California, the only state still taxing veterans’ retirement income, may soon offer relief through bipartisan legislation aimed at exempting up to $20,000 for qualifying military retirees and survivors.
At a Glance
- California alone in taxing veterans’ retirement pay
- SB 1 and AB 53 propose $20,000 tax exemptions
- Eligibility tied to income: $125k for individuals, $250k for joint filers
- State faces $558 million loss from veterans relocating
- Estimated revenue loss: $110 million in 2025-26
California’s Unique Tax on Veterans’ Retirement
California stands as the only U.S. state that fully taxes military retirement income, a policy that has prompted many veterans to relocate to more tax-friendly states. Since 2016, an average of 2,600 military retirees have left California annually, resulting in a cumulative loss of over $558 million in federal retirement and Survivor Benefit Plan (SBP) payments to the state’s economy, according to the Senate Republican Caucus.
In response, state legislators have introduced Senate Bill 1 (SB 1) and Assembly Bill 53 (AB 53), aiming to provide tax exemptions on up to $20,000 of military retirement and SBP income for qualifying individuals. These measures are designed to make California more attractive to military retirees and their families.
Watch NBC Palm Springs’ report on the proposed tax exemptions for veterans.
Legislative Efforts to Retain Veterans
SB 1, authored by Senator Kelly Seyarto, and AB 53, introduced by Assemblymembers James Ramos and Blanca Pacheco, propose tax exemptions for veterans earning under $125,000 annually, or $250,000 for joint filers. The bills seek to exclude up to $20,000 of military retirement or SBP income from state taxation.
The proposed legislation has garnered bipartisan support and endorsements from various veterans’ organizations, including the California State Commanders Veterans Council and the Military Officers Association of America. Proponents argue that the tax relief is essential for retaining skilled veterans who contribute significantly to the state’s workforce and economy.
Economic Implications and State Revenue
While the bills aim to provide financial relief to veterans, they also pose potential challenges to the state’s revenue. The Franchise Tax Board estimates that SB 1 would result in a revenue loss of $110 million in the 2025–26 fiscal year, with subsequent annual losses of $75 million.
Critics express concern that the tax exemptions could set a precedent for other professions seeking similar treatment, potentially eroding the state’s tax base. However, supporters contend that the unique sacrifices made by military personnel warrant this specific relief.
Broader Context and Future Outlook
The push for these tax exemptions aligns with a broader national trend of states offering financial incentives to attract and retain veterans. By joining the 49 other states that already provide full or partial exemptions on military retirement income, California aims to reverse the outmigration of veterans and bolster its skilled labor force.
As SB 1 and AB 53 progress through the legislative process, their outcomes will be closely watched by stakeholders advocating for veterans’ welfare and fiscal responsibility. The success of these bills could signal a significant shift in California’s approach to honoring its military retirees.
