Does Virginia Tax Social Security Benefits?
Learn how Virginia's tax treatment of Social Security income differs from federal rules and how state-level subtractions can reduce your tax liability.
Understanding how a state treats retirement income is a part of financial planning for later years. The tax rules that apply to Social Security benefits can differ substantially from federal regulations, influencing a retiree’s net income.
Federal Taxation of Social Security Benefits
The federal government may tax a portion of your Social Security benefits, but this depends entirely on your income level. The calculation hinges on a figure known as “combined income.” This is determined by taking your adjusted gross income (AGI), adding any nontaxable interest you received, and then adding one-half of the total Social Security benefits you received for the year.
For individuals filing as single, head of household, or a qualifying widow(er), if your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your combined income exceeds $34,000, up to 85% of your benefits could be subject to federal income tax. For those who are married and filing a joint return, up to 50% of benefits may be taxed for a combined income between $32,000 and $44,000. Should the income for joint filers surpass $44,000, up to 85% of their Social Security benefits may be taxable.
The portion of benefits subject to tax is included in your AGI on your federal tax return, Form 1040. This federally taxed amount is the starting point for many state-level calculations. It is important to note that no taxpayer will ever pay taxes on more than 85% of their Social Security benefits.
Virginia’s Subtraction for Social Security Benefits
Virginia provides favorable tax treatment for Social Security recipients, as it does not tax these benefits. This is accomplished through a specific deduction on the state income tax return. Taxpayers can subtract the full amount of Social Security benefits that were included for taxation at the federal level.
This direct subtraction effectively removes the benefits from the state’s tax calculation. Similarly, Tier 1 Railroad Retirement benefits are not taxed by Virginia, though Tier 2 benefits are.
This subtraction is a distinct feature of Virginia’s tax code, separate from other deductions like the age deduction available to qualifying individuals 65 and older. While other forms of retirement income, such as distributions from 401(k)s and traditional IRAs, are generally taxable in Virginia, Social Security is explicitly excluded. This policy provides a significant financial benefit to retirees residing in the state.