California's New Military Pension Tax Exemption A Game Changer for Veterans in Retirement

Veterans have long served and sacrificed for the nation, yet many face financial challenges after retirement. On Tuesday, California took a significant step to support its veterans by announcing a new law that exempts part of their military pensions from state income tax starting in 2025. This change promises to ease the financial burden on retired service members and their families, encouraging them to stay in California and contribute to the state's economy.

California's new military pension tax exemption document

What the New Law Means for Veterans

Assemblymember James Ramos (D-San Bernardino) shared the news at American Legion Post 106 in Redlands, where many retired veterans and their families gathered. The law allows veterans and surviving spouses to deduct up to $20,000 from their military pensions when filing state income tax returns starting in 2025.

This exemption aligns California with other states that have already recognized the importance of supporting veterans financially in retirement. Senator Bob Archuleta (D-Pico Rivera), who co-sponsored the bill, emphasized that this policy helps retain veterans in California by making retirement more affordable.

Why This Change Matters

California has seen a decline in the number of retired veterans living in the state. Department of Defense data shows that while the national population of retired service members has grown, California’s numbers have dropped. Experts attribute this trend to states with more favorable tax policies attracting veterans away.

Jeffrey Breiten from the California State Veterans Commanders Council explained the urgency: "We've seen a dramatic decline in the number of military retirees in California. We're trying to stop that, reverse that, keep them and their federal dollars in California."

By exempting part of military pensions from state income tax, California aims to:

• Retain veterans and their families within the state

• Encourage veterans to invest their skills and experience locally

• Boost the state economy through increased spending and business activity

  
  

Economic Impact of the Tax Exemption

A study by the San Diego Military Advisory Council highlights the broader benefits of this tax break. The report estimates that the exemption could generate:

• 12,600 new jobs

• $830 million in additional personal income

• $1.2 billion increase in California's Gross State Product

• $2 billion in total business sales

  
  

These figures show that supporting veterans financially not only benefits individuals but also strengthens the overall economy.

How Veterans Can Benefit

For veterans, the exemption means more take-home income during retirement. For example, a retired service member receiving a $50,000 military pension could deduct $20,000 from their taxable income, reducing their state tax bill significantly. This extra financial relief can help cover healthcare, housing, and daily living expenses.

Surviving spouses also benefit, which provides additional security for families who have lost a veteran. This support acknowledges the sacrifices made by both veterans and their loved ones.

What Veterans Should Know About the Exemption

• The exemption applies to military pensions only, not other retirement income.

• It starts with income tax returns filed in 2026 for the 2025 tax year.

• Surviving spouses can also claim the deduction.

• Veterans should keep detailed records of their military pension income for tax filing.

  
  

Veterans are encouraged to consult with tax professionals or veteran service organizations to understand how this exemption applies to their specific situation.

California state tax form with military pension exemption

Encouraging Veterans to Stay in California

This policy change reflects a broader effort to make California a more veteran-friendly state. By reducing the tax burden on military pensions, California hopes to keep veterans and their valuable skills within its borders.

Senator Archuleta noted, "Maybe now you can stay in California with your energy, your experience, your knowledge and skill that you learned in the military." This retention benefits communities, local businesses, and the state’s workforce.

What Comes Next

Veterans and their families should prepare for this change by:

• Reviewing their retirement plans and tax situations

• Staying informed through veteran organizations and state resources

• Planning for the financial benefits starting in 2025

  
  

California’s new law is a step toward recognizing the service of veterans with tangible financial support. It also sends a message that the state values their contributions beyond active duty.