Does California Tax Military Retirement Pay

California is known for its high cost of living, and military retirees may wonder if their retirement pay is subject to state taxes. Fortunately, California does not tax military retirement pay, which is a significant benefit for those who have served their country.

This exemption is a result of the federal government's decision to exempt military retirement pay from state taxation. California, like many other states, has chosen to honor this exemption.

As a military retiree, you can rest assured that your retirement pay will not be subject to California state taxes. This can help you keep more of your hard-earned money and enjoy the fruits of your labor without worrying about the state taking a larger share.

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California is the only state that fully taxes military pensions, and this policy has been criticized for discouraging veterans from staying in-state after their service.

In June 2025, Governor Gavin Newsom signed the 2025-26 State Budget, which includes a historic provision exempting up to $20,000 annually of military retirement pay and Survivor Benefit Plan (SBP) payments from state income taxes.

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This exemption is a long-awaited victory for California's veteran community and marks a turning point in the fight for financial equity for military retirees and their surviving spouses.

The California Enlisted Association of the National Guard of the United States (CAL EANGUS) was a key advocate for this change, along with other veteran service organizations.

The exemption is expected to bring much-needed relief to thousands of veterans and widowed spouses across California.

California's veteran community has been a vital part of the state's economy and communities, and this change recognizes their valuable contributions.

The state budget also allocates funding for deferred maintenance projects at veterans' homes throughout California, enhancing safety and quality of life for those who call these facilities home.

This milestone reflects growing bipartisan recognition of the vital role veterans play in California's communities and economy.

As of 2020, California had dropped to third in the country in number of recipients of Survivor Benefit Plans (SBP), and military retirees, with a median drop of over 1,000 people a year since 2016.

The loss of both populations from California has resulted in over $558 million leaving the state in federal retirement and SBP payments.

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California is the only state that fully taxes military retirement pay, which has been a long-standing criticism from veterans' organizations. This policy discourages veterans from staying in-state after their service.

Until recently, California's tax policy on military retirement pay was a major issue, but a historic milestone was achieved in 2025 when Governor Gavin Newsom signed the 2025-26 State Budget, which included a tax exemption on military retirement pay and Survivor Benefit Plan (SBP) payments. This exemption allows up to $20,000 annually to be excluded from taxable income.

This change is a result of years of advocacy by organizations like the California Enlisted Association of the National Guard of the United States (CAL EANGUS), which co-sponsored the measure. The exemption is not just about tax policy, but also about dignity and respect for veterans.

California law conforms to Federal law, which determines the tax treatment of Veterans Affairs (VA) disability benefits.

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California used to be the only state that fully taxed military retirement benefits, a policy that discouraged veterans from staying in-state after their service.

This policy change came after years of advocacy by veteran service organizations, including the California Enlisted Association of the National Guard of the United States (CAL EANGUS), which co-sponsored the measure.

California now joins 49 other states in partially or fully exempting military retirement and Survivors Benefits Plans (SBP) income from state income tax.

The state income tax exemption on military retirement pay and SBP payments allows up to $20,000 annually to be excluded from taxable income.

This exemption is a significant relief for thousands of veterans and widowed spouses across California, who will no longer have to pay taxes on their earned benefits.

California's decision to exempt military retirement benefits is a turning point in recognizing the valuable contributions of military retirees and their families to the state's communities and economy.

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The state budget also allocates funding for deferred maintenance projects at veterans' homes throughout California, enhancing safety and quality of life for those who call these facilities home.

As a result of this policy change, California is expected to retain more military retirees and their families, who will now be able to stay in-state without being penalized with taxes on their earned benefits.

The loss of military retirees and SBP participants to other states has resulted in over $558 million leaving California in federal retirement and SBP payments each year.

California used to be the only state that fully taxed military retirement benefits, but that's changing. Governor Gavin Newsom signed the 2025-26 State Budget, which includes a historic tax exemption on military retirement pay and Survivor Benefit Plan (SBP) payments.

This exemption allows up to $20,000 annually to be excluded from taxable income, bringing much-needed relief to thousands of veterans and widowed spouses across California. Until now, California's tax policy was criticized for discouraging veterans from staying in-state after their service.

The new exemption is a result of years of advocacy by veteran service organizations, including the California Enlisted Association of the National Guard of the United States (CAL EANGUS). This organization proudly served as a co-sponsor of the measure, and its president, Josh J. Baker, called it "more than just tax policy" but also "about dignity, respect, and retaining the valuable leadership veterans bring to our state."

California law conforms to Federal law, which determines the tax treatment of Veterans Affairs (VA) disability benefits.

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