Article 3 - Items Specifically Excluded from Gross Income

California Revenue and Taxation Code — §§ 17131-17158.5

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Amended by Stats. 2005, Ch. 691, Sec. 7. Effective October 7, 2005.

Part III of Subchapter B of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to items that are specifically excluded from gross income, shall apply, except as otherwise provided.

§ 17131.1

Added by Stats. 2002, Ch. 701, Sec. 2. Effective January 1, 2003.

(a)Gross income does not include any excludable restitution payments received by an eligible individual (or the individual’s heirs or estate) and any excludable interest.

(b)For purposes of this section:

(1)The basis of any property received by an eligible individual (or the individual’s heirs or estate) as part of an excludable restitution payment shall be the fair market value of that property as of the

time of the receipt.

(2)“Eligible individual” means a person who was persecuted on the basis of race, religion, physical or mental disability, or sexual orientation by Nazi Germany, any other Axis regime, or any other Nazi-controlled or Nazi-allied country.

(3)“Excludable restitution payment” means any payment or distribution to an individual (or the individual’s heirs or estate) that is any of the following:

(A)Is payable by reason of the individual’s status as an eligible individual, including any amount payable by any foreign country, the United States of America, or any other foreign or domestic entity, or a fund established by any such country or entity, any amount payable as a result of a final resolution of a legal action, and any amount payable under a law providing for payments or restitution of

property.

(B)Constitutes the direct or indirect return of, or compensation or reparation for, assets stolen or hidden from, or otherwise lost to, the individual before, during, or immediately after World War II by reason of the individual’s status as an eligible individual, including any proceeds of insurance under policies issued on eligible individuals by European insurance companies immediately before and during World War II.

(C)Consists of interest which is payable as part of any payment or distribution described in subparagraph (A) or (B).

(4)“Excludable interest” means any interest earned by any of the following:

(A)Escrow accounts or settlement funds established pursuant to the settlement of the action entitled “In re: Holocaust Victim Assets

Litigation,” (E.D.N.Y.) C.A. No. 96-4849.

(B)Funds to benefit eligible individuals or their heirs created by the International Commission on Holocaust Insurance Claims as a result of the Agreement between the Government of the United States of America and the Government of the Federal Republic of Germany concerning the Foundation “Remembrance, Responsibility, and Future,” dated July 17, 2000.

(C)Similar funds subject to the administration of the United States courts created to provide excludable restitution payments to eligible individuals (or eligible individuals’ heirs or estates).

(c)(1) This section shall apply to any amount received on or after January 1, 2000.

(2)Nothing in this section shall be construed to create any

inference with respect to the proper tax treatment of any amount received before January 1, 2000.

§ 17131.10

Added by Stats. 2011, Ch. 18, Sec. 1. (AB 50) Effective April 7, 2011.

Notwithstanding any other law, for purposes of this part, the natural gas transmission line explosion on September 9, 2010, in San Bruno, California, shall be treated as a qualified disaster within the meaning of Section 139 of the Internal Revenue Code. This section shall apply to payments made on or after September 9, 2010.

§ 17131.11

Added by Stats. 2025, Ch. 231, Sec. 18. (SB 711) Effective October 1, 2025.

Section 4 of the Federal Disaster Tax Relief Act of 2023 (Public Law 118-148), relating to East Palestine disaster relief payments, shall not apply.

§ 17131.12

Added by Stats. 2022, Ch. 50, Sec. 12. (SB 187) Effective June 30, 2022. Inoperative July 1, 2026, by its own provisions. Repealed as of January 1, 2027, by its own provisions.

(a)Gross income does not include any payments received by an individual from a guaranteed income pilot program or project that receives a grant pursuant to Section 18997 of the Welfare and Institutions Code.

(b)This section shall become inoperative on July 1, 2026, and, as of January 1, 2027, is repealed.

§ 17131.13

Added by Stats. 2023, Ch. 40, Sec. 21. (AB 129) Effective July 10, 2023.

Gross income does not include any payment received by an individual pursuant to Section 8257 of the Welfare and Institutions Code.

§ 17131.14

Added by Stats. 2024, Ch. 119, Sec. 1. (AB 2979) Effective July 15, 2024.

Gross income does not include any payment received from the California Victim Compensation Board pursuant to Sections 13955 and 13970 of the Government Code.

§ 17131.15

Added by renumbering Section 17131.12 (as added by Stats. 2022, Ch. 51, Sec. 2) by Stats. 2023, Ch. 131, Sec. 209. (AB 1754) Effective January 1, 2024. Repealed as of January 1, 2027, by its own provisions.

(a)Gross income does not include any payments received by an individual pursuant to Section 8161 of the Welfare and Institutions Code.

