California is one of the more regulated states for the trades. You need a state contractor license to take work on, and the income tax runs up to 13.3%, so both your paperwork and your tax bill are heavier here than average. Knowing the rules is the difference between a healthy margin and a nasty surprise.
Each section below points to a tool that runs your exact numbers for California.
Tax in California
California has a graduated state income tax that runs up to 13.3% at the top, on top of your federal taxes. Graduated means the rate climbs as your profit does, so a good year costs proportionally more. You owe federal income tax and self-employment tax as well, and you make estimated payments to both California and the IRS through the year.
On sales tax in California, your labor is exempt and you pay tax on your materials at purchase, but a time-and-materials job can tip you into retailer treatment for fixtures, so watch how you write it. Confirm it for your kind of job before you quote.
Work out what to hold back on the Tax Set-Aside Calculator, which runs the federal and self-employment numbers for California.
Getting paid: liens and retainage
A mechanic's lien is the tool that actually gets a California contractor paid, and in California you generally have to record it within 90 days of completion. There is usually an earlier notice to send first, so do not wait until the filing deadline to start. Miss it and you lose the lien, so the dates matter.
Enforcing it has its own clock. You must file a lawsuit within 90 days of recording the lien. Work out your dates on the Lien Deadline tool, and if they are close, get an attorney to confirm them against the statute (Cal. Civ. Code §§8204, 8412, 8414, 8460).
On money held back as retainage, here is where California lands:
- Private work: No statutory cap on private work in California. Whatever your contract says governs, so read the withholding clause.
- Public work: 5% of the contract price.
- Release: Private: 45 days from completion of the work of improvement. Public: 60 days from the date of completion of the work of improvement.
- Prompt pay: A contractor must pass a subcontractor its share within 7 days on public work and 10 days on private work. Late retention carries 2% a month in place of any other interest, plus the winner's legal costs.
Check the Retainage Calculator before you sign a contract that holds back more.
Free California forms: retainage letters and lien waivers
Three letters written for California's rules, with the state's own release clock and its statutory citation already in them. Fill one in on screen and download it as a PDF or a Word file.
- Retainage Release Request (California), for when the job is done and the money has not come back
- Retainage Overdue: Demand for Payment (California), for when the release date has passed and nothing has arrived
- Retainage Held Above the Cap: Challenge Letter (California), for when more is being held than the state appears to permit
California also sets out the wording of a lien waiver in its own statute. These are reproduced from it rather than reworded, because the wording is the part that carries the legal effect. What a signature costs you differs from state to state, and not every state makes a waiver that departs from the form unenforceable, so read the notes on the form itself before you sign one.
- California: Conditional Waiver and Release on Progress Payment, for when someone asks you to sign away a stage payment before the money has cleared
- California: Unconditional Waiver and Release on Progress Payment, for when the stage payment has cleared
- California: Conditional Waiver and Release on Final Payment, for when someone asks you to sign off the last payment before it has cleared
- California: Unconditional Waiver and Release on Final Payment, for when the final payment has cleared
Do you need a license in California?
California requires a state contractor license to take building work on. The threshold that triggers it: $1,000 or more; the exemption covers jobs under $1,000 only (raised from $500 by AB 2622, effective 1 Jan 2025). Working unlicensed when your job needs a license is the expensive mistake here. Working unlicensed over the threshold can force you to disgorge everything you were paid, even if the work was faultless (Business & Professions Code §7031); the owner has one year from completion or cessation of the work to bring that claim. The under-$1,000 exemption (§7048) is also lost if the job needs a building permit, if you advertise as a contractor, or if you employ anyone to help. The license comes from Contractors State License Board (CSLB). California accepts the NASCLA commercial exam, useful if you work across state lines.
Trade licenses for electrical, plumbing and HVAC are usually separate and often required even where a GC license is not. See what applies to your trade on the Contractor License Checker.
Building codes and permits
California adopts its building codes statewide, so the rules travel with you across the state. Editions still move, so confirm yours with the building department before you price a job.
- Homes: 2024 (published as Part 2.5, the 2025 California Residential Code)
- Electrical: 2023 (published as Part 3, the 2025 California Electrical Code)
- Energy: 2025 (California Energy Code, Part 6; state-authored, not based on an IECC edition)
- Plumbing: 2024 UPC (published as Part 5, the 2025 California Plumbing Code)
California numbers its codes by its own triennial year, which is ahead of the model code underneath in every family: the 2025 Residential Code is the 2024 IRC, the 2025 Electrical Code is the 2023 NEC, and the 2025 Plumbing Code is the 2024 UPC. Build to the California part number, not the model year. The same edition and the same effective date apply to houses and to commercial work; the split here is by part number, not by cycle. AB 130 froze new and amended residential building standards, and local residential amendments, from 1 October 2025 until 1 June 2031, so the 2025 residential edition is expected to stand for six years and local amendments in force before that date are grandfathered.
