The instructions for CA Schedule CA (540) state: "Military Retirement Exclusion – For taxable years beginning on or after January 1, 2025, and before January 1, 2030, California law allows an exclusion from gross income for a qualified taxpayer that received retirement pay from the federal government for service in the uniformed services or annuity payments pursuant to a United States Department of Defense Survivor Benefit Plan during the taxable year, not to exceed $20,000."
So it does appear that the ability to exclude this income is limited to Survivor Benefits only. If this does not apply to your military retirement income, you can use the following steps to not exclude the income from your California return:
- Go back to the Personal tab, then click Personal Income.
- Click "I'll choose what I work on"
- Scroll down to IRA, 401(k) Pension Plan Withdrawals (1099-R) and click on Update.
- Click the pencil icon to the right of the 1099-R that applies to your military retirement.
- Keep clicking Continue until you get to the screen "Where Is your distribution from?"
- Click the "Other distribution" button
This action will make your retirement distribution taxable to California.
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