California Military Pension Exclusion

[blazemax]

I prepared a draft of a retired military friends 2025 tax return in TurboTax and the program ask me to select the source of the distribution and enter any other California information - I selected "Military retirement distribution".  His return correctly prepared his return and excluded $20,000 since his AGI was less than $150,000 and he lives in California.

I prepared a draft of my 2025 tax return in TurboTax and the program is not recognizing that I qualify for the California Military Pension Exclusion.  I am married and am filing jointly - my husband is retired military and receives a military pension.  Our AGI is less that $250,000.  The program did not ask me to "select the source of the distribution and enter any other California information" when I was preparing my return.  It is not letting me select "Military retirement distribution" and it is not letting me select "learn more".  Therefore my return is inaccurate.

Potential program bug/error.

[JamesG1]

In TurboTax Desktop Deluxe, I am able to claim the California Military Pension Exclusion.  The program automatically calculated and displayed the exclusion amount after I entered the military pension benefits on IRS form 1099-R.  I used distribution code 7 and the Military Retirement EIN.

California Military Pension Exclusion

Starting in 2025, California is introducing a new tax break for military retirees.  If you qualify, you can exclude up to $20,000 of your military retirement pay from your California state taxes. This means you won't pay state tax on that portion of your pension.

Eligibility Requirements:

• you must have received military pension benefits during the tax year
  the military pension must be entered on federal Form 1099-R with state ID "CA" (box 15) and state use code "M" (Military) (box 16)
  your federal adjusted gross income (AGI) must be below the threshold:
• $250,000 for married filing jointly or qualifying surviving spouse
  $125,000 for all other filing statuses (single, married filing separately, head of household)

How It Works:

The exclusion is the lesser of:

• Your total military pension benefits, or
  $20,000

The exclusion amount will appear in the Pension and Annuity Adjustment Section of this worksheet and will be included as a subtraction on Schedule CA/CA(NR), Income Adjustment Schedule, Section A, line 5, column B.

Important Notes:

This exclusion applies only to military pension benefits, not to other types of retirement income
The exclusion is available for tax years 2025 through 2030 only
If your federal AGI exceeds the threshold, you are not eligible for the exclusion

[blazemax]

Thanks for the response.  I am aware of the eligibility requirements/tax rules and have used TurboTax for years and was also an auditor/manager with IRS.  

In my previous post I explained that I already completed a friends return and there was a question about the source of the distribution which was not on the joint return.  AGI for the joint return is below the exclusion threshold.

There is no code "M" in box 16.  CA is selected for box 15.  The program is not computing the tax/exclusion for the joint return.

I believe there is a "glitch" in the program.   I can do a work around, but should not have to.  Intuit/Turbotax needs to fix. 

[JamesG1]

Military pension benefits were reported using an IRS 1099-R with a Military Retirement employer identification number and address.  

Perhaps your 'draft' tax return did not contain a Military Retirement employer identification number and address and the software did not recognize the Military connection.

@blazemax 

[blazemax]

Thank you again for your input.   I have double checked the 1099-R input for errors on each of the "draft" returns I have prepared - my joint return and our friends return.  The input is identical.  

There is no "EIN" on either form - there is a Taxpayer Identification Number (TIN) for Defense Finance and Account Service (DFAS) of 34-0727612 on each of the forms.   In addition, I have identified the payment as a "non-qualified" plan.  

As I stated in my original post it asks for the source of the payment on the single return, but not on the joint return.   The program did not ask me to (on the joint return):

       "Select the source of the distribution and enter any other California information" when I was preparing

       my return"  

It displays the following on the single return, but it does not display the following on the joint return:

       "Military retirement distribution"

       "Other distribution"

Again I believe there is an error in the program.  Since I have a tax background I am able to correctly prepare the state return. 

[RogerD1]

Have you tried deleting the 1099-R from the return and re-entering it?  You can go to the 1099-R summary page and click the trash can at the far right of the 1099-R you want to delete.  Then you can click + Add another 1099-R to start re-entering it.

