California Military Retirement and Survivor Benefit Income Exclusion

California taxed military retired pay in full until the 2025 tax year. Budget legislation signed June 27, 2025 added a partial exclusion, codified at Revenue and Taxation Code section 17132.9. For taxable years beginning on or after January 1, 2025 and before January 1, 2030, a qualified taxpayer may exclude up to $20,000 of retirement pay received from the federal government for service in the uniformed services. Section 17132.9 defines the uniformed services as the armed forces, the Army National Guard and Air National Guard when engaged in active duty for training, inactive duty training, or full-time National Guard duty, the commissioned corps of the Public Health Service, and the commissioned officer corps of the National Oceanic and Atmospheric Administration. The exclusion is capped by federal adjusted gross income as shown on the federal return: $250,000 for a married couple filing jointly, and $125,000 for any other individual. A companion section, 17132.10, carries the same $20,000 exclusion, with the same income caps and the same 2025-2029 window, for annuity payments to the surviving spouse or other named beneficiary of a Department of Defense Survivor Benefit Plan (10 U.S.C. 1447 to 1455). Both sections were added by SB 132 (Stats. 2025, Ch. 17) and neither has been amended since. The exclusion is a state subtraction claimed on the California return. It does not change the federal return. Section 17132.9 repeals itself on December 1, 2030, so nothing here is safe to assume for a tax year after 2029. The Legislative Analyst's Office described the proposal in its review of the 2025-26 budget and noted that until this change California was the only income-taxing state with no full or partial military retirement exclusion. VA disability compensation is not in the California tax base to begin with. It is excluded from federal adjusted gross income, and California taxable income starts from that federal figure. Military disability retirement pay for a service-connected disability is likewise not taxable income in California. Both of those are separate from the $20,000 exclusion, and using one does not consume the other.