2018 540 Forms and Instructions Personal Income Tax Booklet

Important Dates

When the due date falls on a weekend or holiday, the deadline to file and pay without penalty is extended to the next business day.

April 15, 2019*

Last day to file and pay the 2018 amount you owe to avoid penalties and interest.* See form FTB 3519 for more information.

* If you are living or traveling outside the United States on April 15, 2019, the dates for filing your tax return and paying your tax are different. See form FTB 3519 for more information.

October 15, 2019 Last day to file or e-file your 2018 tax return to avoid a late filing penalty and interest computed from the original due date of April 15, 2019.

April 15, 2019

June 17, 2019

September 16, 2019

January 15, 2020

The dates for 2019 estimated tax payments. Generally, you do not have to make estimated tax payments if your California withholding in each payment period totals 90% of your required annual payment. Also, you do not have to make estimated tax payments if you will pay enough through withholding to keep the amount you owe with your tax return under $500 ($250 if married/registered domestic partner (RDP) filing separately). However, if you do not pay enough tax either through withholding or by making estimated tax payments, you may have an underpayment penalty. See Form 540-ES instructions for more information.

$$$ for You

Earned Income Tax Credit

  • Federal Earned Income Tax Credit (EIC) – EIC reduces your federal tax obligation, or allows a refund if no federal tax is due. You may qualify if you earned less than $49,194 ($54,884 if married filing jointly) and have qualifying children or you have no qualifying children and you earned less than $15,270 ($20,950 if married filing jointly). Call the Internal Revenue Service (IRS) at 800-829-4477 and when instructed enter topic 601, see the federal income tax booklet, or go to the IRS website at irs.gov and search for eitc assistant.
  • California Earned Income Tax Credit (EITC) – EITC reduces your California tax obligation, or allows a refund if no California tax is due. You may qualify if you have wage income earned in California and/or net earnings from self-employment of less than $24,951. You do not need a child to qualify. For more information go to ftb.ca.gov and search for EITC or get form FTB 3514 – California Earned Income Tax Credit.

Refund of Excess State Disability Insurance (SDI)

If you worked for at least two employers during 2018 who together paid you more than $114,967 in wages, you may qualify for a refund of excess SDI. See the instructions on page 14.

Common Errors and How to Prevent Them

Help us process your tax return quickly and accurately. When we find an error, it requires us to stop to verify the information on the tax return, which slows processing. The most common errors consist of:

  • Claiming the wrong amount of estimated tax payments.
  • Claiming the wrong amount of standard deduction or itemized deductions.
  • Claiming a dependent already claimed on another return.
  • The amount of refund or payments made on an original return does not match our records when amending your tax return.
  • Claiming the wrong amount of withholding by incorrectly totaling or transferring the amounts from your W-2.
  • Claiming the wrong amount of real estate withholding.
  • Claiming the wrong amount of SDI.
  • Claiming the wrong amount of exemption credits.

To avoid errors and help process your tax return faster, use these helpful hints when preparing your tax return.

Claiming estimated tax payments:

  • Verify the amount of estimated tax payments claimed on your tax return matches what you sent to the Franchise Tax Board (FTB) for that year. Go to ftb.ca.gov and login or register for MyFTB to view your total estimated tax payments before you file your tax return.
  • Verify the overpayment amount from your 2017 tax return you requested to be applied to your 2018 estimated tax.

Claiming state disability insurance:

  • Verify the amount of SDI used to figure the amount of excess SDI claimed on Form 540, line 74, matches amounts from your W-2’s.

Claiming standard deduction or itemized deductions:

  • See Form 540, line 18 instructions and worksheets for the amount of standard deduction or itemized deductions you can claim.

Claiming withholding amounts:

  • Go to ftb.ca.gov and login or register for MyFTB to verify withheld amount or see instructions for line 71 of Form 540 or line 81 of Form 540NR. Confirm only California income tax withheld is claimed.
  • Verify real estate or other withholding amount from Form 592-B, Resident and Nonresident Withholding Statement, and Form 593, Real Estate Withholding Tax Statement. See instructions for line 73 of Form 540 or line 83 for Form 540NR.

