New legislation provides up to $20,000 in tax-free military retirement income
(Sacramento, CA) June 27, 2025 – Dr. Jasmeet Bains (D-Delano) today announced groundbreaking tax relief for veterans as part of the 2025-26 State Budget.
The tax reform cuts income taxes up to $20,000 annually for veterans receiving military retirement pay.
“Despite having the nation’s largest veteran population, the cost of living in California is making it impossible for native Californians to live here after they leave service,” said Dr. Bains.
“I do not believe California should balance our checkbook on the backs of veterans.”
The new Military Retirement Exclusion represents one of the most significant pro-veteran policy changes in California's recent history. The tax cut applies to individuals with an adjusted gross income of up to $125,000, surviving spouses with the same income threshold, and married couples filing jointly with a combined adjusted gross income of up to $250,000.
This legislation addresses a long-standing concern among California's veteran community, where the high cost of living combined with state taxation of military retirement benefits has made it challenging for many veterans to remain in the state after their service.
"This tax cut recognizes the unique sacrifices made by our veterans and their families and ensures that the 1.8 million veterans who call California home can afford to live here after their years of dedicated service," said Dr. Bains.
The state's commitment to this initiative is substantial, with the Military Retirement Exclusion estimated to reduce state revenues by $130 million in the 2025-26 fiscal year and $80 million annually in subsequent years. This investment underscores California's dedication to supporting veteran families.
The Military Retirement Exclusion will be effective for taxable years beginning after January 1, 2025, and will remain in effect through December 31, 2029, with the option to be extended in future budget years. Veterans and qualifying military families will be able to claim this exclusion when filing their 2025 California state income tax returns.
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Dr. Jasmeet Bains represents the 35th Assembly District in Kern County, including the cities of Bakersfield, Delano, Wasco, Arvin, Shafter, and McFarland.