Does California Tax Social Security and Retirement Income?

California does not tax Social Security

California excludes Social Security benefits from income entirely, at every income level. Whatever portion was taxable on the federal return (up to 85% of benefits) is entered as a subtraction on Schedule CA (540), California Adjustments, so it never reaches California adjusted gross income. (Franchise Tax Board: Social Security)

The same treatment applies to Tier 1 railroad retirement benefits, and to Tier 2 railroad retirement benefits reported on Form RRB-1099-R. For a household whose income is mostly Social Security, this exclusion plus the standard deduction and exemption credits can bring California tax to zero even when some federal tax is due. (FTB Publication 1005, Pension and Annuity Guidelines (2025))

The federal government is a separate matter. Up to 85% of a benefit can be taxed on a federal return once other income passes fixed thresholds, wherever you live. Our taxable Social Security calculator shows how much of yours is counted.

Pensions are taxed in full, apart from a temporary military exclusion

A California resident is taxed on all pension income, whatever its source. That covers private employer pensions, CalPERS and CalSTRS benefits, federal civil service annuities (CSRS and FERS) and pensions earned in another state before the move. The taxable amount is normally the same as the federal figure, and there is no age-based or dollar exclusion for pension income. (FTB Publication 1005, Pension and Annuity Guidelines (2025))

Military retirement pay is the one exception. For tax years 2025 through 2029, a qualified taxpayer can exclude up to $20,000 of federal uniformed-services retirement pay, and up to $20,000 of Defense Department Survivor Benefit Plan annuity payments. To qualify, federal adjusted gross income cannot exceed $125,000 for an individual or $250,000 for a joint return or surviving spouse. Above those limits the full amount is taxable; the limit is a cutoff, not a phase-out. (Franchise Tax Board: Military (retirement pay exclusion))

Senate Bill 1407 of 2026 would have raised the exclusion to $40,000 from tax year 2026, extended it through tax year 2036 and indexed the income limits to inflation. (Franchise Tax Board bill analysis, SB 1407 as amended May 14, 2026)

The bill did not become law. The Assembly Appropriations Committee held it in committee at its suspense file hearing on August 13, 2026, so the $20,000 cap, the fixed income limits and the 2029 end date stand as of this review. (Assembly Appropriations Committee, suspense file hearing results, August 13, 2026 (SB 1407: hold in committee))

IRA and 401(k) withdrawals and Roth conversions are ordinary income

Distributions from traditional IRAs, 401(k), 403(b) and 457 plans, SEP and Keogh plans are taxed by California as ordinary income in the year received. In most cases the taxable amount matches the federal return. It can differ when California basis differs from federal basis, for example because of IRA contributions made in years when California allowed a smaller deduction than federal law; FTB Publication 1005 has the worksheets. (FTB Publication 1005, Pension and Annuity Guidelines (2025))

A Roth conversion is taxed the same way: the converted amount is added to California income in the year of the conversion, at the regular bracket rates, and no exclusion offsets it. Qualified Roth IRA distributions are tax-free in California as they are federally. (FTB Publication 1005, Pension and Annuity Guidelines (2025))

California does not add a state charge on required minimum distributions beyond regular income tax. Early distributions that draw the 10% federal additional tax generally also draw a 2.5% California additional tax, figured on form FTB 3805P and reported on Form 540, line 63. (Instructions for Form FTB 3805P, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts (2025))

To size a conversion against federal brackets and Medicare surcharges, see the Roth conversion calculator; for required withdrawals, the RMD calculator.

No lower rate for capital gains or qualified dividends

California taxes all capital gains as ordinary income. The federal 0%, 15% and 20% rates for long-term gains and qualified dividends have no California counterpart, so a couple in the 9.3% bracket pays 9.3% on a long-term gain. The federal exclusion of up to $250,000 ($500,000 joint) of gain on a principal residence does carry over. (Franchise Tax Board: Capital gains and losses)

Interest from U.S. Treasury bills, notes and bonds and U.S. savings bonds is exempt from California tax and is subtracted on Schedule CA. Interest on California municipal bonds is exempt, but interest on bonds issued by other states and their localities is taxable in California even though it is exempt federally. (Instructions for Schedule CA (540), California Adjustments (2025))

Taxable income above $1 million bears an extra 1% Behavioral Health Services Tax (called the Mental Health Services Tax before 2025). The $1 million threshold is the same for single and joint filers and is not indexed, so the top combined rate is 13.3%. A one-time gain from selling a business, a rental property or a concentrated stock position is the usual way a retiree meets it. (Form 540 Personal Income Tax Booklet (2025))

California has nine brackets from 1% to 12.3%, indexed each year to California inflation (3.4% for 2026). For 2026 the 9.3% rate begins at $75,197 of taxable income for single filers and $150,394 for joint filers, and it runs to $384,109 single and $768,218 joint. Most affluent retirees therefore pay 9.3% on each additional dollar of IRA income. (Franchise Tax Board, Tax News October 2026: 2026 indexing and tax rate schedules)

The 2026 standard deduction is $5,900 for single filers and $11,800 for joint filers, well below the federal amounts, and it does not increase at age 65. California uses exemption credits instead of exemptions: $158 per person in 2026, plus a further $158 for each person 65 or older. A couple who are both 65 subtract $632 from their tax. (Franchise Tax Board, Tax News October 2026: 2026 indexing and tax rate schedules)

Exemption credits shrink by $6 per credit for each $2,500 (or part of $2,500) of federal adjusted gross income above $260,778 for single filers or $521,561 for joint filers in 2026. Itemized deductions are trimmed above the same thresholds. (Franchise Tax Board memorandum, Indexing, Personal Income Tax Law, 2026 Tax Year (September 3, 2026; copy hosted by CalTax))

