Mostly taxed
How California taxes retirement income
California does not tax Social Security or Railroad Retirement benefits. Almost everything else retirees receive is taxed as ordinary income: CalSTRS and CalPERS pensions, pensions from other states, company pensions, and withdrawals from 401(k), 403(b), 457(b) and IRA accounts.
California’s rates run from 1% to 12.3%, plus a 1% surcharge on income over $1 million. Most retirees fall in the middle brackets. A couple with a $60,000 CalSTRS pension and $40,000 of IRA withdrawals would typically pay a few thousand dollars a year in California tax.
Because CalSTRS teachers and many CalPERS members do not get Social Security on their public jobs, more of their retirement income is taxable pension income than for a typical retiree. Moving out of state does stop California from taxing the pension: federal law bars a state from taxing pension income of people who no longer live there.
California public pensions
For the formula, payment dates and raises in your plan, see CalSTRS and CalPERS.
Questions
Does California tax CalSTRS and CalPERS pensions?
Yes, as ordinary income at California’s normal rates.
If I retire and move out of California, is my pension still taxed there?
No. Federal law (4 U.S.C. 114) bars California from taxing pension income of nonresidents.
Does California tax Social Security?
No.