Does Virginia Tax IRA Distributions?

IRA distributions are generally subject to taxation in Virginia. However, Virginia provides specific rules and adjustments that can affect the taxable amount for its residents. These state-specific provisions can reduce the overall tax liability on retirement income, making it important for taxpayers to understand how their distributions are handled at the state level.

General Taxability of IRA Distributions in Virginia

Virginia aligns its income tax calculations with federal Adjusted Gross Income (AGI). Distributions from Traditional, SEP, and SIMPLE IRAs are considered taxable income in Virginia. The state’s tax rate can range from 2% to 5.75%, depending on an individual’s total taxable income. For Roth IRAs, qualified distributions are tax-free at both the federal and state levels, provided certain conditions are met, such as being at least 59½ years old and holding the account for a minimum of five years.

Virginia law specifies that income included in federal AGI is subject to Virginia taxation unless explicitly exempt through a Virginia modification. Virginia generally conforms to the Internal Revenue Code, but may adopt specific exceptions.

Virginia Specific Deductions and Subtractions

Virginia offers several specific provisions that can reduce the amount of IRA distributions subject to state income tax. A notable adjustment is the age deduction, available to qualifying individuals aged 65 and over. This deduction allows eligible taxpayers to subtract up to $12,000 of their income, including retirement income from IRAs, from their Virginia taxable income.

Eligibility for the age deduction depends on the taxpayer’s birth date and income level. For individuals born on or before January 1, 1939, a full $12,000 deduction is available. If born between January 2, 1939, and January 1, 1960, the deduction is income-based, calculated using the taxpayer’s Adjusted Federal Adjusted Gross Income (AFAGI). For single filers, the $12,000 deduction is reduced dollar-for-dollar for AFAGI exceeding $50,000, while for married filers, it is reduced for joint AFAGI exceeding $75,000. This deduction is outlined in Virginia Code Section 58.1-322.

Other subtractions may apply to specific situations. Certain military benefits can be subtracted, reaching up to $40,000 for tax year 2025 and later. A new income tax subtraction for up to $10,000 of state police retirement benefits began in tax year 2024 for officers aged 55 and older, or their surviving spouses. There is also a subtraction for retirement income on which contributions were previously taxed by another state, provided the contributions were deductible federally.

Reporting IRA Distributions on Your Virginia Tax Return

When preparing a Virginia income tax return, individuals report their IRA distributions and apply any state-specific adjustments. The process begins with the federal Adjusted Gross Income (AGI), which is transferred from the federal tax return. Virginia residents use Form 760, the Virginia Individual Income Tax Return, to file. Part-year residents file Form 760PY.

Any additions or subtractions to federal AGI, such as the age deduction or other specific subtractions, are reported on Schedule ADJ (Form 760-ADJ). This schedule allows taxpayers to modify their federal AGI to arrive at their Virginia Adjusted Gross Income (VAGI). The instructions for Form 760 and Schedule ADJ provide specific lines and codes for entering these adjustments. Taxpayers should ensure that all distributions are correctly reported from federal forms like Form 1099-R.