Claiming refund or payments made on an original return when amending your tax return:

  • Go to ftb.ca.gov and login or register for MyFTB to check tax return records for refund or payments made.
  • Verify the amount from your original return line 115 of Form 540 or line 125 of Form 540NR and include any adjustment by FTB.

Use e-file:

  • By using e-file, you can eliminate many common errors. Go to ftb.ca.gov and search for efile options.

Do I Have to File?

Steps to Determine Filing Requirement

Step 1: Is your gross income (all income received from all sources in the form of money, goods, property, and services that are not exempt from tax) more than the amount shown in the California Gross Income chart below for your filing status, age, and number of dependents? If yes, you have a filing requirement. If no, go to Step 2.

Step 2: Is your adjusted gross income (federal adjusted gross income from all sources reduced or increased by all California income adjustments) more than the amount shown in the California Adjusted Gross Income chart below for your filing status, age, and number of dependents? If yes, you have a filing requirement. If no, go to Step 3.

Step 3: If your income is less than the amounts on the chart you may still have a filing requirement. See “Requirements for Children with Investment Income” and “Other Situations When You Must File.” Do those instructions apply to you? If yes, you have a filing requirement. If no, go to Step 4.

Step 4: Are you married/RDP filing separately with separate property income? If no, you do not have a filing requirement. If yes, prepare a tax return. If you owe tax, you have a filing requirement.

On 12/31/18, my filing status was: and on 12/31/18, my age was: (If your 65th birthday is on January 1, 2019, you are considered to be age 65 on December 31, 2018) California Gross Income California Adjusted Gross Income
Dependents Dependents
0 1 2 or more 0 1 2 or more
Single or
Head of household
Under 65 17,693 29,926 39,101 14,154 26,387 35,562
65 or older 23,593 32,768 40,108 20,054 29,229 36,569
Married/RDP filing jointly
Married/RDP filing separately

(The income of both spouses/RDPs must be combined; both spouses/RDPs may be required to file a tax return even if only one spouse/RDP had income over the amounts listed.)

Under 65 (both spouses/RDPs) 35,388 47,621 56,796 28,312 40,545 49,720
65 or older (one spouse/RDP) 41,288 50,463 57,803 34,212 43,387 50,727
65 or older (both spouses/RDPs) 47,188 56,363 63,703 40,112 49,287 56,627
Qualifying widow(er) Under 65 N/A 29,926 39,101 N/A 26,387 35,562
65 or older N/A 32,768 40,108 N/A 29,229 36,569
Dependent of another person
Any filing status
Any age More than your standard deduction (Use the California Standard Deduction Worksheet for Dependents on page 11 to figure your standard deduction.)

Requirements for Children with Investment Income

California law conforms to federal law which allows parents’ election to report a child’s interest and dividend income from children under age 19 or a student under age 24 on the parent’s tax return. For each child under age 19 or student under age 24 who received more than $2,100 of investment income in 2018, complete Form 540 and form FTB 3800, Tax Computation for Certain Children with Investment Income, to figure the tax on a separate Form 540 for your child.

If you qualify, you may elect to report your child’s income of $10,500 or less (but not less than $1,050) on your tax return by completing form FTB 3803, Parents’ Election to Report Child’s Interest and Dividends. To make this election, your child’s income must be only from interest and/or dividends. To get forms FTB 3800 or FTB 3803, see “Order Forms and Publications” or go to ftb.ca.gov/forms.

Other Situations When You Must File

If you have a tax liability for 2018 or owe any of the following taxes for 2018, you must file Form 540.

  • Tax on a lump-sum distribution.
  • Tax on a qualified retirement plan including an Individual Retirement Arrangement (IRA) or an Archer Medical Savings Account (MSA).
  • Tax for children under age 19 or student under age 24 who have investment income greater than $2,100 (see paragraph above).
  • Alternative minimum tax.
  • Recapture taxes.
  • Deferred tax on certain installment obligations.
  • Tax on an accumulation distribution from a trust.

Filing Status

Use the same filing status for California that you used for your federal income tax return, unless you are a registered domestic partnership (RDP). If you are an RDP and file single for federal, you must file married/RDP filing jointly or married/RDP filing separately for California. If you are an RDP and file head of household for federal purposes, you may file head of household for California purposes only if you meet the requirements to be considered unmarried or considered not in a domestic partnership.

