California income tax on military pay even if stationed in California for years. The SCRA protects only military pay – non-military income earned in California, such as from a side business, may still be taxable.
Active-duty personnel and their spouses should also review the FTB's filing rules for military personnel for California-specific withholding and exemption procedures.
The following three protections and their California application cover the key rules:
- Military pay exempt for nonresidents. A service member domiciled in another state owes no California income tax on military pay, regardless of how long they are stationed in California. File Form 540NR only if you have California source income beyond military pay.
- Spouse income under the MSRRA. The Military Spouses Residency Relief Act protects the income of a nonmilitary spouse from California taxation if the spouse is domiciled outside California and is in California solely to be with the service member under Permanent Change of Station orders.
- Home of Record documentation. Home of Record and tax domicile are not the same thing. Home of Record is fixed at enlistment and only affects separation and travel benefits. What determines whether California can tax a service member is their State of Legal Residence (SLR) – the state the member has designated on Form DD-2058, which can be changed independently of Home of Record. If the FTB challenges residency, keep copies of PCS orders and the current DD-2058 SLR certificate, not just Home of Record paperwork.
See our TFX guide to military tax deductions for federal benefits available to active-duty service members.
Avoiding double taxation: California credit for taxes paid to another state
California residents who earn income taxed by another state can claim a credit on Schedule S to avoid double taxation, but nonresidents generally cannot claim this credit on their California return.
Instead, the home state typically offers a credit for taxes paid to California. The California non-resident credit for taxes paid to another state is available only in limited "reverse credit" situations defined by the FTB in the Schedule S instructions.
Based on a common TFX client scenario
A Texas-domiciled consultant earns $80,000 from a project performed in California. She files Form 540NR and, after the $5,706 standard deduction, pays roughly $3,350 in California income tax on her $80,000 in California-source consulting income. Texas has no state income tax, so there is no double taxation – California is the only state taxing this income.
If the same consultant were domiciled in New York instead, she would owe California tax on the California-source income and New York tax on her worldwide income. New York, as the home state, would offer a resident credit for the tax paid to California – limited to the lesser of the California tax or the New York tax attributable to the same income.
See our TFX guide to double taxation for a broader look at how double taxation works across state and international boundaries.
Expats and California taxes: can you ever truly leave?
The FTB applies a facts-and-circumstances test to determine whether a person who has moved abroad has genuinely abandoned California domicile, examining factors such as location of the family home, business interests, social ties, and professional licenses.
Under California tax law for non-residents, merely living outside the state – even for years – is not enough to end California residency. If your strongest ties remain in California, the FTB will treat you as a resident.
The FTB evaluates the following "closest connections" factors when a departed resident claims nonresident status:
- Family home. Whether you maintain a home in California – owned or leased – that is available for your use. Selling or renting out the California home is strong evidence of departure. Keeping it vacant or available weakens your nonresident claim.
- Business and professional ties. Active California business interests, professional licenses, and office space suggest continued California residency.
- Social and community ties. Club memberships, religious affiliations, voter registration, and driver's license registration in California all point toward continued residency.
- Financial ties. California bank accounts, brokerage accounts, and mailing addresses tied to California support the FTB's residency argument.
The FTB has successfully asserted California residency over individuals living abroad for years when their California connections remained strong. A formal domicile change requires affirmative steps – not merely physical absence. You must abandon the California domicile, establish a new domicile elsewhere, and intend to remain there permanently or indefinitely.
The California safe harbor under R&TC §17014(d) is one structured path to nonresident status for those who qualify. For everyone else, the FTB's facts-and-circumstances test applies.
See our guide to California residency and expat taxes for a closer look at the FTB's enforcement history.
How to file a California nonresident tax return online
California nonresidents can file Form 540NR electronically through FTB-approved software or through a tax professional using the FTB e-file system, with the tax year 2025 return due April 15, 2026, for calendar-year filers.
The California nonresident income tax form uses federal AGI as its starting point, so a completed federal return is a prerequisite.
California state tax filing for non-residents follows these five steps:
- Gather California source income documents. Collect W-2s showing California wages, Form 593 for real estate withholding, Form 592-B for pass-through entity withholding, 1099s for California source income, and K-1s from California entities.
- Complete your federal return first. Form 540NR begins with federal adjusted gross income. Errors on the federal return carry through to the California return.
- Complete Schedule CA (540NR). This schedule adjusts federal income for California differences – California does not conform to all federal deductions and exclusions. Schedule CA, Part IV computes the California income ratio.
- Compute the California income ratio. This is the ratio of California source income to total income from all sources. The ratio is applied to the tax computed on total income to determine the California tax owed.
- E-file through approved software or a CPA. The FTB maintains a list of approved e-file providers. Returns filed through a tax professional use the FTB's practitioner e-file system.
Frequently asked questions
Yes, if your California gross income or California adjusted gross income exceeds the FTB filing threshold for your filing status. Even a short work assignment creates California source income for the days you were physically in the state. If California tax was withheld, filing Form 540NR is the only way to claim a refund.
California applies nine graduated brackets from 1% to 12.3%, plus a 1% Behavioral Health Services Tax on taxable income above $1,000,000 – making the effective top rate 13.3%. Nonresidents compute tax on total income, then prorate using the California income ratio.
No. Under federal law – 4 USC § 114 – states cannot tax the retirement income of nonresidents. If you are a nonresident of California, your pension, IRA distributions, and qualified retirement plan payments are not California source income, even if you earned the pension while working in California.
California uses a workday apportionment formula. The state calculates the ratio of California workdays between the grant date and the vesting date to total workdays during the same period. That ratio is applied to the income recognized at exercise or vesting. You report the California-source portion on Form 540NR.
Form 540NR is the California nonresident or part-year resident income tax return. Any nonresident with California source income above the FTB filing threshold must file it. Review the California non-resident tax form instructions in the Form 540NR booklet before computing the income ratio.
Generally, no. California sources wages to where the work is physically performed, not where the employer is located. If you perform all services from another state, those wages are generally not California source income – even if your employer's headquarters is in California. The FTB may audit this claim if your records are incomplete.
The safe harbor under R&TC §17014(d) treats a California domiciliary as a nonresident during an uninterrupted absence of at least 546 consecutive days under an employment-related contract. You must also stay within the 45-day California visit limit per year, keep intangible income under $200,000, and demonstrate the absence is not principally tax-motivated.
If you are a nonresident of California, your home state typically offers a resident credit for taxes paid to California. California's Schedule S provides the other-state credit primarily to California residents who earn income taxed by another state. Compute the credit under both states' rules to determine which limit applies.
The California nonresident income tax return instructions are published in the Form 540NR booklet on the FTB website at ftb.ca.gov. The booklet includes filing thresholds by status and age, line-by-line instructions, and the Schedule CA instructions for computing the California income ratio.
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