State-by-State Guide to Taxes on Retirees
Tool | November 2019

State-by-State Guide to Taxes on Retirees


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The Bottom Line
Flag of California


California has the highest tax rate in the country, at 13.3% (for millionaires). And while it doesn’t tax Social Security income or Railroad Retirement benefits, all other retirement income is fair game. Sales taxes are high. But, there’s a significant bright spot: If you’re over 65, you get to claim an extra $118 exemption that comes right off your tax bill: It reduces what you owe directly, the same way as a federal tax credit would.

State Sales Tax

7.25% state levy. Localities can add as much as 2.5%, and the average combined rate is 8.66%, according to the Tax Foundation.

Income Tax Range

Low: 1% (on up to $17,088 of taxable income for married joint filers and up to $8,544 for those filing individually)

High: 13.3% (on more than $1,145,960 for married joint filers and $1 million for those filing individually)

Effective tax rate: 1.79% for single filers, 4.6% for joint filers.

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

Income from private, government and military retirement plans is taxed by California to the same extent that it’s taxed at the federal level. As a result, retirement income is typically fully taxed by the state.

There is 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 benefts paid by individual railroads are taxable by California.

Property Taxes

In California, residents pay an average of $841 in taxes per $100,000 of assessed home value.

Tax breaks for seniors: Homeowners over 62 (or who are blind and disabled), with an annual income of less than $35,500 and at least 40% equity in their homes, can defer payment of property taxes. Interest is calculated on the amount outstanding.

Vehicle Taxes

California charges an annual fee that functions much like a property tax. The rate is 0.65% of the actual purchase price and is reduced for the first 11 years of ownership. For example, the VLF on a two-year-old vehicle purchased for $25,000 would be $147.

Inheritance and Estate Taxes