Exception: If you file a joint tax return for federal purposes, you may file separately for California if either spouse was:

  • An active member of the United States armed forces or any auxiliary military branch during 2018.
  • A nonresident for the entire year and had no income from California sources during 2018.

    Community Property States: If the spouse earning the California source income is domiciled in a community property state, community income will be split equally between the spouses. Both spouses will have California source income and they will not qualify for the nonresident spouse exception.

If you had no federal filing requirement, use the same filing status for California that you would have used to file a federal income tax return.

If you filed a joint tax return and either you or your spouse/RDP was a nonresident for 2018, file the Long or Short Form 540NR, California Nonresident or Part-Year Resident Income Tax Return.

Single

You are single if any of the following was true on December 31, 2018:

  • You were not married or an RDP.
  • You were divorced under a final decree of divorce, legally separated under a final decree of legal separation, or terminated your registered domestic partnership.
  • You were widowed before January 1, 2018, and did not remarry or enter into another registered domestic partnership in 2018.

Married/RDP Filing Jointly

You may file married/RDP filing jointly if any of the following is true:

  • You were married or an RDP as of December 31, 2018, even if you did not live with your spouse/RDP at the end of 2018.
  • Your spouse/RDP died in 2018 and you did not remarry or enter into another registered domestic partnership in 2018.
  • Your spouse/RDP died in 2019 before you filed a 2018 tax return.

Married/RDP Filing Separately

  • Community property rules apply to the division of income if you use the married/RDP filing separately status. For more information, get FTB Pub. 1031, Guidelines for Determining Resident Status, FTB Pub. 737, Tax Information for Registered Domestic Partners, or FTB Pub. 1032, Tax Information for Military Personnel. To get forms see “Order Forms and Publications” or go to ftb.ca.gov/forms.
  • You cannot claim a personal exemption credit for your spouse/RDP even if your spouse/RDP had no income, is not filing a tax return, and is not claimed as a dependent on another person’s tax return.
  • You may be able to file as head of household if your child lived with you and you lived apart from your spouse/RDP during the entire last six months of 2018.

Head of Household

For the specific requirements that must be met to qualify for head of household (HOH) filing status, get FTB Pub. 1540, California Head of Household Filing Status. In general, head of household filing status is for unmarried individuals and certain married individuals or RDPs living apart who provide a home for a specified relative. You may be entitled to use head of household filing status if all of the following apply:

  • You were unmarried and not in a registered domestic partnership, or you met the requirements to be considered unmarried or considered not in a registered domestic partnership on December 31, 2018.
  • You paid more than one-half the cost of keeping up your home for the year in 2018.
  • For more than half the year, your home was the main home for you and one of the specified relatives who by law can qualify you for head of household filing status.
  • You were not a nonresident alien at any time during the year.

For a child to qualify as your foster child for head of household purposes, the child must either be placed with you by an authorized placement agency or by order of a court.

California requires taxpayers who use head of household filing status to file form FTB 3532, Head of Household Filing Status Schedule to report how the HOH filing status was determined.

Beginning in tax year 2018, if you do not attach a completed form FTB 3532 to your tax return, we will deny your Head of Household filing status. For more information about the Head of Household filing requirements, go to ftb.ca.gov and search for HOH.

Qualifying Widow(er)

Check the box on Form 540, line 5 and use the joint return tax rates for 2018 if all five of the following apply:

  • Your spouse/RDP died in 2016 or 2017 and you did not remarry or enter into another registered domestic partnership in 2018.
  • You have a child, stepchild, or adopted child (not a foster child) whom you can claim as a dependent or could claim as a dependent except that, for 2018:
    • The child had gross income of $4,150 or more;
    • The child filed a joint return, or
    • You could be claimed as a dependent on someone else’s return.

    If the child isn’t claimed as your dependent, enter the child's name in the entry space under the "Qualifying widow(er)" filing status.

  • This child lived in your home for all of 2018. Temporary absences, such as for vacation or school, count as time lived in the home.
  • You paid over half the cost of keeping up your home for this child.
  • You could have filed a joint tax return with your spouse/RDP the year he or she died, even if you actually did not do so.

