What California Form 540 Is For
California Form 540 (2022) is the standard income tax return for full-year residents. Anyone who lived in California for all of 2022 must file this form to report income and calculate their California income tax. Filing is required even if you submitted a federal return because California uses its own tax rules, deductions, and credits.
As a California resident, you must report all worldwide income—wages, interest, dividends, business or rental income, capital gains, and other taxable amounts. You must file if your gross income or California adjusted gross income (AGI) exceeds the filing thresholds for your age, filing status, and dependent count. California’s conformity to the federal code stops at January 1, 2015, so many recent federal changes require adjustments using Schedule CA (540).
When You’d Use California Form 540
You use Form 540 when you are a full-year California resident and must file based on income thresholds or special tax circumstances such as alternative minimum tax or tax on qualified retirement plan distributions. You also file this form if you need to report dependent investment income or certain recapture taxes.
Form 540 is also used for late or amended filing. California grants an automatic six-month extension to file, moving the deadline to October 16, 2023, but all tax is still due by April 18. For amended returns, you must file a paper Form 540 with Schedule X to explain changes.
Key Rules or Details for 2022
Filing Deadlines and Extensions
The 2022 due date was April 18, 2023. All taxes owed had to be paid by that date to avoid interest and most penalties. The automatic filing extension ran through October 16, 2023. A new one-time timeliness penalty abatement became available for taxpayers with a clean compliance history.
Income Thresholds
Filing thresholds vary by age and filing status. A single filer under 65 must file if gross income exceeds $20,913 or California AGI exceeds $16,730. Married/RDP joint filers under 65 must file if their gross income exceeds $41,830 or AGI exceeds $33,460. These thresholds increase for older filers and for those with dependents.
Deductions and Filing Status
You generally must use the same filing status as your federal return. California recognizes Registered Domestic Partners as equivalent to married couples. The standard deduction for 2022 is $5,202 for single or separate filers and $10,404 for joint, head of household, or qualifying surviving spouse/RDP filers. Dependents must use the special worksheet to determine their limited standard deduction.
Tax Rates and Adjustments
California’s progressive tax rates range from 1% to 12.3%, with an additional mental health services tax on income over $1 million. Because California does not conform to many federal provisions enacted after January 1, 2015, adjustments on Schedule CA (540) are common. These include differences for student loan forgiveness, COVID-19 relief grants, wildfire settlements, and turf replacement incentives.
Key 2022 Changes
California repealed the NOL suspension and the credit limitation from prior years. California excluded Middle Class Tax Refund payments from income and expanded refundable credits including the Young Child Tax Credit and the new Foster Youth Tax Credit.
Step-by-Step (High Level)
Step 1: Complete Your Federal Return
Your federal return provides the AGI and documentation needed for your California filing. You must complete it first.
Step 2: Gather Income and Supporting Documents
Collect W-2s, 1099s, Forms 592-B and 593, records of estimated payments, and receipts for deductions. Attach copies of W-2s and any 1099s showing California withholding.
Step 3: Enter Personal Information and Filing Status
Provide your name, address, SSN or ITIN, and county. Select the same filing status used on your federal return unless an exception applies.
Step 4: Claim Exemptions
Complete lines 6-11 for personal, blind, senior, and dependent exemptions. Provide full information for each dependent. If a dependent lacks an SSN or ITIN, complete Form FTB 3568.
Step 5: Report Wages and Federal AGI
Enter total state wages from W-2 box 16 on line 12. Enter federal AGI on line 13.
Step 6: Make California Adjustments
Complete Schedule CA (540) to report additions or subtractions needed due to nonconformity. Transfer these adjustments to lines 14 and 16 to calculate California AGI.
Step 7: Determine Deductions
Choose standard deduction or itemized deductions, whichever is larger. Complete Schedule CA Part II if itemizing.
Step 8: Calculate Taxable Income and Tax
Subtract deductions from California AGI to determine taxable income. Use the tax tables if income is $100,000 or less or rate schedules if above.
Step 9: Apply Exemption Credits and Special Taxes
Subtract exemption credits, applying the phase-out worksheet if required. Add any additional taxes such as AMT, lump-sum distribution tax, or the mental health services tax.
Step 10: Apply Credits and Report Payments
Claim nonrefundable and refundable credits, including CalEITC, Young Child Tax Credit, and Foster Youth Tax Credit using Form FTB 3514. Then report withholding, estimated payments, and excess SDI if applicable.
Common Mistakes and How to Avoid Them
- Incorrect estimated payments — Verify all estimated payments and carryforwards through your MyFTB account before filing.
- Using incorrect deduction amounts — California’s standard deduction differs from federal amounts and dependents have special rules.
- Reporting wrong withholding totals — Use California withholding from W-2 box 17, not federal withholding. Attach all withholding forms.
- Miscalculating exemption credits — Complete the AGI limitation worksheet if your income exceeds the threshold.
- Dependent conflicts — Ensure dependents aren’t claimed on another return; provide accurate SSNs or ITINs.
- Missing required schedules — Attach Schedule CA, credit forms, withholding documents, and all additional forms required for adjustments.
- Incorrect excess SDI calculation — Use the worksheet for wages above $145,600 and multiple employers.
- Skipping California adjustments — Failing to complete Schedule CA when required results in incorrect AGI and tax.
What Happens After You File
Refunds are generally issued within a few weeks for e-filed returns with direct deposit and take longer for paper filings. You can check your refund status through MyFTB. All refunds may be intercepted for certain state or federal debts under the Interagency Intercept Collection program.
The Franchise Tax Board (FTB) may send notices requesting documentation or clarifying discrepancies in withholding, estimated payments, or dependent claims. If you owe tax and cannot pay in full, you can request an installment agreement. If the IRS later adjusts your federal return, file an amended Form 540 with Schedule X within the applicable time limits. Keep all records for at least four years, as the FTB may audit returns within this period.
FAQs
Do I need to file a California return if I already filed a federal return?
Yes. Full-year California residents must file Form 540 if they meet state filing requirements. California’s tax laws differ from federal rules, so filing a federal return does not satisfy your state obligation.
What is the California Earned Income Tax Credit (CalEITC)?
CalEITC is a refundable credit for low-income workers with earned income under $30,001. You do not need qualifying children to claim it. Eligible taxpayers may also qualify for the Young Child Tax Credit or the Foster Youth Tax Credit.
What is Schedule CA (540) used for?
Schedule CA reports differences between federal and California income and deductions. It includes additions and subtractions needed because California does not conform to many recent federal tax law changes.
Can I itemize for California even if I take the federal standard deduction?
Yes. You can itemize for one return and use the standard deduction for the other. If itemizing only for California, attach a federal Schedule A and complete Schedule CA Part II.
What major federal–California differences apply for 2022?
California excludes certain student loan forgiveness, Middle Class Tax Refund payments, turf replacement incentives, and some COVID-19 and wildfire relief. California does not conform to many provisions of the CARES Act, ARPA, or Inflation Reduction Act.
For official instructions, visit the California FTB’s Form 540 resource page: https://www.ftb.ca.gov/forms/2022/2022-540-booklet.html
