California lawmakers consider repealing taxes on military pensions

SACRAMENTO – California has long been the only state to fully tax military pensions, but that could all change with a proposal being considered in the legislature next week.

It all started with an exodus of veterans from California to states with lower tax rates. According to U.S. Census data, more than 500,000 U.S. military veterans have vacated California since 2020. Meanwhile states like Nevada and Florida that do not fully tax military pensions have seen an increase.

After several failed attempts, state lawmakers are now widely backing Assembly Bill 46, new legislation that would repeal the tax for the next decade.

Asm. James Ramos (D-San Bernardino) is sponsoring AB46. He argues the high-value second careers many veterans pursue after their 20+ years in service to earn a pension pour in more money into California than the dollars the estimated $85 million annual revenue the state may lose if the tax is repealed.

For Air Force veteran Ramona Chavez, joining the military was a simple decision to save for college, but today she faces the tough decision of planning for where her money will go the farthest.

"We were on the same vision of supporting the freedoms that we so enjoy," Chavez told CBS News Bay Area. "A lot of people join the military when they're 18 years old, so you get 20 years of service and 38 years old. So they're looking beyond their retirement in the military. So when they spend 20 years in business, they're building all their skills and experience and they're ready to carry that out to their next career so pension is huge."

The camaraderie she felt in the military persists today as she fights for the legislation to repeal taxation on military pensions in California. Washington, D.C. is the only other U.S. location where military pension is taxed at 100%.

 "It's shocking," she said about the tax. "We have 49 states that recognize the service of members that have served for more than 20 years. It's not a handout. So I'm really surprised but I think it's just been a problem that has gone unnoticed here in California."

California remains one of the most expensive places to live in the country and Chavez says veterans have earned the right for each penny to stay in their pockets.

 "Every dollar counts. You know, if you want a home, you need a lot of money to buy a home here in California," said Chavez. "You want to raise your children you need a lot of money. And so pension is huge as we're looking at their second careers and trying to figure out where are they going to land."

The average enlisted officer who serves for the minimum 20 years receives an annual $30,000 pension. California is home to the highest number of military retirees at more than 140,000. But the pension tax forces many to question a departure, even Chavez.

"My husband and I are looking, we live in Oakland, and we're looking where does our dollar go farther? And when you look in different states, it's gonna go a little further outside of California. So that definitely does come into play," she said.

But the tax is on the verge of being repealed, at least until 2034. AB 46 has passed out of a several key committees in Sacramento and Ramos says it's all in the name of military appreciation.

 "We want to keep our veteran population in the state of California and if offering them a tax exemption to their military service that comes to them in retirement, that's a small step towards keeping those in the state of California that put their lives on the line for us," Ramos told CBS News Bay Area.

Chavez agrees. She testified before Ramos in July in her push to get the legislation passed with a goal of putting thousands back into the pockets of California veterans each month.

"California stands out in so many great ways. But to be the only state to fully tax military retirement should not be one of them," she said in her testimony. "When you say thank you for your service, act on it."

If passed, Chavez says it would do more than repeal a tax, but reaffirm that California in fact supports its veterans.

 "It's not a handout. It is people that every day, got up and did what they were supposed to do to protect this country and protect the state," said Chavez. "It just seems like it's an obvious thing to do for the veterans."

AB 46 is set for a full Assembly vote on Monday.