Source: California Building Standards Commission, Title 24 codes page (dgs.ca.gov/BSC/Codes); California Energy Commission (2025 Energy Code); AB 130, ch. 22, Statutes of 2025, amending Health and Safety Code §17958.7. Read against that source on 2026-08-25.
Check a specific job on the permit tool.
Pay and workers' comp
The minimum wage in California is $16.90 an hour. CPI-indexed; many cities are higher (San Francisco $18.67, Los Angeles $17.28). City rates are NOT verified against the cities and are indicative only. That is the floor for anyone you put on the books, and it is worth confirming against the state labor department each year because several states step their rate mid-year. Check a rate on the minimum-wage tool.
On workers' comp, the rule that catches people out in California is who has to be covered. An LLC member is automatically included (exclusion is restricted in construction), and the CSLB requires workers' comp even for a sole proprietor with no employees. Get a premium range for your trade on the Workers' Comp Estimator.
If a client will not pay
If a client will not pay, you can sue for up to $12,500 in California's Small Claims (Superior Court) and lawyers are not allowed, which keeps it a level playing field. That covers most unpaid-invoice disputes for a small outfit; a bigger claim goes to regular civil court where you will probably want an attorney. Walk through whether filing is worth it on the Small Claims checker.
The clock runs the other way too: a client generally has 4 years to sue you over the work under a written contract in California, with an absolute cutoff 10 years after the job is substantially complete. Work out your exposure on the Warranty & Claim Deadline tool.
Common questions
How much state income tax will I pay in California?
California has a graduated rate up to 13.3% state income tax on your profit, on top of federal income tax and self-employment tax. Use the Tax Set-Aside Calculator to see what to hold back.
Do I need a contractor's license in California?
Yes. California requires a state contractor license. The threshold: $1,000 or more; the exemption covers jobs under $1,000 only (raised from $500 by AB 2622, effective 1 Jan 2025). It is issued by Contractors State License Board (CSLB).
What is the small claims limit in California?
You can sue for up to $12,500 in California's Small Claims (Superior Court). The filing fee is typically $30 to $100. Larger claims go to regular civil court.
How long do I have to file a mechanic's lien in California?
Generally 90 days from completion, and there is usually an earlier notice to send first. Miss it and you lose the lien. Work your own dates out on the Lien Deadline tool.
How much retainage can be held back in California?
Public, state departments: 5% of the contract price. Run your own figure on the Retainage Calculator.
Are there free California contract and payment forms?
Yes. This page links 3 retainage letters written to California's own release clock, and 4 lien waiver forms reproduced from the California statute. They are free, there is no sign-up, and you fill one in on screen and download it as a PDF or a Word file.
What is the minimum wage in California?
$16.90 an hour in California, above the federal $7.25. Several states step their rate mid-year, so confirm it before you set a payroll.
The honest bit
These are the 2026 rules for California as they stood when this guide was written, and they change: legislatures move thresholds, deadlines and rates every year. Treat this as general guidance to point you in the right direction, not legal, tax or financial advice. Verify anything you rely on at the source (the IRS, the California tax and licensing agencies, and your local building department) or with a professional. Where California does something unusual, the detail is called out above rather than glossed over.
Related: Tax Set-Aside Calculator · Mechanic's Lien Deadline · Contractor License Checker · Small Claims checker · Working in Your State
Know someone who needs this?
Keep reading
Templates you might need
Sources
- CSLB-Home -CSLB · California contractor licensing authority. Who must hold a contractor or trade license in California, and the licensing instrument (https://www.nascla.org/commercial-exam-participating-state-agencies/california-contractors-state-license-board)
- California Legislative Information · Mechanics lien notice, filing and enforcement deadlines in California: Cal. Civ. Code §§8204, 8412, 8414, 8460. Verified against this authority on 2026-08-09.
Was this guide useful?
Didn't find what you were looking for?
Spotted something wrong or out of date? Email us at hello@kilnguides.co.uk.
In crisis? 988 Suicide & Crisis Lifeline 988 ·