(b)This section shall remain in effect only until January 1, 2027, and as of that date is repealed.

§ 17131.16

Added by Stats. 2022, Ch. 3, Sec. 9. (SB 113) Effective February 9, 2022. Repealed as of December 1, 2026, by its own provisions.

(a)For taxable years beginning on or after January 1, 2021, and before January 1, 2026, gross income does not include a bill credit or credits received by a customer from a community water system or wastewater treatment provider pursuant to the Water and Wastewater System Payments Under the American Rescue Plan Act of 2021 (Chapter 4.7 (commencing with Section 116773) of Part 12 of Division 104 of the Health and Safety Code).

(b)This section shall remain in effect only until December 1, 2026, and as of that date is repealed.

§ 17131.17

Added by Stats. 2022, Ch. 3, Sec. 10. (SB 113) Effective February 9, 2022. Repealed as of December 1, 2026, by its own provisions.

(a)For taxable years beginning on or after January 1, 2021, and before January 1, 2026, gross income does not include a bill credit or credits received by a customer from a utility applicant under the California Arrearage Payment Program (CAPP), pursuant to the California Arrearage Payment Program Under the American Rescue Plan Act of 2021 (Article 12 (commencing with Section 16429.5) of Chapter 2 of Part 2 of Division 4 of Title 2 of the Government Code).

(b)This section shall remain in effect only until December 1, 2026, and as of that date is repealed.

§ 17131.18

Added by Stats. 2024, Ch. 266, Sec. 5. (AB 1878) Effective January 1, 2025.

Gross income does not include any payment received by an individual pursuant to Section 15990 of the Government Code.

§ 17131.2

Added by Stats. 2004, Ch. 402, Sec. 2. Effective January 1, 2005.

(a)Gross income does not include any excludable settlement payments received by an eligible individual (or the individual’s heirs or estate) and any excludable interest.

(b)For purposes of this section:

(1)The basis of any property received by an eligible individual (or the individual’s heirs or estate) as part of an excludable settlement payment shall be the fair market value of that property as of the

time of the receipt.

(2)“Eligible individual” means a person who was persecuted on the basis of race or religion by the regime that was in control of the Ottoman Turkish Empire from 1915 through 1923.

(3)“Excludable settlement payment” means any payment or distribution to an individual (or the individual’s heirs or estate) that is any of the following:

(A)Is payable by reason of the individual’s status as an eligible individual, including any amount payable by any foreign or domestic entity or a fund established by any entity, any amount payable as a result of a final resolution of a legal action, and any amount payable under a law providing for payments or restitution of property.

(B)Constitutes compensation to the individual from 1915 until 1923,

by reason of the individual’s status as an eligible individual, including any proceeds of insurance under policies issued on eligible individuals immediately before 1915 and during the time period from 1915 until 1923.

(C)Consists of interest that is payable as part of any payment or distribution described in subparagraph (A) or (B).

(4)“Excludable interest” means any interest earned by any of the following:

(A)A fund to benefit eligible individuals or their heirs created by an international commission or an international organization.

(B)A fund subject to the administration of the United States courts created to provide excludable settlement payments to eligible individuals (or eligible individuals’ heirs or estates).

(c)(1) This section applies to any amount received on or after January 1, 2005.

(2)This section may not be construed to create any inference with respect to the proper tax treatment of any amount received before January 1, 2005.

§ 17131.20

Added by Stats. 2022, Ch. 61, Sec. 12. (AB 205) Effective June 30, 2022. Repealed as of December 1, 2027, by its own provisions.

(a)For taxable years beginning on or after January 1, 2022, and before January 1, 2027, gross income does not include a bill credit or credits received by a customer from a utility applicant under the 2022 California Arrearage Payment Program, pursuant to Article 13 (commencing with Section 16429.8) of Chapter 2 of Part 2 of Division 4 of Title 2 of the Government Code.

(b)This section shall remain in effect only until December 1, 2027, and as of that date is repealed.

§ 17131.21

Added by Stats. 2023, Ch. 5, Sec. 1. (AB 111) Effective May 15, 2023. Repealed as of December 1, 2027, by its own provisions.

(a)For taxable years beginning on or after January 1, 2022, and before January 1, 2027, gross income does not include any amount relating to the discharge of any unpaid fees due or owed by a student to a community college which was discharged pursuant to subparagraph (G) of paragraph (3) of subdivision (a) of Section 32527 of the Education Code.

(b)(1) For the purposes of complying with Section 41, the Legislature finds and declares that the purpose of the exclusion allowed by this section is to provide financial relief to community college students affected by the adverse impacts of the economic disruptions and hardships resulting from the COVID-19 emergency.

