California Legislation Proposes $20,000 Tax Exemption for Veterans’ Retirement Income

April 10, 2025 TruthUSA

Two complementary pieces of legislation, Senate Bill 1 and Assembly Bill 53, aim to offer state tax exemptions for military veterans.

Currently, California is the only state that imposes taxes on veterans’ retirement income, prompting state lawmakers to launch a new bipartisan initiative to rectify this situation.

The two companion bills, Senate Bill 1 and Assembly Bill 53, are designed to support military veterans by offering state tax exemptions on up to $20,000 of their federal pensions for those earning less than $125,000 a year.

SB 1, put forth by Republican Senator Kelly Seyarto, gained unanimous approval from the Senate Committee on Revenue and Taxation last month and is set for a hearing in the Committee on Military and Veterans Affairs on April 28.

On the other hand, AB 53, introduced by Democratic Assemblymembers James Ramos and Blanca Pacheco, is currently under review in the Assembly Revenue and Taxation Committee’s suspense file, pending an evaluation of its possible financial implications.

David Boone, president of the San Diego Military Advisory Council, highlighted during a March 12 state Senate tax committee hearing that the primary reason veterans choose to retire in other states is the cost of living.

“States that successfully attract veterans have implemented targeted strategies,” he added.

As noted in the bill analysis, this marks the ninth attempt to propose similar legislation in California since 2019. Prior efforts have either stalled in the Appropriations committees or were never addressed due to legislative timing, but all aimed to offer veterans some form of tax relief by either excluding a portion of their retirement income or exempting their benefits from taxation.

Nevertheless, legislators in both chambers have expressed concerns regarding the financial implications for the state, as these exemptions would reduce taxable income.

“Consequently, the state may need to cut spending or raise taxes to compensate for the shortfall,” indicated the Senate Committee on Revenue and Taxation in its analysis of the bill, estimating that the “typical tax revenue loss from excluding this $20,000 from income is approximately $600 per taxpayer.”

The Golden State is home to about 1.4 million veterans, with approximately 140,000 military retirees receiving monthly military retirement income, according to the Legislative Analyst’s Office (LAO).

Allowing for an exemption of up to $20,000 from a veteran’s retirement for tax purposes would lead to an estimated annual loss of about $85 million for the state, according to the LAO.

In his budget summary for 2025–2026, Governor Gavin Newsom proposed a similar measure. This section, titled Military Retirement Income Exclusion, forecasts a revenue decrease of $130 million for 2025–2026 and around $85 million yearly thereafter.

Boone noted that his organization conducted its own analysis and concluded that “the revenue loss to the state from eliminating taxes on this modest military pension would be more than balanced by gains from state sales taxes, personal income taxes, and other tax sources.”

Despite the anticipated revenue shortfall, the LAO remarked that such a proposal would make California “more consistent with other states,” adding that it “would no longer be the only state that fully taxes military retirement income.”

“This bill is essential to enhance California’s appeal to veterans and make it a more welcoming state for retirement,” Ramos stated in a press release last month.

Of the 42 states that currently levy a state income tax—and with Mississippi recently enacting legislation to eliminate its individual income tax—25 states fully exempt military retirement income, while others offer partial exemptions.

“California has consistently experienced a net loss of [military] retirees annually since 2016, averaging 2,600 individuals each year,” along with a decline in recipients of Survivors Benefits Plans (SBP), Seyarto stated in a press release. “The departure of these populations from California has resulted in over $558 million in federal retirement and SBP payments leaving the state.”

The Epoch Times has reached out to the offices of Seyarto and Ramos for their comments.

Both bills enjoy support from various military officers associations, state departments, and local governments, with no known opposition recorded.

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