California bill offering military retirees tax break on pensions hits suspense file

CALIFORNIA – A bill that would give uniformed retirees and their survivors a state tax break on military pensions was sent to the Assembly Appropriations Suspense File for further review on March 17.

Assemblymember James C. Ramos (D-San Bernardino), along with retired veterans and a bipartisan group of legislators, advocate for the passage of AB 53.

The bill allows veterans to exempt up to $20,000 of their federal pensions from taxes if they earn under $125,000 annually.

According to the assemblymember, California is the only state that taxes the full amount of the pensions of military personnel.

Bill seeks to reverse the 20-year trend of military retirees leaving California

As of 2021, over 132,000 retirees in California received around $4.1 billion annually from the Department of Defense (DoD), and more than 27,000 survivors got about $415 million.

Ramos said the number of military retirees in California receiving DoD pay has dropped by at least 1% annually since 2013, with the decline speeding up to over 3% in recent years.

The bill sponsor, California Council of Chapters Affiliated Military Officers Association of America (CALMOAA), said AB 53 aims to reverse the 20-year trend of military retirees leaving California for states with better tax policies.

Ramos has introduced the bill three times and said he was encouraged when Governor Gavin Newsom included a similar pension tax exemption in this year’s state budget proposal.

The budget estimates that the exemption will reduce revenues by $130 million in FY 2025-26 and by $85 million annually thereafter.

According to the Legislative Analyst’s Office (LAO) the maximum benefit would be a $600 tax cut annually for the average retiree.

Bills in the suspense file may move forward in mid to late May

Now that the committee has referred Ramos’ proposal to the Appropriations Suspense File, a decision on whether it will proceed is expected in mid to late May.

If a bill is estimated to cost more than $150,000 in the Assembly or $50,000 in the Senate, it is sent to the suspense file for additional financial review.

Bills that are not approved to move forward, are considered dead for the current legislative session.