The tax rate on retirement income in California runs from 1% to 12.3% under the state’s nine graduated brackets, with an extra 1% surcharge pushing the top rate to 13.3% on income above $1 million. Social Security and Railroad Retirement benefits are fully exempt. Almost everything else — pensions, 401(k) withdrawals, traditional IRA distributions, military retirement pay — is treated as ordinary income and taxed at the same rates California applies to wages.
What California Doesn’t Tax
Social Security retirement benefits are completely exempt from California income tax, regardless of how much you earn. Revenue and Taxation Code Section 17087 keeps the federal inclusion rules from carrying over to the state return, so Social Security never enters your California taxable income.1California Legislative Information. California Revenue and Taxation Code 17087 Railroad Retirement benefits, both Tier 1 and Tier 2, get the same treatment.
This creates a real gap between your federal and state bills. The IRS can tax up to 85% of your Social Security once your combined income crosses $34,000 single or $44,000 joint. California ignores all of it. When you prepare your state return, you subtract Social Security and Railroad Retirement amounts from your federal adjusted gross income before you calculate what you owe. No form, no application — the exclusion is automatic.
Qualified Roth IRA distributions are also tax-free in California. If the account has been open at least five years and you’re 59½ or older, neither your contributions nor the investment growth are taxed by the state.2Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Non-qualified Roth withdrawals, such as pulling earnings out before 59½, are taxable and can also trigger a 10% federal early withdrawal penalty.
What California Taxes as Ordinary Income
Everything funded with pre-tax dollars gets taxed on the way out. That includes:
- Traditional 401(k), 403(b), and traditional IRA distributions
- Private employer pensions
- Public employee pensions, including CalPERS and CalSTRS
- Military retirement pay
- Required minimum distributions once you reach age 73
Public pensions get no preferential rate in California. CalPERS, CalSTRS, and similar plans are taxed exactly like private pensions. Military retirement pay is also fully taxable at the moment. The Governor’s 2025–26 budget proposed a partial exclusion of up to $20,000 per year for military retirees, but as of this writing that is a proposal, not law.3Legislative Analyst’s Office. The 2025-26 Budget – Partial Income Tax Exclusion for Military Retirement Income
If you earned a pension in another state and later moved here, California still taxes those payments once you become a resident. California residents owe tax on all income from all sources worldwide, regardless of where it was originally earned.
The 2025 Rate Schedule
California’s income tax structure, set under Revenue and Taxation Code Section 17041, uses nine brackets. For 2025, a single filer’s brackets are:
- 1% on income up to $11,079
- 2% on $11,080 to $26,264
- 4% on $26,265 to $41,452
- 6% on $41,453 to $57,542
- 8% on $57,543 to $72,724
- 9.3% on $72,725 to $371,479
- 10.3% on $371,480 to $445,771
- 11.3% on $445,772 to $742,953
- 12.3% on income above $742,953
Married-filing-jointly thresholds roughly double. The 1% rate covers the first $22,158 of combined income, and the 12.3% rate starts above $1,485,906.4California Franchise Tax Board. 2025 California Tax Rate Schedules California adjusts the dollar thresholds for inflation each year; the rate percentages stay the same until the legislature changes them.
These are marginal rates, not flat rates. A single retiree with $80,000 of taxable income does not owe 9.3% on the whole amount. The first $11,079 is taxed at 1%, the next slice at 2%, and so on up the ladder. Only the portion above $72,724 is taxed at 9.3%. The effective rate on the full $80,000 works out to about 4.5%. It is easy to overestimate a California tax bill by looking only at the bracket the top dollar falls into.
The 1% Surcharge Above $1 Million
High-income retirees face one more layer. Revenue and Taxation Code Section 17043, added by Proposition 63 (the Mental Health Services Act), adds a 1% tax on every dollar of taxable income above $1 million in a given year.5Alpine County, California. Mental Health Services Act It sits on top of the regular brackets, so the combined top marginal rate reaches 13.3%, one of the highest state-level rates in the country.
The surcharge is calculated on the same taxable income base that includes pension distributions, IRA withdrawals, and capital gains, and it applies regardless of filing status. For most retirees it never comes into play, but a large lump-sum distribution, the sale of a highly appreciated asset, or a very generous pension payout can push income into the surcharge zone in a single year.
Residency Decides Whether California Can Tax You at All
Whether California can tax your retirement income depends on where you live, not where you earned it. The Franchise Tax Board classifies taxpayers as residents, part-year residents, or non-residents based on where your permanent home is and where your strongest personal and economic connections lie.6California Franchise Tax Board. Part-Year Resident and Nonresident The FTB weighs the location of your primary home, where your spouse and family live, where you’re registered to vote, and where you keep your bank accounts and financial advisors. No single factor is decisive.
Residents owe California tax on all income from every source, including retirement accounts funded while working elsewhere. Part-year residents owe California tax on worldwide income received during the portion of the year they lived in the state, plus any California-source income received while living elsewhere.
Non-residents get an important federal shield. Under 4 U.S.C. Section 114, no state can tax the retirement plan distributions of someone who is not a resident.7Office of the Law Revision Counsel. 4 USC 114 – Limitation on State Income Taxation of Certain Pension Income If you move permanently from California to another state, California cannot tax your 401(k), IRA, or pension withdrawals, even if you spent your entire career here. The word that matters is “permanently.” If the FTB decides you haven’t truly changed your domicile — you kept the California home, the voter registration, the club memberships — it can challenge your non-resident claim and assert that you still owe. Retirees who split time between states should keep thorough records documenting where their true home base is.
Filing, Withholding, and RMDs
You still need to file a California return if your gross income crosses the state’s threshold. For 2025, a single filer age 65 or older with no dependents must file if gross income exceeds $30,591.8California Franchise Tax Board. 2025 Personal Income Tax Booklet Social Security does not count toward that threshold, so a retiree whose only income is Social Security generally will not owe California tax or need to file. Add a pension or IRA distributions and you’ll almost certainly cross the line.
Once your paycheck stops, so does automatic state withholding. You’re generally responsible for making quarterly estimated payments to the FTB, with due dates on April 15, June 15, September 15, and January 15 of the following year.9California Franchise Tax Board. Due Dates: Personal Most pension administrators and IRA custodians will withhold California tax from each distribution if you ask, which spares you the quarterly paperwork. If you have multiple income streams, coordinating withholding across them is often simpler than calculating estimated payments by hand.
Starting at age 73, the IRS requires annual withdrawals from traditional IRAs, 401(k)s, 403(b)s, and similar tax-deferred accounts.10Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) These required minimum distributions count as ordinary income on your California return at the graduated rates above. You cannot reduce the state tax by taking less; the IRS sets the floor. One timing trap: your first RMD can be delayed until April 1 of the year after you turn 73, but if you wait, you’ll owe two RMDs in the same calendar year. Both land on the same California return and can push you into a higher bracket. Roth IRAs do not require distributions during the original owner’s lifetime, which is one reason retirees with both account types often draw down the traditional side first.