Navy Veteran Leo Garcia (Photo: Greg Bishop)

In a long-awaited win for California’s military community, Governor Gavin Newsom has signed the 2025–26 state budget, which includes a new income tax exemption for retired Service Members and their surviving spouses. For the first time, Veterans receiving military retirement pay and families receiving payments from the DOD Survivor Benefit Plan, SBP, will be able to exclude up to $20,000 of their income each year from state income taxes.

The exemption begins in the 2025 tax year and will remain in effect through 2029. Individuals with adjusted gross incomes up to $125,000, or $250,000 for joint filers, will qualify. Until now, California was the only state that fully taxed military retirement income, a policy that often pushed Veterans to settle elsewhere. This change not only aligns California with the rest of the country but also helps make the state more competitive in attracting and retaining retired Service Members. It is a meaningful step toward financial equity for those who dedicated their careers to military service.

Veteran service groups have pushed for this change for years. Organizations like the California Enlisted Association of the National Guard of the United States, CAL EANGUS, and the California State Commanders Veterans Council, CSCVC, played a major role in advancing the policy. Josh J. Baker, President of CAL EANGUS and Legislative Director for CSCVC, called the change a long-overdue shift in how the state treats its military retirees. He said it is not just about tax relief but about dignity and recognizing the value that Veterans continue to bring to California communities.

In addition to the tax cut, the budget sets aside funding to improve Veterans’ homes throughout the state. These funds will support long-overdue repairs and upgrades, making daily life safer and more comfortable for residents. The improvements are part of a larger effort to promote financial security, long-term care, and overall well-being for retired Veterans in California.

Fred Green, Chairman of the CSCVC, said the tax relief and home upgrades show a growing commitment to Veterans and their families. He thanked Assemblymember James Ramos, Assemblywoman Pilar Schiavo, Senator Bob Archuleta, and others in the Legislature for recognizing the needs of California’s Veteran population and helping move this effort forward.

California also offers other benefits to Veterans, including property tax exemptions for Disabled Veterans and business license fee waivers for certain vendors. With this new tax exemption now in place, the state is helping Veterans build stronger, more stable futures in the communities they helped protect.

Author: Rikki Almanza

Rikki is a Web Content Coordinator for the American Legion, Department of California. With a deep-rooted family connection to the military, Rikki is committed to using her skills and knowledge to provide valuable assistance and resources to servicemembers and veterans.