Does San Francisco Tax Annuity Income?

Does San Francisco Tax Annuity Income?

Short answer: **San Francisco does not have a city income tax on individuals**, so there’s **no extra SF tax** on your annuity payments. Your annuity income is taxed at the **federal** and **California state** levels—same rules whether you live in SF, Daly City, or Santa Rosa. ([Treasurer & Tax Collector][1])

Below is a clear, local guide for Bay Area retirees comparing how **federal**, **California**, and **one special “premium tax”** affect annuities.

1) How annuity income is taxed (big picture)

* **Federal:**

* If you **didn’t** pay for the annuity with after-tax money (e.g., IRA/401(k)), payments are **fully taxable** as ordinary income.
* If you **did** pay with after-tax dollars (a **nonqualified** annuity), only the **earnings** portion is taxable; your original cost/basis comes back tax-free under the IRS “exclusion ratio.” ([IRS][2])

* **California (state):**

* California **generally follows federal** treatment for pensions and annuities: taxable portions are **ordinary income**. Report on your CA return the same way (with adjustments if different). ([Franchise Tax Board][3])

* **San Francisco (city):**

* SF’s **Gross Receipts Tax** applies to **businesses**, not to personal retirement income—so it **doesn’t touch your annuity payments.** ([Treasurer & Tax Collector][1])

2) Early withdrawal penalties (before 59½)

* **Federal additional tax:** 10% on the taxable part of an **early** distribution, unless an exception applies (disability, certain medical costs, etc.). ([IRS][4])
* **California additional tax:** **2.5%** on the taxable part of early distributions (6% for early SIMPLE plan cases). File **FTB 3805P** if it applies. ([Franchise Tax Board][5])

> If you’re 59½+ and simply turning on lifetime payments, these **additional** taxes usually don’t apply—your payments are just regular taxable income at federal and state levels. (Normal income tax still applies.)

3) The California “premium tax” on annuities (what it is—and isn’t)

California imposes a **premium tax on insurers** (not a personal income tax) that can affect annuity pricing. Practical takeaways:

* **Rates:** Commonly cited effective rates are **2.35% for nonqualified** annuities and **0.50% for qualified** annuities. ([Annuity.org][6])
* **Who pays:** It’s legally a **tax on insurers’ gross premiums** (Article XIII, §28; 2.35% standard). Some carriers **embed** or **pass through** this cost—especially when you **annuitize**—which can slightly reduce quoted payouts. ([CDTFA][7])

> Bottom line: It’s **not** an extra line on your CA tax return, but it can influence **rates/payouts** you’re offered in California vs. another state.

4) Quick SF examples

**Example A — IRA annuity (qualified):**
You fund an immediate annuity from a **traditional IRA**. Each payment is **fully taxable** federally and in California as ordinary income (no city income tax). No early-distribution penalty if you’re 59½+. ([IRS][2])

**Example B — Nonqualified FIA (after-tax dollars):**
You own a fixed indexed annuity funded from a brokerage account. Later, you start withdrawals: only the **gain** portion is taxed each year. California follows federal; no SF city income tax. Early withdrawals before 59½ could trigger **10% federal** + **2.5% CA** additional taxes on the taxable portion. ([IRS][2])

5) Frequently asked (Bay Area edition)

**Do Roth annuities exist and are they tax-free?**
Annuities can be **owned inside a Roth IRA**. If the distribution is **qualified** under Roth rules, payments are **federally and CA tax-free**; SF still has no city income tax on you. (Mind the five-year and age rules.) ([IRS][2])

**Will California withhold taxes from my payments?**
Yes, you can elect **state and federal withholding** on taxable annuity income. California’s forms and guidance align with federal rules. ([IRS][8])

**Does California tax Social Security?**
No. But **annuity** income is different—**it’s taxable** to California when it’s taxable federally. ([Annuity.org][9])

What to do before you buy or turn on income

1. **Ask for a side-by-side illustration** showing federal taxable amount, estimated CA tax, and whether any **premium-tax effects** were assumed in payout quotes. ([CDTFA][7])
2. **Confirm age and exception status** to avoid the 10% federal + 2.5% CA early-distribution add-ons. ([IRS][4])
3. **Coordinate with your CPA** on withholding and Roth vs. traditional strategies.

Talk to a fiduciary (San Francisco & statewide)

We’ll translate carrier illustrations into **plain English**, estimate **after-tax income**, and compare **California vs. out-of-state quotes** when premium-tax pricing matters.

*Educational only; not tax advice. Verify with your tax professional. California rules and carrier pricing can change; always confirm your illustration’s assumptions (including any premium-tax pass-throughs) before purchasing.* ([Franchise Tax Board][3])

[1]: https://sftreasurer.org/business/taxes-fees/gross-receipts-tax-gr?utm_source=chatgpt.com “Gross Receipts Tax (GR)”
[2]: https://www.irs.gov/taxtopics/tc410?utm_source=chatgpt.com “Topic no. 410, Pensions and annuities”
[3]: https://www.ftb.ca.gov/forms/2024/2024-1005-publication.pdf?utm_source=chatgpt.com “2024 FTB Publication 1005 Pension and Annuity Guidelines”
[4]: https://www.irs.gov/taxtopics/tc558?utm_source=chatgpt.com “Topic no. 558, Additional tax on early distributions …”
[5]: https://www.ftb.ca.gov/forms/2024/2024-3805p-instructions.html?utm_source=chatgpt.com “2024 Instructions for Form FTB 3805P – Franchise Tax Board”
[6]: https://www.annuity.org/annuities/taxation/state-premium-tax/?utm_source=chatgpt.com “State Premium Tax on Annuities: How Does It Vary by State?”
[7]: https://www.cdtfa.ca.gov/lawguides/vol4/tinsl/tinsl-12202.html?utm_source=chatgpt.com “Tax on Insurers Law – Sec. 12202 – CDTFA”
[8]: https://www.irs.gov/individuals/international-taxpayers/pensions-and-annuity-withholding?utm_source=chatgpt.com “Pensions and annuity withholding | Internal Revenue Service”
[9]: https://www.annuity.org/annuities/rates/california/?utm_source=chatgpt.com “Annuity Rates in California”