I read the figure is $40,000. Which is right?

$20,000 per payment type is what is enacted and what the Franchise Tax Board publishes. Bills to raise the cap and extend the window have been introduced and are not law. Plan against the enacted figure.

I moved to California after retiring. Does that change anything?

No, and it is worth being clear why. California taxes military retirement pay received while you are a California resident, regardless of where you served or were domiciled during your career. Moving here brings the pension into California tax — and brings this exclusion with it.

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Exclude Up to $20,000 of Military Retirement Pay from California Income Tax

California's first military retirement exclusion — up to $20,000, and another $20,000 of Survivor Benefit Plan annuity, if your federal AGI is under the cap. It expires after 2029.

Verified August 18, 2026

What this benefit is

For tax years 2025 through 2029, California lets you exclude up to $20,000 of federal military retirement pay from state income tax — and up to another $20,000 of Survivor Benefit Plan annuity.

It is California's first military retirement exclusion. Before the 2025 tax year the state gave military retirees nothing at all.

What it's worth: Up to $20,000 excluded — and another $20,000 of Survivor Benefit Plan annuity

Estimated at roughly 9% marginal state tax on a full $20,000 exclusion. Your actual saving is your marginal California rate times the amount excluded, so a lower bracket saves less.
The $20,000 cap applies separately to each type of payment — retirement pay and Survivor Benefit Plan annuity — so a recipient of both can exclude up to $40,000 in total.

Who is entitled to it

A California resident receiving retirement pay from the federal government for service in the uniformed services, or a DoD Survivor Benefit Plan annuity.
Whose federal adjusted gross income does not exceed $125,000 — or $250,000 for a surviving spouse or spouses filing jointly.

Not sure whether that describes you?

Answer a few questions about this benefit specifically — we only ask what this one actually depends on, and we stop as soon as we know.

The thing most people get wrong

New enough that most guidance is still wrong about it

California's reputation as the state that taxes military pensions in full was accurate for decades and stopped being accurate in 2025. Plenty of comparison sites still say there is no relief here. The opposite error is now appearing too — that California has made military retirement tax-free. It has not: the base rule in FTB Publication 1032 is unchanged, military retirement pay is taxable to a California resident, and this is a capped carve-out with an income cliff and an end date.

How to claim it

Deadline: April 15, with your return

1Check your federal AGI against the cap before anything else. Above it the exclusion is worth nothing at all.
2Claim the adjustment on Schedule CA (540), or Schedule CA (540NR) if you are a part-year resident.
3If you receive both retired pay and a Survivor Benefit Plan annuity, claim against each separately — the cap is per type of payment.

Form: Schedule CA (540)
File with: The California Franchise Tax Board, with your annual return
Documents you will need: form 1099 r · federal tax return
You must re-file every year: It is an exclusion claimed on the return, so it is claimed again every year — and only for tax years 2025 through 2029 unless the Legislature extends it.

Common mistakes that cost people this benefit

Missing the cliff. At $125,000 of federal AGI you get the exclusion; a dollar over and you get none of it. For a household near the line, when income lands is worth real money.
Assuming one $20,000 cap covers everything. The cap applies to each type of payment, so someone receiving both retired pay and an SBP annuity can exclude up to $40,000.
Building a twenty-year retirement projection on it. The exclusion applies to tax years beginning before 1 January 2030 and then stops unless the Legislature acts.

CorrectionCalifornia is still widely described as giving military retirees no relief at all. That was correct until the 2025 tax year and is now wrong. It is also wrong in the other direction to describe the exclusion as making military retirement tax-free here: the base rule in FTB Publication 1032 is unchanged — military retirement pay is taxable by California when received by a resident — and this is a capped carve-out from it.

Worth knowingThe AGI limit is a cliff. At $125,000 of federal AGI the exclusion is available; a dollar above it and the whole $20,000 is lost. For a household near the line, ordinary timing decisions about when income lands are worth real money.

Worth knowingIt expires. The exclusion applies to tax years beginning on or after 1 January 2025 and before 1 January 2030. Plan on it ending in 2030 unless the Legislature acts, and do not build a long retirement projection on it.

Known gapBills to raise the cap to $40,000 and extend the window into the 2030s have been introduced. They are not law. We publish what is enacted, and a proposal has no place in a figure someone might rely on.

Questions people ask

I read the figure is $40,000. Which is right?: $20,000 per payment type is what is enacted and what the Franchise Tax Board publishes. Bills to raise the cap and extend the window have been introduced and are not law. Plan against the enacted figure.
I moved to California after retiring. Does that change anything?: No, and it is worth being clear why. California taxes military retirement pay received while you are a California resident, regardless of where you served or were domiciled during your career. Moving here brings the pension into California tax — and brings this exclusion with it.

Sources

authority · statuteCal. Rev. & Tax. Code §§17132.9, 17132.10
operating · published policyFTB Publication 1032, Tax Information for Military Personnel (2025, rev. 03-26)

This finder provides an informational match, not a government eligibility determination. The responsible agency decides your application.