Does Virginia Have State Income Tax?

Virginia levies a state income tax on its residents and those earning income within its borders. This tax contributes to the funding of various public services and programs across the Commonwealth. This article provides an overview of the state’s income tax structure, including what income is taxable, the applicable rates, available tax relief, and filing requirements.

Taxable Income Sources in Virginia

Virginia’s income tax applies to all income earned by residents, regardless of where it is sourced. Wages, salaries, and tips from employment are subject to state income tax. Income from business activities, including self-employment earnings and partnership distributions, is also taxed.

Investment income, such as interest, dividends, and capital gains from asset sales, is taxable. Rental income from properties within Virginia’s borders is also taxed. Retirement income, including pensions and certain distributions from individual retirement accounts (IRAs) and 401(k)s, is subject to Virginia income tax.

Virginia defines income from Virginia sources broadly. This includes earnings from real or tangible personal property in the state, and income from a trade, business, profession, or occupation conducted within Virginia. It also extends to certain intangible personal property income, like annuities and royalties, if the property is used in a Virginia-based business. Lottery winnings exceeding $5,000 are taxed at a 4% rate on the entire prize amount.

Virginia Income Tax Rates and Brackets

Virginia operates a progressive income tax system. For the 2024 tax year, the state has four tax brackets, with rates ranging from 2% to 5.75%.

Income from $0 to $3,000 is taxed at 2%. Income between $3,001 and $5,000 is taxed at 3%. For income between $5,001 and $17,000, the rate is 5%. Any taxable income exceeding $17,000 is subject to the top marginal rate of 5.75%. This structure is outlined in Virginia Tax Code Section 58.1-320.

Key Deductions, Exemptions, and Credits

Virginia offers several ways for taxpayers to reduce their taxable income or tax liability. Deductions reduce taxable income, while credits directly decrease the tax owed. Exemptions also lower taxable income, often based on personal or dependent status.

Taxpayers can choose between a standard deduction or itemized deductions. Virginia allows a deduction for child and dependent care expenses, with maximums of $3,000 for one dependent and $6,000 for two or more. Foster parents may claim a $1,000 deduction for each foster child residing in their home, provided the child is claimed as a dependent on both federal and Virginia tax returns.

Virginia offers a credit for taxes paid to another state, preventing double taxation. This credit applies to earned income, business income, and capital gains taxed by both states. It is limited to the lesser of the tax paid to the other state or the Virginia tax attributable to that income.

Low-income individuals may qualify for specific credits, such as the Credit for Low Income Individuals (CLI), up to $300 for each personal or dependent deduction claimed. Virginia also has an Earned Income Tax Credit (EITC), which can be refundable or non-refundable, equal to a percentage of the federal EITC. Tax credits are also available for donations to scholarship foundations under the Education Improvement Scholarships Tax Credits Program, offering a 65% credit for private school scholarships.

Virginia Filing Requirements

Individuals must file a Virginia income tax return if they are a resident, part-year resident, or nonresident with Virginia-sourced income, and meet certain income thresholds. For example, single filers or married individuals filing separately need to file if their Virginia adjusted gross income (VAGI) was $11,950 or more. Married individuals filing jointly need to file if their combined VAGI was $23,900 or more.

The deadline for filing Virginia individual income tax returns is May 1st for calendar year filers. If May 1st falls on a weekend or holiday, the deadline shifts to the next business day. While an automatic six-month extension to file is available, any taxes owed must still be paid by the May 1st deadline to avoid penalties and interest. These requirements are consistent with Virginia Tax Code Section 58.1-341.