Updated October 7, 2026. Quick answer: Only if you live there. The Franchise Tax Board says “California does not impose tax on retirement income attributable” to services performed in California when a nonresident receives it, while California residents are taxed on income from all sources, including an out-of-state pension.
How California treats a pension earned elsewhere
| Item | What the state documents say |
|---|---|
| Nonresidents | The Franchise Tax Board says California does not tax retirement income tied to services performed in California when a nonresident receives it after December 31, 1995. A nonresident is still taxed on other income from California sources and files Form 540NR. This row rests on the 540NR booklet. The statement appears in the booklet section on pension income of retirees who move to another state. |
| Residents with a pension earned elsewhere | The resident booklet counts gross income as all income received from all sources, and the nonresident booklet adds that a pension earned outside California but received after becoming a California resident is taxable. The resident booklet describes one retirement exclusion, for federal military retirement pay and certain survivor annuities, not to exceed $20,000 for taxable years beginning on or after January 1, 2025 and before January 1, 2030. The all-sources definition rests on the 540 resident booklet and the out-of-state pension sentence rests on the 540NR booklet. The source says: “gross income (all income received from all sources”. Filers who meet the military retirement test claim the exclusion on Schedule CA (540). |
| Part-year residents (year of a move) | California taxes all income received while the person resided in California, plus income from California sources received while a nonresident. Schedule CA (540NR) first computes income as if the person were a resident for the whole year, then California tax is the California taxable income multiplied by an effective tax rate. This row rests on the 540NR booklet. The source says: “California taxes all income received while you resided in California”. The effective tax rate is the tax on total taxable income divided by total taxable income. |
| Rate | For 2025 the California rate schedules print graduated rates from 1.00% at the lowest bracket to 12.30% at the highest bracket. The same schedules appear in both booklets. |
| Return to file | Full-year residents file Form 540. Nonresidents and part-year residents file Form 540NR. The 540NR booklet tells a person who was a resident for all of 2025 to file Form 540 instead. |
A $40,000 move-year example
A retiree receives $40,000 of pension in the year of a move: $20,000 before the move date, as a California resident, and $20,000 after leaving.
The first $20,000 can be taxed by California; the rest is outside its reach under the federal rule below. Taxed wholly at the lowest printed rate, 1.00%, the tax on it is computed as $20,000 x 0.01 = $200; taxed wholly at the highest, 12.30%, it is computed as $20,000 x 0.123 = $2,460. The real figure falls between these bounds before any exclusion or credit. Federal tax still applies.
The federal rule that protects a nonresident
4 U.S.C. 114(a) bars a state income tax on retirement income of an individual “who is not a resident or domiciliary of such State”. Retirement income means certain plan payments made as a “series of substantially equal periodic payments”, so not every payment is covered.
Related: how California taxes retirement income, whether California taxes pensions, California to Arizona retirement taxes, California to Delaware retirement taxes, out-of-state pension tax by state, and deferred compensation lump sums after a move.
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Answer againSources
- 2025 California 540 Forms and Instructions, Personal Income Tax Booklet (Franchise Tax Board): https://www.ftb.ca.gov/forms/2025/2025-540-booklet.pdf
- 2025 California 540NR Forms and Instructions, Nonresident or Part-Year Resident Booklet (Franchise Tax Board): https://www.ftb.ca.gov/forms/2025/2025-540nr-booklet.pdf
- 4 U.S.C. 114, Limitation on State income taxation of certain pension income (U.S. Government Publishing Office, 2023 edition): https://www.govinfo.gov/content/pkg/USCODE-2023-title4/html/USCODE-2023-title4-chap4-sec114.htm
Sources: the primary documents linked above, read on October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.