CALIFORNIA TAKES HISTORIC STEP, ALLOWING TAX EXEMPTIONS ON RETIREMENT PAY
California has long been seen as the worst state for military Veterans to retire in, as there is no California military tax exemption, and a high cost of living. For years, Veteran advocates have refused to give up on fighting for the legislation. Now, after years of work, California finally took the first step to give Veterans, who retire from the military, tax relief within the state.
On June 30th, 2025, Gavin Newsom signed the 2025-2026 State Budget, which includes an exception on military retirement. Now, California joins all other 49 states in providing a tax exemption of some form to military retirement pension and surviving spouse pension. There are approximately 1.4 million Veterans living in California and while California does offer great benefits for military Veterans, retirement has been left untouched until now.
“This is a landmark victory for California’s Veterans and their families,” said Ramona Chávez, President of the California Council of Chapters, Military Officers Association of America (CALMOAA). “For too long, California stood alone in taxing military retirement pay, while other states actively sought to retain those who served. This new law is not just about tax policy; it’s a public declaration of respect. It says California finally values its Veterans and wants them to stay and continue contributing to our workforce, economy, and communities.”
The First Step to California Military Retirement Tax Exemption
The 2025-2026 State Budget provides the first ever state tax exemption on military retirement and Survivor Benefit Plan (SBP) payments, allowing up to twenty thousand dollars to be excluded from taxable income each year.
This current change is limited to taxpayers with less than $125,000 in adjusted gross income (AGI), or joint taxpayers with less than $250,000 in AGI. The exemption kicks in right away starting in tax year 2025, and currently is set until 2029 where it could expire, be extended, or increased.
Military retirement pensions are only given to military members who serve more than twenty years in the armed forces. Those who leave before twenty years do not receive a military pension.
Of the estimated 1.4 million Veterans who currently live in California, only about 140,000 Veterans receive a military retirement pension. This exemption also includes military spouses who outlive their service member and have opted into the Survivor Benefit Plan and receive a reduced compensation after their spouse has died.
A Closer Look at the Disabled Veterans’ Exemption
The Disabled Veterans’ Exemption reduces the property tax liability on the principal place of residence of Veterans who have been rated 100% disabled due to a service-connected injury.
An unmarried surviving spouse of a qualified Veteran may also claim the exemption.
There are two levels of the Disabled Veterans’ Exemption:
Basic: This is available to all qualifying claimants. The exemption amount is compounded annually by an inflation factor.
Low-Income: Is available to claimants whose annual household income does not exceed a specified income limit. The exemption amount is compounded annually by an inflation factor.
How This Change Affects Veterans and Surviving Spouses
A $20,000 income reduction for Veterans and surviving spouses will overall likely have a minimal effect on those receiving benefits. However, the state is expected to forego an annual revenue of approximately 85 million dollars.
Veterans who are above the income limitations would see no change, which is approximately ten thousand of the 140,000. The expected average maximum cost saving would be $600 a year.
Those with higher incomes under the cap would have the most to gain, while those with lower incomes would see the smallest change.
Other State Retirement Tax Exemptions
Currently nine states have no state income tax, twenty-five fully exempt military retirement income, and now sixteen states have partial military retirement taxation.
Military retirement income is still subject to federal income tax.
Other Benefits Provided to California Veterans
Until recently, California did not have any benefits for those receiving military retirement pensions. However, the state does have several benefits many Veterans living outside of California, or even within it, may not know about.
Almost every county in California has a County Veterans Service Office (47 of 58) which provides free support in utilizing Veteran benefits such as college assistance, VA claims, death benefits, and more.
Another benefit for Veterans is the CalVet program. Within the state are programs for education, employment, healthcare, home loans, housing, advocacy, and VA claims. While all areas of Veteran support are helping Veterans live in California, a few stand out as highlights to California’s CalVet program.
CalVet Home Loan
Many Veterans know of the VA Home Loan, but California also offers their own home loan program for Veterans in addition to the VA Home Loan.
Some of the benefits of the CalVet Home Loan include providing financing to qualified Veterans without cost along with property coverage that includes provision like earthquake and flood coverage without additional fees. They also offer competitive rates.
Education Benefits
Many Veterans rely on their GI Bill and now that the benefit can be transferred to dependents it has increased its value. The CalVet program has specific resources to help Veterans as they navigate a new career in using their GI Bill or qualifying for benefits for Veterans planning to attend college.
Another benefit for California Veterans with a disability rating of 0% or higher is that their dependent children receive free tuition at all in state universities through the College Fee Waiver program.
There are also specific programs for dependents who have had a parent die in service or have a parent with a 100% disability rating.
Long Term Care Facilities
Besides having the most extensive VA Health Care system in the United States, the CalVet program includes eight State Veteran Homes throughout California to serve Veterans requiring long term care.
There are additional benefits and programs provided through CalVet to meet specific health care and long term care needs.
What's Next for CA Vets?
One of the administration's stated goals for the state of California is improve the state’s competitiveness in attracting and retaining military retirees to the state.
Many Veterans leave California in search of a place where their money can go further. Having tax relief is one way to help and while $20,000 is small when compared to other steps, advocates see it as a first step to change, and will continue to advocate for full retirement tax exemption.
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