Tool | November 2018

State-by-State Guide to Taxes on Retirees


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The Bottom Line
Map of California

Mixed Tax Picture

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 8.55%, according to the Tax Foundation.

Income Tax Range

Low: 1% (on up to $16,446 of taxable income for married joint filers and up to $8,223 for those filing individually)

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

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

All private, local, state and federal pensions are fully taxed. There is a 2.5% state penalty on early distributions from retirement plans, annuities and IRAs. Railroad Retirement benefits are exempt.


Taxable at ordinary income tax rates. There is a 2.5% penalty on early distributions.

401(k)s and Other Defined-Contribution Employer Retirement Plans

Taxable at ordinary income tax rates. There is a 2.5% penalty on early distributions.

Private Pensions

Taxable at ordinary income tax rates.

Public Pensions

All other public pensions are taxable at ordinary income tax rates.Railroad Retirement benefits are exempt.

Property Taxes

The median property tax on California’s median home value of $409,300 is $3,237.

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