Does California Tax Military Retirement?
When it comes to taxation of military retirement benefits, the rules can be complex and vary from state to state. California, in particular, has its own set of rules and regulations when it comes to taxing military retirement benefits. In this article, we will provide a comprehensive overview of how California taxes military retirement and what you need to know.
Does California Tax Military Retirement?
In short, yes, California does tax military retirement benefits. However, the good news is that the state has a relatively favorable tax treatment for military retirees.
Types of Military Retirement Benefits
There are several types of military retirement benefits, including:
- Basic Allowance for Housing (BAH): This is a tax-free benefit that helps offset the cost of housing.
- Basic Allowance for Subsistence (BAS): This is a tax-free benefit that helps offset the cost of food.
- Clothing Allowance: This is a tax-free benefit that helps offset the cost of uniforms and other clothing items.
- Thrift Savings Plan (TSP): This is a tax-deferred retirement savings plan that allows military personnel to contribute a portion of their pay to their retirement account.
- Military Retirement Pay: This is the primary source of income for most military retirees and is subject to California state income tax.
California Taxation of Military Retirement Benefits
California treats military retirement benefits as taxable income, with some exceptions. Here are some key points to keep in mind:
- Taxed Benefits: Military retirement pay, including both retired pay and survivor benefits, is subject to California state income tax.
- Tax-Free Benefits: The BAH, BAS, and clothing allowance are tax-free benefits that are exempt from California state income tax.
- TSP: The TSP is a tax-deferred retirement savings plan, and any withdrawals or distributions from the plan are subject to California state income tax.
California Military Retirement Exemptions
While California taxes military retirement benefits, there are some exemptions and credits that can help reduce the tax burden. Here are some key points to keep in mind:
- California Military Retirement Exemption: California offers a special exemption for military retirement benefits, which can reduce the amount of taxes owed.
- Veterans’ Exemption: California also offers a veterans’ exemption, which can reduce the amount of property taxes owed by veterans.
- California Earned Income Tax Credit (EITC): California offers an EITC, which can provide a refundable credit to low-income veterans and their spouses.
Table: California Tax Rates for Military Retirement Benefits
| Taxable Income | Tax Rate |
|---|---|
| $0 – $8,425 | 9.3% |
| $8,426 – $18,125 | 10.3% |
| $18,126 – $44,525 | 11.3% |
| $44,526 – $551,351 | 12.3% |
| $551,352 or more | 13.3% |
Other Considerations
In addition to the tax treatment of military retirement benefits, there are several other factors to consider when planning your financial future as a military retiree in California. Here are some key points to keep in mind:
- Cost of Living in California: California is one of the most expensive states in the country, and the cost of living in certain areas can be significantly higher than in other states.
- Housing: Housing costs in California are particularly high, especially in areas like San Francisco and Los Angeles.
- Healthcare: California offers a range of healthcare options, including the Veterans Affairs (VA) healthcare system and private insurance plans.
Conclusion
In conclusion, California does tax military retirement benefits, but the state also offers several exemptions and credits that can help reduce the tax burden. By understanding the tax treatment of military retirement benefits and planning ahead, military retirees in California can make the most of their benefits and build a secure financial future.
Additional Resources
- California Franchise Tax Board (FTB): For more information on California taxation of military retirement benefits, visit the California Franchise Tax Board website.
- Veterans’ Administration (VA): For more information on VA benefits and services, visit the Veterans’ Administration website.
- Military OneSource: For more information on military benefits and services, visit the Military OneSource website.
Final Thoughts
Planning for retirement is an important part of military life, and understanding the tax treatment of military retirement benefits is a critical component of that planning. By educating yourself on the tax laws and regulations in California, military retirees can make informed decisions about their financial future and build a secure retirement.
