If you plan to retire or are already receiving benefits, you may wonder: Does California tax Social Security? The good news is that California is one of the few states that does not tax Social Security income.
This article will explain how Social Security is treated for tax purposes in California and what other types of retirement income may still be taxable.
Does California Tax Social Security Income?
California is one of the few states in the US that do not tax Social Security benefits.
Although the progressive income tax system of the state is recognized for charging higher rates on other types of income, social security income is nonetheless exempt. This gives financial relief to those who rely on these benefits throughout retirement.
So, the answer is no to the question “Does the state of California tax Social Security?” Despite that, retirees must still consider federal taxes, which may be levied on their Social Security benefits based on their total income.
If your total income reaches a certain threshold, the federal government will tax you up to 85% of these benefits. Also, filing status affects tax obligation.
>>> Also read: What Is SSI California? Benefits, Eligibility & How To Apply
Does California Tax Social Security and Pensions?
Retirement account income, involving withdrawals from 401(k), 403(b), and IRAs, is deemed taxable in California. All pension income, whether from the government or a private employer, is also subject to this rule.
All of it is combined with any other income (like employment income) and taxed at the rates given in the following table (for single and joint filers).
| Single filers | |
| California Taxable Income | Tax Rate |
| $0 – $10,756 | 1% |
| $10,756 – $25,499 | 2% |
| $25,499 – $40,245 | 4% |
| $40,245 – $55,866 | 6% |
| $55,866 – $70,606 | 8% |
| $70,606 – $360,659 | 9.3% |
| $360,659 – $432,787 | 10.3% |
| $432,787 – $721,314 | 11.3% |
| $721,314 – $1,000,000 | 12.3% |
| $1,000,000+ | 13.3% |
| Joint filers | |
| California Taxable Income | Tax Rate |
| $0 – $21,512 | 1% |
| $21,512 – $50,998 | 2% |
| $50,998 – $80,490 | 4% |
| $80,490 – $111,732 | 6% |
| $111,732 – $141,212 | 8% |
| $141,212 – $721,318 | 9.3% |
| $721,318 – $865,574 | 10.3% |
| $865,574 – $1,442,628 | 11.3% |
| $1,442,628 – $2,000,000 | 12.3% |
| $2,000,000+ | 13.3% |
(Source: California Franchise Tax Board)
What Other California Taxes Should Retirees Be Concerned About?
If you want to earn part or all of your retirement income from a taxable investment account, you should understand how California taxes capital gains.
In the state, all capital gains, whether short or long-term, are taxed like regular income at the state level. You should be worried about the following taxes:
Property Tax
Proposition 13, which restricts yearly property tax increases, keeps California’s property taxes relatively low compared to other states. Yet, California’s property values are still high.
Sales Tax
Most consumer products, including toys, furniture, and apparel, are subject to a statewide sales and use tax of 7.25%. However, several regions have municipal taxes, also called district taxes, which may boost the sales tax to as high as 10.75%.
According to the Tax Foundation, the combined state and average local tax rate of California is 8.85%, making it the sixth highest in the US.
Grocery
Many commodities, like baby formula, non-carbonated sports drinks, and produce, are tax-free. Still, hot-cooked meals, detergents, soaps, and alcoholic beverages sold in a grocery store are charged to the municipal sales and use tax.
Alcohol
Wine, beer, and sparkling hard cider are each taxed at 20 cents per gallon. Meanwhile, liquor is taxed between $3.30 and $6.60 per gallon, based on the alcohol percentage.
Also, champagne and sparkling wine are charged 30 cents per gallon. The manufacturer pays these taxes; however, the sale price may reflect some or all. Alcohol is taxable to both local and state sales taxes.
Gas and diesel
Gas at the pump is liable to a sales and use tax of 2.25% plus (plus appropriate district taxes) and an excise tax of .596 cents per gallon until June 30, 2025. Both taxes are factored into the selling price.
Meanwhile, diesel gasoline is charged a 13% sales and use tax (plus appropriate district taxes) and an excise tax of .454 cents per gallon, which are both reflected in the pump price.
Lottery
Lottery winnings are not subject to state or local taxes, but you must still pay federal income tax.
>>> Also read: Financial Assistance For Disabled Adults In California
Tips to Minimize Taxes on Social Security Benefits in California
As mentioned above, Social Security benefits are partly taxed at the federal level. Thus, let’s check out several tips to lower your tax burden:
- Manage your total income: Keep your combined income under $25,000 if you are single or $32,000 if you’re married to avoid having your Social Security benefits taxed at the federal level.
- Use Roth IRA funds first: Since Roth IRA withdrawals are tax-free and don’t count as taxable income, using them first to stay under the income limits.
- Wait until 70 to start Social Security: Holding off on taking your benefits until age 70 can increase your monthly payments. Also, it can reduce the risk of being taxed by allowing you to rely on lower-taxed income sources earlier.
- Talk to a tax expert: Tax rules can be complex and vary by individual. A qualified tax advisor can help you plan smartly to reduce taxes on your retirement income.
Bonus tip:
If you’re receiving Supplemental Security Income (SSI), you may automatically qualify for the California Lifeline program – a great way to stretch your Social Security benefits further. Lifeline provides a monthly discount on phone or internet services.
Even better, when you apply through approved providers like AirTalk Wireless, you may also be eligible to receive a free or heavily discounted smartphone or tablet.
Learn more about Lifeline here.
Conclusion
To sum up, if you’re asking, “Does California tax Social Security?”, the answer is no—your Social Security benefits are not taxed at the state level. This makes California a more favorable place for retirees relying on this income. However, remember that other retirement income sources may still be subject to state taxes.
Frequently Asked Questions
Is California Tax-friendly for Tetirees?
California fully taxes income from pensions and retirement savings, and it has some of the highest state income tax rates in the country. Although Social Security retirement payments are exempt, the state still has some of the highest sales taxes in the country.
How is Property Taxed in California?
Property taxes in California are calculated depending on the property’s purchase price. For example, if you buy real estate in California, the assessed value is the same as the purchase price.
However, the assessed value may increase each year based on inflation, according to the California Consumer Price Index. It can rise annually but is limited to 2% each year.
Are Military Benefits Taxed in California?
California taxes its people’s military retirement income. If you live in the state, your active-duty salary is taxed the same as your regular income.
Suppose you resided in California when you joined the military but are now stationed elsewhere. In that case, you are considered a nonresident and are only taxed on income sourced from California, such as rental income, sales, or nonmilitary wages.
