Virginia Tax Exemption for Military Retired Pay

In Virginia, military retirement pay is not fully exempt from state income tax, but the state provides a significant tax benefit in the form of a military retirement income subtraction that reduces your taxable income. Under current Virginia law for tax year 2025 and later, you may subtract up to $40,000 of your military retirement pay from your Virginia taxable income on your state return. This benefit applies to all military retirees regardless of age, and it also includes eligible benefits paid to surviving spouses under certain programs (such as Survivor Benefit Plan payments). Here’s how the Military Benefits Subtraction works over recent years:

• 2023 tax year: Up to $20,000 subtraction
• 2024 tax year: Up to $30,000 subtraction
• 2025 and later: Up to $40,000 subtraction

To qualify, the retirement pay must be included in your federal adjusted gross income (it isn’t automatically excluded at the federal level), and you must be a resident of Virginia. The subtraction does not apply to income such as Thrift Savings Plan (TSP) distributions or other non-military retirement sources. Because Virginia normally taxes most forms of retirement income, this subtraction up to $40,000 each year can significantly reduce your Virginia state tax liability if you receive military retired pay. If you’d like, I can explain how to claim this subtraction on your Virginia state tax return (e.g., which form and schedules to use).