What’s New and Other Important Information for 2018

Differences between California and Federal Law

In general, for taxable years beginning on or after January 1, 2015, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2015. However, there are continuing differences between California and federal law. When California conforms to federal tax law changes, we do not always adopt all of the changes made at the federal level. For more information, go to ftb.ca.gov and search for conformity. Additional information can be found in FTB Pub. 1001, Supplemental Guidelines to California Adjustments, the instructions for California Schedule CA (540), California Adjustments – Residents, and the Business Entity tax booklets.

The instructions provided with California tax forms are a summary of California tax law and are only intended to aid taxpayers in preparing their state income tax returns. We include information that is most useful to the greatest number of taxpayers in the limited space available. It is not possible to include all requirements of the California Revenue and Taxation Code (R&TC) in the instructions. Taxpayers should not consider the instructions as authoritative law.

Conformity

For updates regarding federal acts, go to ftb.ca.gov and search for conformity.

2018 Tax Law Changes/What’s New

Voluntary Contributions

You may contribute to the following new funds:

  • Organ and Tissue Donor Registry Voluntary Tax Contribution Fund
  • National Alliance on Mental Illness California Voluntary Tax Contribution Fund
  • Schools Not Prisons Voluntary Tax Contribution Fund

Federal Tax Reform

The Tax Cuts and Jobs Act (TCJA) signed into law on December 22, 2017, made changes to the IRC. In general, California R&TC does not conform to the changes. California taxpayers continue to follow the IRC as of the specified date of January 1, 2015, with modifications. For specific adjustments due to the TCJA, see the Schedule CA (540) instructions.

California Earned Income Tax Credit (EITC)

For taxable years beginning on or after January 1, 2018, the age limit for an eligible individual without a qualifying child is revised to 18 years or older. For more information, go to ftb.ca.gov and search for EITC or get form FTB 3514, California Earned Income Tax Credit.

New Employment Credit

The sunset date for the New Employment Credit is extended until taxable years beginning before January 1, 2026. For more information, go to ftb.ca.gov and search for nec or get form FTB 3554, New Employment Credit.

California Competes Tax Credit

The sunset date for the California Competes Tax Credit is extended until taxable years beginning before January 1, 2030. For more information, go to the GO-Biz website at business.ca.gov or ftb.ca.gov and search for ca competes or get form FTB 3531, California Competes Tax Credit.

Native American Earned Income Exemption

For taxable years beginning on or after January 1, 2018, federally recognized tribal members living in California Indian country who earn income from any federally recognized California Indian country are exempt from California taxation. This exemption applies only to earned income. Enrolled tribal members who receive per capita income must reside in their affiliated tribe’s Indian country to qualify for tax exempt status. Additional information can be found in the instructions for Schedule CA (540) and form FTB 3504, Enrolled Tribal Member Certification.

Like-Kind Exchanges

The TCJA amended IRC Section 1031 limiting its application to real property that is not primarily held for sale. Additionally, under the TCJA, exchanges of personal property and intangible property do not qualify for nonrecognition of gain or loss as like-kind exchanges. California does not conform to the amendments under the TCJA. Get Schedule D-1, Sales of Business Property.

IRC Section 965 Deferred Foreign Income

Under federal law, if you own (directly or indirectly) certain foreign corporations, you may have to include on your return certain deferred foreign income. California does not conform. For more information, see the Schedule CA (540) instructions.

Global Intangible Low-Taxed Income (GILTI) Under IRC Section 951A

Under federal law, if you are a U.S. shareholder of a controlled foreign corporation, you must include your GILTI in your income. California does not conform. For more information, see the Schedule CA (540) instructions.

Other Important Information

Wrongful Incarceration Exclusion

California law conforms to federal law excluding from gross income certain amounts received by wrongfully incarcerated individuals for taxable years beginning before, on, or after January 1, 2018. If you included income for wrongful incarceration in a prior taxable year, you can file an amended California personal income tax return for that year. If the normal statute of limitations has expired, you must file a claim by January 1, 2019.

