Does Virginia Tax Military Retirement?

While Virginia subjects military retirement income to tax, it provides a substantial subtraction that can significantly lower or even eliminate the state tax liability for many veterans. The specific amount of this subtraction has been increasing, offering greater relief in recent years.

Virginia’s Military Retirement Subtraction

Virginia offers a significant tax benefit known as the Military Benefits Subtraction. For the 2024 tax year, eligible military retirees can subtract up to $30,000 of their military retirement pay from their Virginia taxable income. This amount is scheduled to increase to $40,000 for the 2025 tax year and subsequent years. Previously, this subtraction was limited to retirees aged 55 and older, but recent legislative changes have eliminated this age restriction for tax years 2024 and onward.

The subtraction is limited to the lesser of the actual military retirement benefits received or the maximum allowable amount for the tax year. To qualify, these retirement benefits must be included as income on your federal tax return. It is important to note that distributions from the Thrift Savings Plan (TSP) are not considered eligible for this specific subtraction.

This benefit is distinct from other subtractions, such as those for disability income. Military disability retirement pay resulting from personal injury or sickness from active service is generally not included in taxable income at the federal level and, therefore, is not taxed by Virginia. The Military Benefits Subtraction applies specifically to the retirement income that is otherwise taxable.

Claiming the Subtraction on Your Virginia Tax Return

To claim the Military Benefits Subtraction, you must complete and file specific forms with your annual Virginia income tax return. The primary form for this action is Virginia’s Schedule ADJ, which is used to make various adjustments, subtractions, and additions to your federal adjusted gross income to arrive at your Virginia taxable income. You will report the subtraction on the line designated for this purpose, which consolidates several subtractions.

You will determine the total amount of military retirement income you received during the tax year that was included in your federal adjusted gross income. You then compare this figure to the maximum allowable subtraction for that specific tax year. Your allowable subtraction is the smaller of these two amounts.

For example, if you received $25,000 in military retirement pay in 2024, you would subtract the full $25,000 on Schedule ADJ. If your retirement pay was $50,000, your subtraction would be capped at the $30,000 maximum for 2024.

Special Considerations for Survivor Benefit Plan Annuitants

The tax benefits available for military retirement pay in Virginia also extend to surviving spouses receiving payments from a Survivor Benefit Plan (SBP). These annuities are eligible for the same Military Benefits Subtraction as standard military retirement income. The eligibility rules for a surviving spouse mirror those for the military retiree.

The SBP annuity payments must be included in the surviving spouse’s federal adjusted gross income to qualify for the Virginia subtraction. The amount of the subtraction is also subject to the same annual limits. For the 2024 tax year, a surviving spouse can subtract up to $30,000 of their SBP income, and this will increase to $40,000 in 2025.

When filing their Virginia income tax return, a surviving spouse will follow the same procedure as a retiree. They will use Schedule ADJ to report the subtraction, calculating the deductible amount as the lesser of their total SBP annuity income or the maximum allowed for the year.