(2)The performance indicators used to determine whether the exclusion is achieving its stated purpose are the number of students that had fees discharged pursuant to subparagraph (G) of paragraph (3) of subdivision (a) of Section 32527 of the Education Code, and the total dollar value of those fees discharged.

(3)The report required to be submitted by the Chancellor’s Office of the California Community Colleges to the Legislature, as required by paragraph (5) of subdivision (a) of Section 32527 of the Education Code, shall constitute reporting for the purpose of complying with Section 41.

(c)This section shall remain in effect only until December 1, 2027, and as of that date is repealed.

§ 17131.22

Added by Stats. 2023, Ch. 5, Sec. 2. (AB 111) Effective May 15, 2023. Repealed as of December 1, 2028, by its own provisions.

(a)For taxable years beginning on or after January 1, 2020, and before January 1, 2028, gross income does not include amounts of certain emergency financial aid grants received by a student in postsecondary education pursuant to, or described in, any of the following:

(1)Section 3504 or 18004 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Public Law 116-136).

(2)Section 314 of Division M or Section 277 of Division N of the Consolidated Appropriations Act, 2021 (Public Law 116-260).

(3)Section 2003 of the American Rescue Plan Act of 2021 (Public Law 117-2).

(b)(1) For purposes of complying with Section 41, as it pertains to this section, the Legislature finds and declares as follows:

(A) The specific goal, purpose, and objective of the exclusion is to provide financial relief to recipients of specified pandemic relief funds.

(B) The performance indicators for the Legislature to use in determining if the exclusion has achieved this goal shall be the number of taxpayers excluding specified pandemic relief from income based on this section, and the total dollar value of income so excluded.

(2)The Legislative Analyst’s Office shall, no later than November 1, 2028, submit a report to the Legislature, in accordance with Section 9795 of the Government Code, that estimates the number of

taxpayers with specified pandemic relief excluded from income, and estimates the total dollar value of the specified pandemic relief received, to the extent data is available.

(c)This section shall remain in effect only until December 1, 2028, and as of that date is repealed.

§ 17131.3

Added by Stats. 2010, Ch. 14, Sec. 11. (SB 401) Effective January 1, 2011.

Any grant made in any taxable year by the Secretary of the Treasury under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 (Public Law 111-5) to a person that places in service specified energy property shall not be includable in the gross income or the alternative minimum taxable income of the taxpayer, but shall be taken into account in determining the basis of the property to which that grant relates, except that the basis of that property shall be reduced

using rules prescribed under Section 50(c) of the Internal Revenue Code in the same manner as a credit allowed under Section 48(a) of the Internal Revenue Code, and adjusted in accordance with rules applied by the Secretary of the Treasury under Section 1603(f) of the American Recovery and Reinvestment Tax Act of 2009 (Public Law 111-5).

§ 17131.4

Amended by Stats. 2025, Ch. 231, Sec. 16. (SB 711) Effective October 1, 2025.

(a)Section 106(d) of the Internal Revenue Code, relating to contributions to health savings accounts, shall not apply.

(b)Section 106(g) of the Internal Revenue Code, relating to qualified small employer health reimbursement arrangement, shall not apply.

§ 17131.5

Added by Stats. 2005, Ch. 691, Sec. 7.6. Effective October 7, 2005.

Section 125(d)(2)(D) of the Internal Revenue Code, relating to the exception for health savings accounts, shall not apply.

§ 17131.6

Added by Stats. 2005, Ch. 691, Sec. 8. Effective October 7, 2005.

Section 107 of the Internal Revenue Code is modified by substituting in paragraph (2) the phrase “the rental allowance paid to him or her as part of his or her compensation, to the extent used by him or her to rent or provide a home” in lieu of the phrase “the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities” contained

therein.

§ 17131.7

Added by Stats. 2018, Ch. 52, Sec. 4. (SB 855) Effective June 27, 2018.

(a)For taxable years beginning on or after January 1, 2018, gross income shall not include earned income of an eligible taxpayer.

(b)For purposes of this section, the following definitions shall apply:

(1)“Earned income” has the same meaning as provided in Section 32(c)(2) of the Internal Revenue Code, relating to earned income, as modified to

substitute the phrase “but only if such amounts would have been otherwise properly includable in gross income for the taxable year without regard to subdivision (a) and only to the extent that the earned income is derived from sources within Indian country in this state” for the phrase “but only if such amounts are includable in gross income for the taxable year.”

(2)“Eligible taxpayer” means an individual who is a member of a federally recognized Indian tribe in this state who resides within Indian country in this state.

(3)“Indian country” has the same meaning as provided in Section 30101.7.

§ 17131.8