Exploring California Taxes and Penalties

When you take early distributions from your 401(k), expect to pay an additional 2.5 percent in California tax. That means you pay a total of 12.5 percent in extra tax for early withdrawals.
When you reach age 59 1/2 and remain in California, you are required to pay state income tax on retirement savings. California taxes all retirement savings with the exception of Social Security and railroad retirement benefits. For 2018, the maximum California tax rate for individuals is 12.3 percent (plus an additional 1 percent surcharge for the highest bracket), which is among the highest in the nation. However, that rate is only for the top earners, so it is possible your tax bite would be considerably lower.

Leaving California
Any individual who is a resident of California continues to be a resident when absent from the state for a temporary or transitory purpose.
An absence from California under an employment-related contract for a period of at least 546 consecutive days may be considered an absence for other than a temporary or transitory purpose. See “Safe Harbor” on page 4 for more information.
Example 3 – Until September 2018, you were a resident of California. At that time, you declared yourself to be a resident of Nevada, where you have a summer home.You continue to spend six or seven months each year at your home in California, which you have retained.You spend only three to four months in Nevada and the rest of the time traveling in other states or countries.You transferred your bank accounts to Nevada. However, you continue
to maintain your social club and business connections in California.
Determination: Your declaration of residency in Nevada does not establish residency in that state.Your closest connections are to California and your absence from California is for temporary or transitory purposes.You are, therefore, a resident of California and are taxed on your income from all sources.
Example 4 – You and your spouse/RDP are California residents. You accept a contract to work in South America for 16 months.You lease an apartment near the job site. Your contract states that your employer will arrange your return back to California when your contract expires.Your spouse/RDP and your children will remain in California residing in the home you own.
Determination: You maintain strong ties with California because your spouse/RDP and children remain in your California home during your absence.Your intent is to return to California, and your absence is temporary and transitory.You remain a California resident during your absence.You are taxed on income from all sources, including income earned in South America.
Example 5 – You receive and accept a permanent job offer in Spain.You and your spouse/RDP sell your home in California, pack all of your possessions and move to Spain on May 5, 2018, with your children.You lease an apartment and enroll your children in school in Spain.You obtain a driver’s license from Spain and make numerous social connections in your new home.You have no intention of returning to California.
Determination: You are a part-year resident. Through May 4, 2018, you were a California resident. On
May 5, 2018, you became a nonresident. All your income while you were a resident is taxable by California. While you are a nonresident, only income from California sources is taxable by California.
Example 6 – You are a resident of California.You accept a 15-month assignment in Saudi Arabia.You put your personal belongings, including your automobile, in storage in California.You have a California driver’s license and are registered to vote in California.You maintain
bank accounts in California. In Saudi Arabia, you stay in a compound provided for you by your employer, and the only ties you establish there are connected to your employment. Upon completion of your assignment, you will return to California.
Determination: You have maintained greater connections with California than you have established
in Saudi Arabia.Your absence is for a temporary or transitory purpose. Therefore, you remain a California resident. As a California resident, your income from all sources is taxable by California, including the income that you earned from your assignment in Saudi Arabia.