Global Mobility Tax

United States | State income tax conformity to federal tax law—spotlight on California

Summary

When federal income tax rules and legislation change, each state may or may not choose to follow those changes. With the recent passage of the One, Big, Beautiful Bill Act (OBBBA) into law on July 4, 2025, not all states have automatically conformed to the new federal provisions.

Although California enacted Senate Bill (SB) 711 on October 1, 2025 updating its conformity with federal tax law, it did so with significant exceptions and modifications, most notably, California does not conform to the OBBBA.

The detail

Historically, unlike many other states, California has followed a selective conformity approach to federal tax law, reviewing each federal tax change individually. On October 1, 2025, the California Governor signed SB 711 into law, marking the first major update in a decade to the state’s conformity with federal tax law. SB 711 updates California conformity date from January 1, 2015, to January 1, 2025, applicable for taxable years beginning with 2025.

However, as has long been the case, California’s conformity remains partial. Numerous exceptions, exclusions and modifications continue to apply. As stated above, each state has its own approach to federal tax law conformity, and California’s remains among the most distinctive.

The following highlights are particularly relevant for globally mobile employees and their employers:

• Moving expense deduction or exclusion — Under federal tax law, the qualified moving expense deduction and the exclusion of employer-paid qualified moving expense reimbursements were suspended for most individuals (except in certain cases for members of the U.S. Armed Forces) from 2018 through 202 The OBBBA made this suspension permanent. However, California does not conform to this suspension, either before or after SB 711. Accordingly, while the deduction or exclusion is not available for federal income tax purposes, it remains available for California income tax purposes.
• New federal tax deductions under the OBBBA — Since California’s SB 711 does not conform to changes made by the OBBBA, the new federal tax deductions including those related to overtime and tips, will likely not be available for California income tax purposes unless further legislation is enacted in California.

Some other non-conformity items of note include:

• Mortgage interest deduction for a qualified residence remains at a higher mortgage principal limit for California tax purposes versus federal tax.
• California does not follow the federal tax law cap on the amount of property taxes deductible for itemized deductions purposes.
• Contributions to health savings accounts remain nondeductible for California tax purposes.

Why this matters for mobility professionals

For mobile employees working in or out of the U.S., in addition to federal income tax, state income tax implications are a critical part of overall tax planning especially in states like California which continues to impose the highest marginal state income tax rate in the U.S. While SB 711 represents a significant update to California’s conformity with federal tax law, it largely maintains the status quo for individual taxpayers.

The California example highlights a broader challenge for employers, mobile employees, and payroll teams operating across multiple jurisdictions, where federal changes do not always automatically flow through to state tax law.

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Julie Baron
Partner

David Austin
Partner

Mike Branca 
Partner

Want to know when a Regional Alert is posted?

Simply follow our Vialto Alerts page on LinkedIn and posts will be displayed on your feed. To ensure you don’t miss one, once you’re on our LinkedIn page, click on the bell icon under the banner image to manage your notifications.

Further information on Vialto Partners can be found here: www.vialtopartners.com

Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.

© 2025 Vialto Partners. All rights reserved.