California introduced several tax law changes and updates for the 2025 tax year. These changes affect reporting requirements, tax credits, exclusions from income, deductions, and conformity with federal tax law. Taxpayers should review these changes carefully when preparing their 2025 California individual income tax return.
Program 4.0 California Motion Picture and Television Production Credit
For taxable years beginning on or after January 1, 2025, California provides a new motion picture and television production credit known as Program 4.0. The credit is allocated and certified by the California Film Commission. Eligible taxpayers may:
- Offset the credit against California income tax liability.
- Sell the credit to an unrelated party in the case of independent films.
- Assign the credit to an affiliated corporation.
- Apply the credit against qualified sales and use taxes.
Behavioral Health Services Act
Beginning in 2025, the Mental Health Services Act has been renamed the Behavioral Health Services Act. References to the Mental Health Services Tax have been updated accordingly and are now referred to as the Behavioral Health Services Tax.
Voluntary Contribution Funds
Taxpayers may make contributions to two new funds on their California tax return:
- California Pediatric Cancer Research Voluntary Tax Contribution Fund
- Parkinson's Disease Research Voluntary Tax Contribution Fund
Organ Donor Election
Starting with the 2025 tax year, California resident income tax returns include a new organ donor election option. Taxpayers may provide written consent for Donate Life California to enroll them in the Organ and Tissue Donor Registry. By checking the appropriate box on Form 540, taxpayers authorize the Franchise Tax Board to share registration information with Donate Life California for registry administration purposes.
Wildfire Disaster Settlement Exclusion
For taxable years beginning on or after January 1, 2021, and before January 1, 2030, qualified taxpayers may exclude from California gross income certain settlement payments received in connection with a qualified California wildfire disaster. Taxpayers who reported qualified settlement income in a previous year may be eligible to file an amended return within the normal statute of limitations.
Chiquita Canyon Elevated Temperature Landfill Event Exclusion
For taxable years beginning on or after January 1, 2024, and before January 1, 2029, California allows taxpayers to exclude qualifying payments received as a result of the Chiquita Canyon elevated temperature landfill event. Taxpayers who previously reported these payments as income may be eligible to amend a prior return.
Military Retirement Exclusion
For taxable years beginning on or after January 1, 2025, and before January 1, 2030, qualified taxpayers may exclude up to $20,000 of military retirement pay or Department of Defense Survivor Benefit Plan annuity payments from California gross income.
Alimony Changes
Beginning with taxable years starting on or after January 1, 2025, California conforms to the federal repeal of Internal Revenue Code Sections 71 and 215 for certain post-2025 divorce or separation agreements. Under these rules:
- Alimony is no longer taxable to the recipient spouse.
- Alimony is no longer deductible by the paying spouse.