Whether your payments are excludable from California income may depend on which disaster relief funds were involved. If you are referring to payments distributed as a result of legal settlements with PG&E to victims of California wildfires:
On December 12, 2024, the bipartisan Federal Disaster Tax Relief Act (H.R. 5863) was signed into law. The bill includes legislation that exempts thousands of qualified wildfire victims in California from having to pay federal income tax on their settlement money or pay tax on attorney fees included in the settlement. This relief applies retroactively to qualified victims. See this Member of Congress webpage for more details.
The Federal Disaster Tax Relief Act excludes from taxpayer gross income, for income tax purposes, any amount received by an individual taxpayer as compensation for expenses or losses incurred due to a qualified wildfire disaster (a federally declared disaster declared after 2014 as a result of a forest or range fire). It also excludes relief payments for losses resulting from the East Palestine, Ohio, train derailment on February 3, 2023 and designates Hurricane Ian, among other federally declared disasters, as a qualified disaster for the purposes of determining the tax treatment of certain disaster-related personal casualty losses.
California tax law does not always conform with Federal law. Whether your payments qualify for exclusion from California taxes may depend on which incident was involved. See this California Franchise Tax Board webpage for information on which disaster relief payments may be excluded from California income.
Many of these payments do qualify for exclusion, in which case you don't have to enter anything about them on your California return. If your payments don't qualify for exclusion, you would need to enter them in TurboTax when you reach the section of the California return interview that asks about California income that wasn't included on your Federal return.
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