What California Form 540 (2018) Is For
California Form 540 is the annual state income tax return for individuals who were full-year California residents in 2018. Similar to filing Form 1040 with the IRS, residents use Form 540 to report all taxable income from any source, whether earned inside or outside the state. The form determines your taxable income, applies deductions and credits, and calculates your overall state tax liability.
Because California conforms to the Internal Revenue Code only through January 1, 2015, many federal changes enacted after that date—especially those from the Tax Cuts and Jobs Act (TCJA)—do not apply at the state level. As a result, Form 540 often differs from your federal return, and California-specific adjustments must be made using Schedule CA (540).
When You’d Use California Form 540 (2018)
Form 540 is required for anyone who was a California resident for the entire year and met the state’s 2018 filing requirements. Most taxpayers file it as part of their regular annual return. The due date for the 2018 tax year was April 15, 2019, but California granted an automatic extension to October 15, 2019, for filing. This extension did not extend the deadline for paying tax owed.
You also use Form 540 when filing an amended return for 2018. Starting that year, California replaced the old Form 540X with an amended Form 540 paired with Schedule X. Schedule X explains each change and calculates the resulting adjustments. Taxpayers generally have four years from the original due date—or one year from the date of payment, if later—to amend.
Key Rules or Details for 2018
Filing Requirements
California requires residents to file based on income level, age, filing status, and number of dependents. For example:
- Single, under 65, no dependents: file if gross income exceeds $17,693 or AGI exceeds $14,154
- Married filing jointly, both under 65, no dependents: file if gross income exceeds $35,388 or AGI exceeds $28,312
You must also file if you owe specific taxes or want to claim a refund—even if your income is below the thresholds.
Progressive Tax Rates
California uses a progressive income tax system with rates ranging from 1% to 13.3% for 2018. Your tax rate depends on your taxable income after deductions and credits.
Major California–Federal Differences
Because California did not adopt most TCJA changes, several adjustments are required:
- No federal bonus depreciation allowed
- Different rules for like-kind exchanges
- Separate treatment for Section 965 income and GILTI
- Different limits for Section 179 deductions
These differences must be reflected on Schedule CA (540).
Important Credits for 2018
Key credits available include:
- California Earned Income Tax Credit (EITC): expanded in 2018 to include workers age 18+ without children, earning up to $24,951
- Personal and dependent exemption credits
- Nonrefundable renter’s credit for qualifying tenants
Step-by-Step (High Level)
Step 1: Complete Your Federal Return
Prepare your federal Form 1040 first. California relies heavily on federal AGI and taxable income calculations.
Step 2: Gather Your Records
Collect W-2s, 1099s, receipts for deductions, estimated tax payment records, and other supporting documents.
Step 3: Enter Personal Information
Provide your legal name, address, SSN, birthdate, and filing status. California generally requires the same filing status as your federal return unless you are a registered domestic partner.
Step 4: Report Income
Transfer federal income items to Form 540 and complete Schedule CA (540) to account for California-specific adjustments.
Step 5: Choose Deductions
Select either the standard deduction or itemized deductions. California’s itemized deduction rules differ from federal rules, so be sure calculations reflect state law.
Step 6: Claim Exemption Credits
Enter credits for yourself, your spouse or RDP, and any dependents. Extra credits may apply for seniors or blind taxpayers.
Step 7: Calculate Your Tax
Use the 2018 California tax table or tax rate schedule to determine the amount owed before credits.
Step 8: Apply Credits
Add refundable and nonrefundable credits such as the California EITC or renter’s credit.
Step 9: Report Payments
Include California withholding from W-2s, estimated payments, extension payments, and any credits carried forward from prior years.
Step 10: Determine Your Refund or Balance Due
Subtract payments and credits from your tax liability. The result is either your refund or the balance due.
Step 11: Sign and File
Both spouses must sign if filing jointly. File electronically or mail all required pages and schedules to the FTB.
Common Mistakes and How to Avoid Them
- Incorrect estimated tax payment amounts — Verify payments in your MyFTB account before filing
- Using federal deduction amounts — California standard and itemized deductions differ
- Duplicate dependent claims — Ensure dependents aren’t claimed on multiple returns
- Misreading withholding — Only California state tax withholding counts for Form 540
- Excess SDI overstated — Check combined wages over $114,967 to avoid errors
- Wrong filing status — Follow California’s rules for married or RDP taxpayers
- Missing Form FTB 3532 for Head of Household — Required starting in 2018
E-filing eliminates many of these mistakes and speeds up refunds.
What Happens After You File
The Franchise Tax Board processes e-filed returns within a few weeks, while paper returns can take longer. Refunds arrive fastest through direct deposit. Amounts owed must be paid by the April 15 deadline, regardless of filing date, or penalties and interest will apply.
The FTB may review or audit your return. You’ll receive a notice if additional documentation is required, and you have the right to representation. Common penalties include failure to file (up to 25%), failure to pay (0.5% per month), and accuracy-related penalties. If the IRS later adjusts your federal return, you must notify California within six months.
The statute of limitations is generally four years from the filing date, but extends to eight years for substantial underreporting and remains open indefinitely if no return is filed.
FAQs
Do I need to file both federal and California returns?
Yes. If you meet state filing requirements, you must file with both the IRS and the FTB. Complete your federal return first, as several California calculations depend on it.
Why does my California tax differ from my federal return?
California follows federal rules only up to January 1, 2015. Because later federal changes did not carry over, Schedule CA (540) is required to reconcile many income and deduction differences.
Can I qualify for the California EITC even if I don’t qualify federally?
Yes. California’s EITC has broader eligibility. Workers age 18 or older without dependents may qualify if income is under $24,951. Use Form FTB 3514 to claim the credit.
What if I was only a resident for part of 2018?
You must file Form 540NR instead of Form 540. That form calculates tax based on the period of residency plus income from California sources while you were a nonresident.
How long should I keep my 2018 tax documents?
Keep records for at least four years after filing. If you substantially underreported income or claimed certain carryovers, retain records for eight years or longer.
Do registered domestic partners file differently?
Yes. California treats RDPs the same as married couples for state tax purposes. You must file using married filing jointly or married filing separately, even if you file as single on your federal return.
What’s the fastest way to get my refund?
E-file your return and select direct deposit. Most refunds arrive within two to three weeks for electronically filed returns.
For official 2018 forms and instructions, visit the Franchise Tax Board’s website: https://www.ftb.ca.gov.