College Access Tax Credit

For taxable years beginning on and after January 1, 2017, and before January 1, 2023, the College Access Tax Credit (CATC) is available to entities awarded the credit from the California Educational Facilities Authority (CEFA). The credit is 50% of the amount contributed by the taxpayer for the taxable year to the College Access Tax Credit Fund. The amount of the credit is allocated and certified by the CEFA. For more information, go to the CEFA website at treasurer.ca.gov and search for catc.

Schedule X, California Explanation of Amended Return Changes

For taxable years beginning on or after January 1, 2017, use Schedule X to determine any additional amount you owe or refund due to you, and to provide reason(s) for amending your previously filed income tax return. For additional information, see “Instructions for Filing a 2018 Amended Return” on page 29.

Improper Withholding on Severance Paid to Veterans

The Combat‑Injured Veterans Tax Fairness Act of 2016 gives veterans who retired from the Armed Forces for medical reasons additional time to claim a refund if they had taxes improperly withheld from their severance pay. If you filed an amended return with the IRS on this issue, you have two years to file your amended California return.

New Donated Fresh Fruits or Vegetables Credit

For taxable years beginning on or after January 1, 2017 and before January 1, 2022, qualified taxpayers may claim the New Donated Fresh Fruits or Vegetables Credit. This tax credit is for donations of fresh fruits or vegetables made to California food banks. The amount of the tax credit is 15% of the qualified value of the donated item, based on weighted average wholesale price. The credit may be claimed only on a timely filed original return. However, any credit not used in the taxable year may be carried forward up to seven years. For more information, get form FTB 3814, New Donated Fresh Fruits or Vegetables Credit.

Low-Income Housing Credit Allocations to Partners

For partnerships owning projects that receive a preliminary reservation of the Low‑Income Housing Credit (LIHC) before January 1, 2020, the prior law exception that requires a partnership to allocate the credit among partners based upon the partnership agreement is re-enacted.

Sale of Credit

For projects that receive a preliminary reservation of the LIHC beginning on or after January 1, 2016, and before January 1, 2020, a taxpayer may make an irrevocable election in its application to the California Tax Credit Allocation Committee to sell all or any portion of the LIHC allowed to one or more unrelated parties for each taxable year in which the credit is allowed. An original purchaser is allowed a one-time resale of that credit to one or more unrelated parties. For more information, get form FTB 3521, Low-Income Housing Credit, or go to the California Tax Credit Allocation Committee website at treasurer.ca.gov/ctcac.

California Achieving a Better Life Experience (ABLE) Program

For taxable years beginning on or after January 1, 2016, the California Qualified ABLE Program was established and California generally conforms to the federal income tax treatment of ABLE accounts. This program was established to help blind or disabled U.S. residents save money in a tax-favored ABLE account to maintain health, independence, and quality of life. Additional information can be found in the instructions of form FTB 3805P, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.

New California Motion Picture and Television Production Credit

For taxable years beginning on or after January 1, 2016, a new California motion picture and television production credit will be allowed to a qualified taxpayer. The credit is allocated and certified by the California Film Commission (CFC). The qualified taxpayer can:

  • Offset the credit against income tax liability.
  • Sell the credit to an unrelated party (independent films only).
  • Assign the credit to an affiliated corporation.
  • Apply the credit against qualified sales and use taxes.

For more information, get form FTB 3541, California Motion Picture and Television Production Credit, form FTB 3551, Sale of Credit Attributable to an Independent Film, go to ftb.ca.gov and search for motion picture, or go to the CFC website at film.ca.gov and search for incentives.

Electronic Funds Withdrawal (EFW)

Make extension or estimated tax payments using tax preparation software. Check with your software provider to determine if they support EFW for extension or estimated tax payments.

Payments and Credits Applied to Use Tax

For taxable years beginning on or after January 1, 2015, if a taxpayer includes use tax on their personal income tax return, payments and credits will be applied to use tax first, then towards income tax, interest, and penalties. Additional information can be found in the instructions for California Form 540.

Dependent Social Security Number (SSN)

For taxable years beginning on or after January 1, 2015, taxpayers claiming an exemption credit must write each dependent’s SSN in the spaces provided within line 10 for the California Form 540 and California Form 540NR (Long and Short).

