I live in CA in all of 2016. Do I have to pay CA state tax on an educator pension earned from MI?

[oswaltmike]

I receive monthly payments from the pension plan earned from Michigan at age 50.

[GeoffreyG · Accepted solution]

As a California resident, you are subject to being taxed on all of your income, from whatever source, except as otherwise exempted by state law.

Michigan, as you probably know, provides some tax breaks for retirees over a certain age, and by type of pension, including government and public schools.

But in California however, all private, local, state and federal pensions are fully taxed (and that would include your education pension, even where it was earned years earlier, and even for non-California employment).  The only tax exemptions for retirement income in California are for Social Security benefits and Railroad Retirement Board pensions.

Sorry to be the bearer of bad news here; but it would simply be illegal to exclude your Michigan pension from California taxation, if you are a resident of California (or "domiciled" in California, as the tax law terms it).

If you have further questions about this topic, or if you just want to speak with a live tax expert who can walk you through your TurboTax pension entries (including the ability to screen-share with your computer), please feel free to contact us.  We would be happy to help you (and as a TurboTax Premier customer, the call is free to you).  Here is a link where you can create a support ticket and reach us:

https://support.turbotax.intuit.com/contact/

Thank you for asking this important question.

[oswaltmike]

Thanks for this detailed reply, even if not bad news. Having just moved here fall of 2015, didn't realize this, so of course my CA taxes due is quite large. Two follow up questions - I've never filed an extension - recommendations? Also, do you know where to find the state % for CA on pensions so I can be sure hold aside money this year? thanks!

[GeoffreyG]

Hello oswaltmike:

You are very welcome for the information.

With respect to your two additional questions:  first, there is nothing at all wrong or abnormal about requesting an extension of time to file your income taxes, either on a federal or a state level.  Plenty of people do it every year.  I've done it myself a few times.  Basically, when you file for an extension, you get an automatic 6 extra months (until mid-October) to file your original tax return.  But you do need to know one rule, and this vitally important, that an EXTENSION OF TIME TO FILE IS NOT AN EXTENSION OF TIME TO PAY (bold typing added simply for emphasis).

What that last sentence means is that you must, by the regular tax filing deadline of April 15th (actually April 18th for the 2016 tax year) have paid enough in taxes to the government (both federal and state), to satisfy whatever your eventual tax liability will be, when you ultimately submit your tax return.  Thus, even when you are granted an automatic extension, you don't get any extra time to pay your taxes.  Confusing?  Yes, but that's the system.  If you need an extension of time to pay your taxes, then what you'll want to request instead is that the IRS or California state set up a payment plan for you.  Then you can file your tax return either at the normal time, or request an extension of time to do that as well.  Both the IRS and California have information on how to apply for payment plans listed on their websites.

With respect to your second question, there actually isn't any set tax rate (percentage) on pension income.  Instead, pension income is taxed as "ordinary" income, just like wages, self-employment, interest income on savings accounts, etc.  What you really want to look at is your total overall taxable income, as well as your marginal tax bracket.  For that, you can refer to the following two sources.  The first link below is to a table of California tax brackets / rates; and the second link is to a table of federal tax brackets / rates.  Simply scroll up and down those pages to find the exact section that applies to you and your filing status (the tax brackets are different for Married Filing Jointly and Single, for example).

<a rel="nofollow" target="_blank" href="https://www.ftb.ca.gov/forms/2016-california-tax-rates-and-exemptions.shtml#ctrs">https://www.ftb.ca...>

<a rel="nofollow" target="_blank" href="https://taxfoundation.org/2016-tax-brackets">https://taxfoundation.org/2016-tax-brackets</a>

Thanks again for your questions, and we hope that you will enjoy living in California (despite the higher taxes).

[docboc]

I am NOT a resident of California.  Do I have to pay CA state tax on my University of California pension?

[DoninGA]

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@docboc wrote:

I am NOT a resident of California.  Do I have to pay CA state tax on my University of California pension?

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No.  If you did not live or work in California in 2021 and do not have California state taxes withheld from your pension income you do not file a CA state tax return.

[LeonardS]

No,  federal law prohibits ANY state from taxing pension income of non-residents, even if the pension was earned in the state.@docboc