Updated October 16, 2026. Quick answer: Yes. California taxes interest and ordinary dividends as ordinary income on its graduated schedule, which runs for 2025 from 1.00% on the first $11,079 of a single filer’s taxable income to 12.30% over $742,953. Taxable income over $1,000,000 also pays a separate 1% Behavioral Health Services Tax (named the Mental Health Services Tax before 2025). The booklet says “California taxes dividends derived from other states and their municipal” obligations.
How California treats dividends and interest
| Item | What the documents say |
|---|---|
| Treatment | Taxed as ordinary income on the graduated schedule |
| 2025 rates (single, Schedule X) | 1.00% on the first $11,079 up to 12.30% on income over $742,953 |
| Behavioral Health Services Tax | 1% of taxable income over $1,000,000, computed on Form 540 line 62 |
| U.S. obligations | Subtract interest on “U.S. Treasury bills, notes, and bonds.” |
| Other states’ municipal bonds | Add back interest on “Non-California municipal bonds issued by a county, city, town, or other” government unit |
| Mutual funds | Exempt-interest dividends can be exempt when the fund “has at least 50% of its assets invested in tax-exempt U.S. obligations” (or California obligations, as the booklet details) |
A $20,000 example
The tax on $20,000 of taxable dividends and interest depends on the bracket it lands in. Taxed wholly at 1.00% it would add $200; taxed wholly at 12.30%, $2,460. Your own figure depends on your other income.
What changes in 2026
The 2025 booklet is the latest California document read, and it prints no 2026 rate schedule.
Federal rules
The state’s treatment sits on top of the federal one. Qualified dividends and ordinary dividends are sorted out on the Form 1099-DIV, as the site explains in Box 1a and 1b: ordinary versus qualified dividends, and interest is reported as covered in 1099-INT Box 1. The IRS explains the federal side in Topic no. 403, Interest Received and Topic no. 404, Dividends.
Related: whether California taxes capital gains, whether California taxes pensions, how California taxes retirement income, dividends and interest tax by state, and how tax-exempt interest is reported.
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Answer againSources
- 2025 California 540 Forms & Instructions Personal Income Tax Booklet: https://www.ftb.ca.gov/forms/2025/2025-540-booklet.html
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.