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By Suzanne Blake
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More than 1 million veterans are getting a new tax benefit in California this year.
The Golden State's $20,000 state income tax credit for retired service members arrives just as Democratic Governor Gavin Newsom signed a consumer protection law on Tuesday aimed at curbing fraud targeting veterans in the federal benefits system.
Why It Matters
Because the $20,000 state income tax credit goes into effect in California this year, many retired veterans and their surviving families could see higher tax savings.
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There are roughly 160,000 active-duty service members and nearly 1.5 million veterans who could benefit from the new tax break in the state.
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What To Know
For the first time, veterans receiving military retirement pay and families receiving payments from the federal Survivor Benefit Plan (SBP) will be able to exclude up to $20,000 of their income each year from state income taxes.
California historically taxed all military retirement pay and SBP income, but that is changing for the 2025-2026 state budget.
For tax year 2025, retired veterans and families receiving SBP payments may exclude up to $20,000 of that income from California state income taxes each year. This tax change comes alongside the new veteran consumer law, which strengthens consumer protections for those who served in the U.S. military.
The bill, SB 694, was introduced by Democratic State Senator Bob Archuleta, of Pico Rivera, and will also provide additional protections for veterans by limiting who may charge fees for assistance with benefits claims administered by the federal government.
Federal accreditation will be necessary for any person to prepare a veteran’s claim for benefits, and unauthorized fees will be prohibited except for those explicitly allowed under federal law.
The California Consumer Legal Remedies Act will also be expanded to cover veterans’ benefits claims.
Other Tax Changes This Year
Nationwide, there are many other tax updates impacting Americans, which could have significant benefits depending on your financial situation.
Middle‑ and upper‑middle‑income earners who make from $60,000 to $400,000 will likely receive the biggest refund boosts because of the retroactive provisions of the One Big Beautiful Bill Act. These households benefit most from expanded deductions and the State and Local Tax (SALT) cap increase.
The SALT cap was raised from $10,000 to $40,000, especially helping residents in high‑tax states.
Homeowners in states with high property or income taxes—like New York, New Jersey, California and Connecticut—will likely see major gains because the SALT deduction cap was raised dramatically.
Seniors as well as tipped and overtime workers could also benefit substantially under the new rules going into effect for tax year 2025.
What People Are Saying
Democratic State Senator Sabrina Cervantes, of Riverside, in a statement: “It’s been a long road, but Senate Bill 694 will finally provide a framework to protect our veterans from being defrauded when seeking assistance to apply for the benefits they deserve from the VA. I want to thank Senator Archuleta for his hard work on this important issue, and Governor Newsom for signing SB 694 into law.
California Democratic Attorney General Rob Bonta, in a statement: “Today, I am proud to stand with a coalition of veterans organizations in celebration of the signing of SB 694, legislation that continues our commitment to vigorously protect those who have sacrificed so much to protect us. Claim sharks pose a financial risk to veterans who need help with their benefits claims. SB 694 will degrade and deter the ability of these predatory individuals or companies to exploit veterans seeking help accessing their benefits.”
Alex Beene, financial literacy instructor for the University of Tennessee at Martin, to Newsweek: “California’s new law includes a state income tax benefit letting veterans and their families exclude up to $20,000 of military retirement pay or Survivor Benefit Plan income from their state taxable income each year. That $20,000 tax break applies to military retirees and surviving spouses filing in California as part of a greater push to support veterans financially while cracking down on fraud.”
What Happens Next
In the long term, the tax credit could help keep more military members living in California, Beene said. “By making the state more financially friendly to vets, the credit could help retain military retirees in the state and improve economic stability for veteran households.”
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