It reduces both your federal income tax and CA income tax. The amount reduced depends on your income tax bracket. The federal tax brackets range between 10% and 35%. For CA income tax, tax brackets range from 1% to 9.3%. For example, if you're married and your initial taxable income is $60K/year, putting $3K into your 401(k) will reduce your taxable income to $57K, which puts you in the 15% bracket for the feds (saving you $3k times 15% = $450 in taxes) and 6% bracket for CA, saving you an additional 6% times $3K = $180. Total savings = $630. This is only an estimate, since the reduction in state taxes paid may affect the amount of your itemized deductions on your federal taxes, so "your mileage may vary."
You can see the federal tax brackets here:
Income tax in the United States - Wikipedia, the free encyclopedia
California rates are:
For single and married filing separately taxpayers:
-- 1% on the first $6,622 of taxable income
-- 2% on taxable income between $6,623 and $15,698
-- 4% on taxable income between $15,699 and $24,776
-- 6% on taxable income between $24,777 and $34,394
-- 8% on taxable income between $34,395 and $43,467
-- 9.3% on taxable income of $43,468 and above.
A 1 percent surcharge is collected on taxable incomes of $1 million or more, making California's highest marginal rate 10.3 percent.
For married persons filing joint returns and heads of households, the rates above are the same but the income brackets are doubled.
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