California retired pay

Is military retirement taxed in California?

Partly taxed

Partly. $20,000 Exclusion for 2025 to 2029.

Mostly taxed, with a temporary break. For tax years 2025 through 2029, a resident whose federal AGI is $125,000 or less ($250,000 on a joint return or for a surviving spouse) excludes up to $20,000 of uniformed services retired pay. One dollar over the AGI limit and the whole exclusion is gone.

The law: Cal. Rev. & Tax. Code § 17132.9 (retired pay) and § 17132.10 (Survivor Benefit Plan annuities)
Current rule since: tax year 2025 (SB 132, Stats. 2025, Ch. 17), for taxable years beginning before January 1, 2030
Where you claim it: Schedule CA (540), Part I, Section A, line 5b (Pensions and annuities), column B, up to $20,000 for each type of payment

Read on California’s own sources October 9, 2026

What California’s rule is worth on your retired pay

Enter your annual taxable retired pay (box 2a of your DFAS or Coast Guard 1099-R). The rate starts at California’s 9.3% bracket, the highest an income-eligible retiree reaches (the top bracket is 12.3%) for tax year 2025; change it to your own bracket if you know it.

One rate applied to the whole amount, not California’s full return: brackets, other income, deductions and credits change the real figure. Use it to compare, then check the state’s own form instructions.

How it works in California

Check your federal AGI before anything else. California's test reads the adjusted gross income on your federal return for the same year, not your California income. The limit is $125,000 for an individual and $250,000 for a surviving spouse or spouses filing a joint return. It is a cliff, not a phase-out: at $125,001 a single retiree loses the entire $20,000.

On Schedule CA (540), Part I, Section A, line 5b, your federal pension figures sit in column A. Enter the excluded retired pay in column B, up to $20,000. An SBP annuity you receive as a beneficiary has its own $20,000 limit, and FTB's 2025 instructions apply the cap to each type of payment separately.

The cap does not double for two retirees on one joint return. FTB's 2025 Schedule CA instructions say the exclusion is capped at $20,000 for spouses filing a joint return, so a married couple who both draw retired pay share one $20,000 retired pay exclusion on that return.

The window is fixed in the statute. § 17132.9 covers taxable years beginning on or after January 1, 2025 and before January 1, 2030, and repeals itself on December 1, 2030. SB 1407 of 2026, which would have amended both sections, was held in the Assembly Appropriations Committee on August 13, 2026 (bill status read October 9, 2026).

On an assumed single return with $40,000 of retired pay and $95,000 of federal AGI, $20,000 comes off California income. California's 2025 tax rate schedule puts single taxable income from $72,724 to $371,479 in the 9.3% bracket. With the 2025 single standard deduction of $5,706 and no other California adjustments, taxable income falls from $89,294 to $69,294: $16,570 of the exclusion comes out of the 9.3% bracket and $3,430 out of the 8% bracket, so it is worth about $1,815. If your 2025 return left it out, file an amended Form 540 with the AMENDED box checked and attach Schedule X.

Survivor Benefit Plan annuities

Separately excluded. R&TC § 17132.10 lets a surviving spouse or other named SBP beneficiary exclude up to $20,000 of SBP annuity payments for 2025 to 2029, under the same $125,000 or $250,000 federal AGI test, in addition to the $20,000 for retired pay (statute and FTB Pub. 1032, read October 9, 2026).

Active-duty pay in California

A member domiciled in California is a resident while stationed in California and must include military pay in total income. A member who leaves on PCS orders becomes a nonresident, and military pay earned while permanently stationed outside California is not California source income.

Missed it in an earlier year?

Generally the later of four years from the original due date, four years from the date a timely return was filed, or one year from the date of overpayment (FTB Pub. 1032, 2025). The exclusion begins with 2025, so no earlier return can be amended for it.

What trips California retirees up

FTB Pub. 1032 still states that military retirement pay is taxable for California residents, then lists the exclusion under What's New. Both are true: the pay is taxable, and up to $20,000 of it is excluded only for income-eligible filers in 2025 through 2029.
Because the test uses federal AGI, one unusually large year, such as a big IRA withdrawal or Roth conversion, can push you over the line and cost the whole exclusion for that year.
Uniformed services in § 17132.9 include the Public Health Service and NOAA commissioned corps. Army and Air National Guard service counts only for active duty for training, inactive duty training or full-time National Guard duty.
FTB Pub. 1032 says nonresidents of California are not taxed on military retirement pay, so the exclusion matters only while you are a California resident.

Federal side: DFAS reports retired pay on Form 1099-R, and the IRS taxes it as a pension. VA disability compensation is not taxable income under federal law (IRS Publication 525). The SCRA’s tax-home rule (50 U.S.C. § 4001) protects servicemembers on orders, not retirees, so where a retiree lives decides which state taxes the pension. Compare every state on the 51-state ledger. California’s other servicemember protections are on the California SCRA page.

Frequently asked questions

Does California tax military retirement pay?

Yes, for residents, with a partial break for tax years 2025 through 2029. Under R&TC § 17132.9, a qualified taxpayer excludes up to $20,000 of retired pay from the federal government for service in the uniformed services. You qualify only if federal AGI is $125,000 or less, or $250,000 or less for a joint return or surviving spouse. Above that limit, all of the retired pay is taxed at California's graduated rates. FTB Pub. 1032 for 2025, read October 9, 2026, describes the same rule.

Is SBP taxed in California?

A Survivor Benefit Plan annuity has its own exclusion for 2025 through 2029. R&TC § 17132.10 lets the surviving spouse or other named beneficiary exclude up to $20,000 of SBP annuity payments if federal AGI is $125,000 or less, or $250,000 or less for a surviving spouse or joint return. It sits beside the $20,000 retired pay exclusion, and FTB's 2025 Schedule CA instructions apply the $20,000 cap to each type of payment. Enter it on Schedule CA (540), line 5b, column B.

Can a married couple each exclude $20,000 in California?

Not on one joint return. FTB's 2025 Schedule CA (540) instructions say the exclusion is capped at $20,000 for a surviving spouse, spouses filing a joint return, and any other individual within the AGI limits. A couple who both receive military retired pay and file jointly therefore exclude up to $20,000 of retired pay in total, plus up to $20,000 of SBP annuity if one of them is an SBP beneficiary. The joint federal AGI limit is $250,000.

How long does California's military retirement exclusion last?

Five tax years. R&TC § 17132.9 applies to taxable years beginning on or after January 1, 2025 and before January 1, 2030, and the section repeals itself on December 1, 2030. A 2026 bill to change it, SB 1407, was held in the Assembly Appropriations Committee on August 13, 2026, according to the Legislature's bill status page read October 9, 2026. Unless a later law extends it, 2029 is the last year you can claim it.

Sources, read October 9, 2026

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