California state income tax is based on a progressive tax system, which means that the tax rate increases as the taxable income increases. There are nine tax brackets for different income ranges, and each bracket has a different tax rate. The tax rates and thresholds for 2024 are shown in the table below.
| Taxable Income | Tax Rate |
|---|---|
| $0 – $10,099 | 1% |
| $10,100 – $23,942 | 2% |
| $23,943 – $37,788 | 4% |
| $37,789 – $52,455 | 6% |
| $52,456 – $66,295 | 8% |
| $66,296 – $338,639 | 9.3% |
| $338,640 – $406,364 | 10.3% |
| $406,365 – $677,275 | 11.3% |
| Over $677,275 | 12.3% |
To calculate the state income tax in Excel, we can use the IF function and the VLOOKUP function. The IF function allows us to test a condition and return a value based on whether the condition is true or false. The VLOOKUP function allows us to look up a value in a table and return a related value from another column.
The basic formula for calculating the state income tax is:
=IF (taxable income <= lowest threshold, taxable income * lowest rate, VLOOKUP (taxable income, tax table, 4, TRUE) + (taxable income – VLOOKUP (taxable income, tax table, 1, TRUE)) * VLOOKUP (taxable income, tax table, 3, TRUE))
Where:
- taxable income is the cell that contains the taxable income amount
- lowest threshold is the cell that contains the lowest income threshold in the tax table ($0 in this case)
- lowest rate is the cell that contains the lowest tax rate in the tax table (1% in this case)
- tax table is the range of cells that contains the tax brackets and rates
- 4 is the column index number that contains the cumulative tax amount for each bracket
- 1 is the column index number that contains the income threshold for each bracket
- 3 is the column index number that contains the tax rate for each bracket
- TRUE is the range lookup argument that indicates we want an approximate match
To illustrate how this formula works, let’s create a scenario with a sample data set. Suppose we have the following data in Excel:
| Name | Taxable Income |
|---|---|
| Alice | $45,000 |
| Bob | $75,000 |
| Charlie | $150,000 |
| David | $250,000 |
| Eve | $500,000 |
We also have the tax table in another sheet, named “Tax Table”, as shown below:
| Taxable Income | Tax Rate | Cumulative Tax |
|---|---|---|
| $0 | 1% | $0 |
| $10,099 | 2% | $100.99 |
| $23,942 | 4% | $657.60 |
| $37,788 | 6% | $1,489.34 |
| $52,455 | 8% | $2,607.68 |
| $66,295 | 9.3% | $3,954.59 |
| $338,639 | 10.3% | $29,282.58 |
| $406,364 | 11.3% | $36,258.26 |
| $677,275 | 12.3% | $66,871.20 |
To calculate the state income tax for Alice, we can use the following formula in cell C2:
=IF (B2<=$‘Tax Table’.$A$2,B2*$‘Tax Table’.$B$2,VLOOKUP (B2,$‘Tax Table’.$A$2:$D$10,4,TRUE)+ (B2-VLOOKUP (B2,$‘Tax Table’.$A$2:$D$10,1,TRUE))*VLOOKUP (B2,$‘Tax Table’.$A$2:$D$10,3,TRUE))
This formula returns $2,112.34, which is the state income tax for Alice. We can use the fill handle to copy the formula down to the other cells in column C. The final result is shown below:
| Name | Taxable Income | State Income Tax |
|---|---|---|
| Alice | $45,000 | $2,112.34 |
| Bob | $75,000 | $4,954.59 |
| Charlie | $150,000 | $12,282.58 |
| David | $250,000 | $22,258.26 |
| Eve | $500,000 | $52,871.20 |
To calculate the marginal tax rate and the effective tax rate for each person, we can use the following formulas:
- Marginal tax rate: =VLOOKUP (B2,$‘Tax Table’.$A$2:$D$10,3,TRUE)
- Effective tax rate: =C2/B2
The marginal tax rate is the tax rate that applies to the last dollar of taxable income. The effective tax rate is the average tax rate that applies to the total taxable income. The final result is shown below:
| Name | Taxable Income | State Income Tax | Marginal Tax Rate | Effective Tax Rate |
|---|---|---|---|---|
| Alice | $45,000 | $2,112.34 | 6% | 4.70% |
| Bob | $75,000 | $4,954.59 | 8% | 6.61% |
| Charlie | $150,000 | $12,282.58 | 9.3% | 8.19% |
| David | $250,000 | $22,258.26 | 10.3% | 8.90% |
| Eve | $500,000 | $52,871.20 | 11.3% | 10.57% |
This is how we can calculate the California state income tax in Excel using the IF and VLOOKUP functions. We can also use other functions such as SUMPRODUCT or INDEX and MATCH to achieve the same result.
