Summary
SB-911 seeks to make the first $20k of payments from Survivor Benefit Plans tax free within California.
Background
Much like a life insurance policy, Survivor Benefit Plans (SBP) are an optional benefit that many military service members opt to pay into. These plans collect a portion of the member’s paycheck and if the individual dies, the benefactor (spouse or child) receives up to 50% of the service member’s retirement income.
Since the SBP are issued in proportion with the deceased retirement income, they differ from a life insurance plan, which is considered non-taxable income. While the life insurance payments remain tax free, these payments to widowed spouses and children of deceased service members are not.
Currently 48 states partially or fully exempt SBP payments and only two states in the country fully tax these benefits, Vermont and California. Since 2016, California has consistently seen an annual decline in recipients of this benefit with a median drop of over 1,000 people a year, resulting in California going from the number one state in the country in number of participants in SBP to third in the country, as of 2020. This drop is uncharacteristic to the rest of the nation which has seen increases in participants. The national funds reported by the Department of Defense reflect that from 2016 to 2022 the nation saw a total drop of approximately $164 million in benefit payments, California seeing $86 million of those lost payments (53%) while only being home to 8% of the nation’s recipients of SBP.
Proposal
With just over 27,000 military survivors receiving SBP payments within California and a majority of these survivors being 65 years old and up, it is imperative that California provide relief. The national average payment for the 14 states that partially tax this benefit is $20,000 which helps protect the lower income families who lost their primary income source from being hit with more taxes.
SB-911 seeks to relieve the children and spouses of our great service members in uniform from the undue burden of taxes from SBP payments. These families and survivors have paid the highest price for our state and nation. It is long overdue that California join the rest of the nation in providing relief to these families.