The additional exemption credit for age 65 or older is worth $158 per person in 2026. It is nonrefundable, so it helps only to the extent there is California tax to offset. (Franchise Tax Board, Tax News October 2026: 2026 indexing and tax rate schedules)

The Senior Head of Household Credit is available to a person 65 or older who qualified as head of household in one of the two prior years by providing a home for a qualifying individual who has since died. For 2026 the credit is 2% of taxable income up to $1,923, and it is not allowed when adjusted gross income exceeds $102,006. (Franchise Tax Board memorandum, Indexing, Personal Income Tax Law, 2026 Tax Year (September 3, 2026; copy hosted by CalTax))

California has no retirement-income exclusion, no extra standard deduction for age, and no senior property tax freeze. The federal $6,000 senior deduction for 2025 through 2028 is taken after federal adjusted gross income, so it does not reduce the income California starts from. (FTB Publication 1005, Pension and Annuity Guidelines (2025))

The same three households appear on every state page, so the figures can be compared across states. Each is a full-year resident taking the standard deduction, with no dependents. The figures are state income tax only: any county, city or school district income tax is described on this page but not added in. Pension income is from a private employer, and IRA figures are taxable withdrawals from traditional accounts. The state tax is our calculation from California's published 2026 rules; it is an illustration, not a return.

These households also owe federal income tax, which does not change with the state. The tax bracket calculator and the guide to taxes in retirement cover that side.

Proposition 13 limits the general property tax rate to 1% of assessed value, plus whatever is needed to repay voter-approved local bonds, and limits increases in assessed value to an inflation factor of no more than 2% a year until the property changes ownership or is newly built. A long-held home can therefore be taxed on a fraction of its market value, while a newly purchased one is taxed on its purchase price: at the 1% base rate alone, a home bought for $1.2 million starts at $12,000 a year before local bonds and assessments. (Board of Equalization Publication 29, California Property Tax: An Overview)

Tax Foundation figures drawn from Census data put California property taxes at 0.70% of owner-occupied home value in 2024, 32nd among the states. The low percentage reflects long-held homes with old assessed values; recent buyers pay a higher share of what their homes are worth. (Tax Foundation, Property Taxes by State and County, 2026 (comparative figures from Census ACS data))

The statewide sales and use tax rate is 7.25%, which includes a 1.25% share that goes to local governments. Most areas add district taxes of 0.10% to 2.00% each, and more than one district tax can apply, so rates differ from city to city. (California Department of Tax and Fee Administration: Sales and use tax rates)

The Tax Foundation puts the average combined state and local rate at 8.99% as of January 2026, seventh highest in the country, and the 7.25% statewide rate is the highest state-level rate. (Tax Foundation, State and Local Sales Tax Rates, 2026 (comparative figures))

Food products bought for home consumption are exempt, as are prescription medicines. Restaurant meals, hot prepared food and most over-the-counter items are taxable. (CDTFA Regulation 1602, Food Products (prescription medicines: Regulation 1591))

California has no estate tax and no inheritance tax. Its former estate tax was a share of the federal credit for state death taxes, and it has collected nothing for deaths after 2004, when that federal credit ended. Estates of California residents face only the federal estate tax. (California State Controller: Estate tax)

Property tax matters more than death tax for most California heirs. Since February 2021, Proposition 19 lets a child keep a parent's low assessed value only on a family home the child moves into as a principal residence, and only up to the old taxable value plus $1,044,586 for transfers from February 16, 2025 through February 15, 2027 (the Board of Equalization adjusts the original $1 million every two years). Other inherited real estate is reassessed to market value. (Board of Equalization: Proposition 19)

The federal estate tax applies in every state. The estate tax calculator estimates both the federal tax and any state tax.

For 2026 the Franchise Tax Board raised bracket thresholds, the standard deduction and exemption credits by 3.4%, the change in the California Consumer Price Index from June 2025 to June 2026. The complete 2026 forms and tax tables are due in late December 2026. (Franchise Tax Board, Tax News October 2026: 2026 indexing and tax rate schedules)

The military retirement and Survivor Benefit Plan exclusion of up to $20,000 took effect with the 2025 tax year and is scheduled to end after 2029 unless the Legislature extends it. (Franchise Tax Board: Military (retirement pay exclusion))

Starting with 2025, California conforms to the Internal Revenue Code as it stood on January 1, 2025, instead of January 1, 2015. Federal changes enacted after that date, including the 2025 federal budget law's senior deduction, are not automatically part of California law. (Franchise Tax Board, Tax News October 2026: 2026 indexing and tax rate schedules)

A California resident is taxed on income from all sources, including pensions earned and IRAs funded while living elsewhere. Residency turns on where a person has the closest connections: the Franchise Tax Board weighs time spent in each state, the location of a spouse and principal home, driver's license, voter registration, doctors, bank accounts and social ties. Spending more than nine months of a year in California creates a presumption of residency. (FTB Publication 1031, Guidelines for Determining Resident Status (2025))

In the year of a move, a part-year resident files Form 540NR and is taxed on all income received while a resident and only on California-source income afterwards. An IRA withdrawal or Roth conversion completed after residency has ended is not California income. (FTB Publication 1031, Guidelines for Determining Resident Status (2025))

Federal law (4 U.S.C. 114) bars any state from taxing the retirement income of a non-resident. California applies it to pensions, IRA distributions, Roth conversions and 401(k) plans received after 1995, so a CalPERS pension or a pension from a California employer paid to someone who has moved to another state is not taxed by California. Deferred compensation that falls outside the federal definition, such as certain stock options and short-payout nonqualified plans, can still be California-source income. (4 U.S.C. 114, Limitation on State income taxation of certain pension income)