State-by-State Guide to Taxes on Retirees
Tool | December 2021

California State Tax Guide for Retirees

State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees.


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The Bottom Line
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California can be a difficult state to figure out when it comes to taxes on retirees. For instance, at 13.3%, the Golden State has the highest income tax rate in the country—but that rate is for millionaires. For middle- and lower-income folks, the rates are much lower. And while California doesn't tax Social Security income, most other forms of retirement income are fair game. Sales taxes are relatively high, but the state's median property tax rate is not. In the end, when you balance out all the pros and cons, California is actually a good state for most retirees when it comes to taxes, thanks mainly to the reasonable income tax rates for ordinary seniors.

Income Tax Range

Low: 1% (on up to $18,650 of taxable income for married joint filers and up to $9,325 for those filing individually)

High: 13.3% (on more than $1,250,738 for married joint filers and $1 million for those filing individually)

Taxation of Social Security Benefits

Social Security benefits are not taxed by the state.

Tax Breaks for Other Retirement Income

Income from private, government and military retirement plans is generally taxed by California to the same extent that it's taxed at the federal level. However, there are some differences between California and federal law that may cause the amount of your California retirement income to be different than the amount reported for federal purposes.

There's also a 2.5% state penalty on early distributions from retirement plans, annuities and IRAs. This is in addition to the 10% federal penalty for early withdrawals.

Railroad Retirement benefits are generally exempt, although Tier 2 benefits paid by individual railroads are taxable by California.

Sales Tax

7.25% state levy. Localities can add as much as 2.5%, and the average combined rate is 8.82%, according to the Tax Foundation.

Groceries: Exempt
Clothing: Taxable
Motor Vehicles: Taxable
Prescription Drugs: Exempt

Real Property Taxes

For the 2021-22 fiscal year, homeowners over 62 (or who are blind and disabled), with an annual income of less than $45,810 for the 2020 calendar year and at least 40% equity in their homes can defer payment of property taxes. Interest on the unpaid amount is charged.

Any person age 55 or older can transfer their home's "tax value" to a new home in the state. If the new home's market value is greater than the old home's market value, the difference is added to the tax value. Generally, three transfers are allowed per person.

Annual Car Taxes and Fees

An annual vehicle license fee based on the car's purchase price or value is imposed. You can deduct the fee from your income tax. The fee is reduced for the first 11 years of ownership.

Estate and Inheritance Taxes

No estate or inheritance tax.