Financial Incentive for Seismic Improvement

For taxable years beginning on or after January 1, 2015, taxpayers can exclude from gross income any amount received as loan forgiveness, grant, credit, rebate, voucher, or other financial incentive issued by the California Residential Mitigation Program or the California Earthquake Authority to assist a residential property owner or occupant with expenses paid, or obligations incurred, for earthquake loss mitigation. Additional information can be found in the instructions for California Schedule CA (540 and 540NR).

Natural Heritage Preservation Credit

For qualified contributions made on or after January 1, 2015, the credit carryover period has been extended to 15 years or until exhausted, whichever occurs first. Any unused credits remaining before January 1, 2015, will remain subject to an eight-year carryover provision. In addition, the period for when a qualified contribution is made, for which a tax credit will be allowed, has been extended to June 30, 2020.

Disaster Losses

For taxable years beginning on or after January 1, 2014, and before January 1, 2024, taxpayers may deduct a disaster loss for any loss sustained in any city, county, or city and county in California that is proclaimed by the Governor to be in a state of emergency. For these Governor-only declared disasters, subsequent state legislation is not required to activate the disaster loss provisions. Additional information can be found in the instructions for California form FTB 3805V, Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations – Individuals, Estates, and Trusts.

Head of Household

For taxable years beginning on or after January 1, 2015, California requires taxpayers who use head of household (HOH) filing status to file form FTB 3532, Head of Household Filing Status Schedule, to report how the HOH filing status was determined.

Financial Incentive for Turf Removal

For taxable years beginning on or after January 1, 2014, and before January 1, 2019, taxpayers can exclude from gross income any amount received as a rebate, voucher, or other financial incentive issued by a local water agency or supplier for participation in a turf removal water conservation program. Additional information can be found in the instructions for California Schedule CA (540 and 540NR).

Penalty Assessed by Professional Sports League

For taxable years beginning on or after January 1, 2014, an owner of all or part of a professional sports franchise will not be allowed a deduction for the amount of any fine or penalty paid or incurred, that was assessed or imposed by the professional sports league that includes that franchise. Additional information can be found in the instructions for California Schedule CA (540 and 540NR).

New Employment Credit

For taxable years beginning on or after January 1, 2014, and before January 1, 2021, the New Employment Credit (NEC) is available to a qualified taxpayer that hires a qualified full-time employee on or after January 1, 2014, and pays or incurs qualified wages attributable to work performed by the qualified full‑time employee in a designated census tract or economic development area, and receives a tentative credit reservation for that qualified full‑time employee. In addition, an annual certification of employment is required with respect to each qualified full-time employee hired in a previous taxable year. In order to be allowed a credit, the qualified taxpayer must have a net increase in the total number of full-time employees in California. Any credits not used in the taxable year may be carried forward up to five years. If a qualified employee is terminated within the first 36 months after beginning employment, the employer may be required to recapture previously taken credits. For more information, go to ftb.ca.gov and search for nec or get form FTB 3554, New Employment Credit.

Repeal of Geographically Targeted Economic Development Area Tax Incentives

The California legislature repealed and made changes to all of the Geographically Targeted Economic Development Area (G-TEDA) Tax Incentives. Enterprise Zones (EZ) and Local Agency Military Base Recovery Areas (LAMBRA) were repealed on January 1, 2014. The Targeted Tax Areas (TTA) and Manufacturing Enhancement Areas (MEA) both expired on December 31, 2012. For more information, go to ftb.ca.gov and search for repeal tax incentives.

California Competes Tax Credit

For taxable years beginning on and after January 1, 2014, and before January 1, 2030, the California Competes Tax Credit is available to businesses that want to come to California or stay and grow in California. Tax credit agreements will be negotiated by the Governor’s Office of Business and Economic Development (GO-Biz) and approved by the California Competes Tax Credit Committee. The California Competes Tax Credit only applies to state income or franchise tax. Taxpayers who are awarded a contract by the committee will claim the credit on their income or franchise tax returns using credit code 233. The credit can reduce tax below the tentative minimum tax. Any credits not used in the taxable year may be carried forward up to six years. For more information, go to the GO‑Biz website at business.ca.gov or ftb.ca.gov and search for ca competes or get form FTB 3531, California Competes Tax Credit.

Like-Kind Exchanges