Does Virginia Tax Military Retirement Pay?
Understand the nuances of Virginia's tax treatment for military retirement pay. This guide clarifies the state-level subtraction and its interaction with other deductions.
Virginia provides a state-level tax benefit for military retirees through a deduction known as the Military Benefits Subtraction. This allows eligible retirees to subtract a portion of their military benefits from their state taxable income. While this income is still subject to federal income tax, the subtraction lessens the overall state tax burden for veterans residing in Virginia.
Virginia’s Military Benefits Subtraction
Virginia law allows for a subtraction from state taxable income for military benefits. Unlike a tax credit that reduces tax owed dollar-for-dollar, a subtraction lowers your Virginia Adjusted Gross Income (VAGI), which reduces the final tax you owe. To be eligible, an individual must be a Virginia resident receiving qualifying military retirement income. Recent legislative changes expanded this benefit by removing a previous age requirement.
The subtraction applies to military retirement income from the U.S. Armed Forces and benefits paid to a surviving spouse under the Survivor Benefit Plan (SBP). The income being subtracted must have been included in your federal adjusted gross income to qualify. Other military-related payments, such as distributions from the Thrift Savings Plan (TSP), are not eligible for this subtraction.
Calculating the Subtraction Amount
For the 2025 tax year, retirees can subtract up to $40,000 of eligible benefits. For example, if a retiree receives $50,000 in military retirement pay, they can subtract $40,000, meaning only $10,000 of that income will be subject to Virginia income tax.
Taxpayers age 65 or older may also be eligible for Virginia’s age deduction, and it is possible to claim both benefits. The Military Benefits Subtraction applies to military retirement pay, while the age deduction is a general deduction that reduces overall taxable income. The same income cannot be used for both deductions.
How to Claim the Subtraction on Your Tax Return
To claim the Military Benefits Subtraction, you must complete and file Virginia’s Schedule ADJ with your state income tax return. The subtraction is entered on a specific line on this form.
When filling out Schedule ADJ, you will need the total amount of military benefits you received, which is found on Form 1099-R. You will report the calculated subtraction amount, up to the maximum allowed, on the appropriate line.