If this does not fix the issue you are having, you may want to consider contacting our support number using the information here:  Contact TurboTax

[blazemax]

Hello Again

Thank you for your input! 

I did as suggested - deleted the 1099R, re-entered, etc.  Still not calculating correctly.  Still did show the questions for "source of the distribution" that was shown on the "single" tax return completed.  

Also, I attempted to call the 1-800 number for Turbotax in your response and it took me to a medical devise sales pitch not Turbotax.  This is very frustrating for me and I am sure there are others with the same issue.

I entered the $20,000 as an military exclusion myself on Schedule CA,  but the program should have done this. ;0(

[bootsdowd]

After reading all this and the garbage answer from the "tax pro", I went back to the Step-by-Step section for the 1099-R info and it asked me to review it. I went through the questions and it asked me if it was from a military retirement plan. That wasn't there the first go-around. After I selected it, my state taxes went from -$140 to +962.  

Should NOT have had to dig for it.  Thanks for posting this question.

[VolvoGirl]

@blazemax   Sounds like the Joint return thinks your AGI is too high.   

[blazemax]

That is a possibility, however AGI it is not over $250,000. 

I believe there’s definitely a glitch in the intuit program when doing a joint return.

thank you for your comment.

[south-bay-don1]

Today I tried to efile my Federal and State taxes.  The Federal was accepted, the State was rejected. I filed jointly and was within the $250,000 income limit and I listed the $20,000 exclusion on CA 540, Part 1, line 5, B for subtractions. The Reason for the state return rejected was they wanted to know when I am deployed.  I retired from the US Air Force and 1980, I deployed to the Vietnam in 1968.  Is that the answer they are looking for. If I elect to file a paper copy and mail, that will also rejected by the state of California.  No one seems to know how this works.  Where would I put the info when I was deployed. Any answers.  Don 

[blazemax]

Hello

I was successful in filing my 540.  My husband retired in 1990 and receives a pension.

I believe there is a flaw in the Intuit's program for married individuals.  This is where I reported the $20,000 Military Pension Exclusion:  Schedule CA (California Adjustments), Side 2 Section B - Additional Income, z - Other income.

This is where I listed the Military Pension Exclusion as a subtraction in Column B.

Good Luck!

[BillM223]

"Where would I put the info when I was deployed" - This question, which should not apply to your situation, is found in the My Info/Personal Info interview.

On or about the screen*** where TurboTax asks for your name and SSN, TurboTax also asks you if you served in the military in 2025. You should have answered No. If you answer Yes, then you will be asked other things, including where you were deployed...but you should not have ever gotten that far.

***Sorry to be imprecise, but this question about military service seems to wander around, but it should be in the My Info/Personal Info section somewhere...

@south-bay-don1 

[blazemax]

I disagree with BillM223's response.

No where in TurboTax does it ask for when you served in the Military. 

The 1099R received from DFAS would be entered under 1099R screen for both a single person filing or joint  filing. 

When preparing a single return TurboTax asks the following:

                 Where is your distribution from?

                     -  Military retirement distribution

                     -  Other distribution

If you are filing a joint return it does not ask this question.  It asks the following when entering the 1099R from DFAS.

      What kind of retirement plan do you have with DFAS?

You should select the second option:   ..... and military retirement plan.

When I filed my joint return which has been processed and I have received my refund I had to put the Military Pension Exclusion here:  

Schedule CA:

z - Other income,  List type and amount:

    Military Pension Exclusion       Column B/Subtraction:         $20000 (if total amount you received is less than this - you would use the lesser amount)

I believe there is a "glitch" in the program as I have said in my previous posts

Follow this and your return will be ready to file.

[DaveF1006]

There is a section under Personal Info.  When you enter each of your personal information, there is a box that asks "did you serve in the armed forces". Here is where you would say "yes".  This isn't an issue however.  The issue was the fact the subtraction did not appear in your California return and you had to enter it manually.

As of now, this must be entered as an annuity adjustment. To enter, you must navigate to the "Any Pension or Annuity Adjustments" screen in the California section to receive the subtraction. This is what I assumed you did and it was the correct response.