Full Year Nonresidents

• California normally taxes nonresidents' income derived from a California source. However, in the case of retirement income, the state does not tax full-year residents of other states who receive California-sourced retirement plan payments. That means if you received a California pension but you lived the entire year in Texas, you would owe no state income tax to California and would not have to file a California income tax return. You also would owe no state income tax to Texas on your California pension income because Texas is one of seven states without a state income tax.
  
  

Part Year Residents

• If you moved to Texas from California during the year, you would owe California income tax on the income you received from all pensions or retirement plans, other than Social Security or railroad retirement, while you were a California resident. California determines residency by a number of factors, including where you have your principal residence, where you receive mail, where your vehicles are registered, where your driver's license was issued, where you registered to vote, where you obtain professional services, where you bank, and where you maintain your professional licenses.
  
  

Figuring Your Tax

• If you moved from California to Texas during the tax year, California has a complex multi-step system for determining your tax while you lived in the state. The first step requires that you determine your California income tax liability as though you had lived in the state all year. You do this by figuring your gross income, state exemptions, state deductions, resulting net taxable income and the tax you owe as though you had never moved to Texas.
  
  

Excluding Income

• To exclude the pension income you received after moving out of California you first divide the tax on your total taxable income by your total taxable income to find your California state tax rate. California has progressive income tax rates from 1.25 percent to 9.55 percent; your rate increases as taxable income increases. Next, you prorate your total deductions by dividing you pre-move income by your total income and multiplying your deductions by the resulting percentage to find your California deduction. Subtract that sum from the income you received before your move to find your net part-year taxable California income. Multiply that part-year income figure by the tax rate you calculated previously to find the prorated tax you owe on your pre-move pension income.