On the federal return annuity income is usually taxable as ordinary income, not capital gains or interest. The amount of income you report will depend on whether you used after-tax or pre-tax dollars to fund the annuity.
California taxes annuity income treating it as ordinary income similar to the IRS. California does not exempt retirement income (which includes annuities) from state income tax and the taxable amount for California is usually the same as your federal taxable amount. In addition to the federal early withdrawal penalty of 10%, California will charge it's own 2.5% penalty at the state level on early distributions.
Helpful Links:
Do I claim pension or annuity income on my tax return?
Is my pension or annuity payment taxable?
2024 Pension and Annuity Guidelines
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