Two companion bills, Senate Bill 1 and Assembly Bill 53, would provide military veterans with state tax exemptions.
California is currently the only state that taxes veterans’ retirement income, and state lawmakers have initiated a new bipartisan effort to change that.
Two companion bills,
Senate Bill 1 and
Assembly Bill 53, are seeking to provide military veterans with some financial relief by granting state tax exemptions on up to $20,000 of their federal pensions if they make under $125,000 a year.
SB 1, introduced by Republican Sen. Kelly Seyarto, unanimously passed the Senate Committee on Revenue and Taxation last month and is scheduled for a hearing in the Committee on Military and Veterans Affairs on April 28.
Meanwhile, AB 53, introduced by Democratic Assemblymembers James Ramos and Blanca Pacheco, is currently on the Assembly Revenue and Taxation Committee’s suspense file awaiting a review of its potential financial impact.
The “primary factor” for veterans choosing to retire in other states is the cost of living, said David Boone, president of San Diego Military Advisory Council, during a March 12 state Senate tax committee
hearing.
“The states that are gaining veterans have developed strategies to target and attract veterans,” he said.
According to the bill analysis, this is the
ninth time such an idea has been proposed in the California Legislature since 2019. Prior bills either failed to pass the Appropriations committees or were never heard due to legislative schedules, but all sought to provide veterans with some form of tax relief by either excluding a portion of their retirement income or excluding their benefits from taxation.
However, lawmakers in both legislative chambers have raised concerns about monetary loss for the state, as the exemptions would decrease the amount of taxable income.
“As a result, the state will have to reduce spending or increase taxes to account for the loss,” the Senate Committee on Revenue and Taxation wrote in its analysis of the bill, while estimating that the “average amount of tax revenue loss from excluding this $20,000 from income is about $600 per taxpayer.”
California is home to around 1.4 million veterans, with roughly 140,000 military retirees receiving monthly military retirement income,
according to the Legislative Analyst’s Office (LAO).
By excluding up to $20,000 of a veteran’s retirement from taxation, the state would lose around $85 million annually, the LAO said.
Gov. Gavin Newsom has suggested a similar idea in his 2025–2026 budget
summary. Under the Military Retirement Income Exclusion section of his plan, the budget includes an estimated revenue reduction of $130 million in 2025–2026 and $85 million annually in subsequent years.
Boone said his organization conducted its own study of the financial impact and found “state revenue loss from ending taxation of that modest military pension would be more than offset by revenues from state sales taxes, personal income taxes, and other taxes.”
Despite the revenue loss, the LAO said that such a proposal would put the Golden State “more in-line with other states,” adding that it “would no longer be the only state that fully taxes military retirement income.”
“This bill is necessary to make California more veteran friendly, and make it a more desirable place to call home upon retirement,” Ramos said in a
press release last month.
Of the 42 states that currently have a state income tax—and Mississippi recently
passed a law to phase out its individual income tax—25 states fully exempt military retirement income, and the rest partially exempt it.
“California has consistently lost [military] retirees every year since 2016 with a median drop of 2,600 people a year,” in addition to a decrease in individuals who are recipients of Survivors Benefits Plans (SBP), Seyarto said in a
press release. “The loss of both populations from California has resulted in over $558 million leaving the state in federal retirement and SBP payments.”
The Epoch Times reached out to the offices of Seyarto and Ramos for comment.
Both bills are supported by
various military officers associations, state departments, and local counties, with no recorded opposition.
