Credits and breaks for Virginia families: the 20% EITC, the three-way choice, and the deductions nobody asks about

A Virginia family’s state tax break comes mostly from one place: the Virginia earned income credit, which is 20% of whatever the federal EITC turned out to be. For 2026 the family chooses between a refundable version, which can produce a check even when no Virginia tax is owed, and a nonrefundable version that only erases tax; or, instead of either, the Credit for Low Income Individuals, $300 for every person on the return, for households whose Virginia income is below the federal poverty guideline. Only one of the three may be claimed, and none of them may be claimed on a return where anyone took the age deduction, the $800 age or blind exemption, or the military basic pay or National Guard subtraction. Beyond that, the state offers no child credit, no dependent care credit and no tuition credit. It offers deductions: $930 for each dependent, the child care expenses used for the federal credit, up to $4,000 per Virginia529 account, and $1,000 per foster child. At Virginia’s 5.75% rate, a $6,000 deduction saves $345.

Because Form 760 starts from federal AGI, the federal child tax credit, the federal dependent care credit and the federal education credits do nothing for the Virginia return in either direction. They are credits against federal tax, not deductions from income, so they were never in AGI to begin with. What does flow through is anything that reduced AGI federally: a dependent care flexible spending account, a health savings account, a 401(k) deferral, student loan interest.

The earned income credit: refundable or not

The Virginia EITC is simple arithmetic. Take the federal earned income credit from the 1040 and multiply by 20%. A family whose federal EITC is $5,000 has a $1,000 Virginia credit. The question is which version to claim on Schedule ADJ.

The refundable credit is paid in full regardless of the Virginia tax. A family with $400 of Virginia tax and a $1,000 refundable credit gets its $400 of withholding back plus a $600 check. It is available to full-year residents, and the 2026–2028 state budget extended it through tax year 2029; without that extension it would have expired after 2026. The nonrefundable credit is the same 20% but stops at the tax: the same family would wipe out its $400 and lose the other $600. For almost everyone the refundable version is at least as good, and the software should default to it. The nonrefundable version exists mostly for part-year residents, who may not take the refundable one (verify).

Both versions follow the federal credit exactly, including its limits. If the federal EITC was denied for investment income over the limit, for a child who did not meet the residency test, or because a Social Security number was missing, there is no Virginia credit either. If the federal credit was computed on a separated parent’s return under the special rules for divorced parents, the Virginia credit follows that return. See The earned income credit and The EITC for divorced and separated parents.

The Credit for Low Income Individuals

The alternative is a flat $300 for each personal and dependent exemption on the return, so $1,200 for a family of four, limited to the Virginia tax owed. To qualify, the family’s combined Virginia adjusted gross income, counting every member of the household, must be below the federal poverty guideline for a family that size. The Department publishes the table each year in the Form 760 instructions; for the 2024 return the lines were $15,060 for one person, $20,440 for two, $25,820 for three and $31,200 for four, and the 2026 table is to come. Because the credit is nonrefundable and poverty-level households owe little Virginia tax, it is rarely worth more than the refundable EITC for a family with children. Where it wins is the household with Virginia tax but little or no federal EITC: a couple whose child is too old for the credit, a worker whose investment income disqualified the federal EITC, or a single person under 25 who does not qualify federally (verify).

Claim one. All three are barred if you were claimed as a dependent on someone else’s Virginia return, or if you, your spouse or a dependent on your return took the age deduction, the $800 age or blind exemption, the $15,000 military basic pay subtraction, the National Guard subtraction, or the $15,000 federal or state employee subtraction.

The bar on the age exemption catches multigenerational households. A 66-year-old grandmother raising her grandchildren on wages qualifies for the federal EITC but, if she takes her $800 age exemption or the age deduction, loses the Virginia one. She should compare: the age exemption is worth $46 and the age deduction at most $690; the refundable EITC on two children can be well over $1,000. The software will not make that comparison for her.

Dependents and the $930 exemption

Virginia allows a $930 exemption for each dependent claimed on the federal return, with the same rules about who is a dependent. There is no age limit, no phase-out and no indexing. A child born on December 31, 2026 earns the full $930. The exemption is a deduction from income, so it saves $53 of tax at 5.75%, which is why the choice of which divorced parent claims a child matters far more for the federal credits than for Virginia. Where the parents file separate Virginia returns from a joint federal return, Filing Status 3, the exemptions are split as they would have been on separate federal returns, and each spouse must claim at least one whole exemption.

Head of household: there isn’t one

Virginia has no head-of-household filing status. A single parent who files as head of household federally files as single in Virginia, Filing Status 1, and takes the single standard deduction of $8,750, half of the $17,500 a married couple gets. The brackets are the same for every status, so nothing is lost there, but the deduction is: a single mother of two and a childless single worker get the same $8,750, while the dependents add $930 each. The federal head-of-household standard deduction of $24,150 never reaches Virginia.

Child and dependent care: a deduction, not a credit

Virginia gives no credit for child care. It gives a deduction on Schedule ADJ equal to the expenses used to compute the federal child and dependent care credit, up to $3,000 for one qualifying person and $6,000 for two or more. The amount is the expenses, not the credit; a family that paid $9,000 for two children in day care, used $6,000 for the federal credit and received a $1,200 federal credit deducts $6,000 in Virginia, saving $345. The deduction is available only to families who qualified for the federal credit, so both spouses must have earned income, the care must have been so a parent could work, and the provider’s identifying number must be on federal Form 2441. Money run through a dependent care flexible spending account is already out of AGI and does not count toward the $6,000 again.

Virginia529 and ABLEnow

Contributions to Virginia’s own 529 plan, Virginia529, now operating under the name Commonwealth Savers (verify), are deductible up to $4,000 per account per year, with any excess carried forward to later years until used. The cap is per account, so a parent who owns one account for each of three children can deduct $12,000 in a year. Only the account owner of record may take the deduction; a grandparent who contributes to a parent-owned account gets nothing, and a grandparent who opens an account in her own name deducts $4,000 a year, or the entire contribution without limit once she is 70 or older by December 31. Out-of-state 529 plans do not qualify. Withdrawals for anything other than qualified education expenses, or for a reason other than the beneficiary’s death, disability or scholarship, are recaptured as Virginia income. Contributions to an ABLEnow account for a family member with a disability are deductible on the same terms, up to $2,000 per account.

The federal return never asks about 529 contributions, so this is the deduction most often missed. Ask every parent and grandparent in the household.

Education: what Virginia does and does not do

There is no Virginia tuition credit or deduction. The federal American Opportunity and Lifetime Learning credits are credits, not adjustments to AGI, so they have no Virginia effect. The federal student loan interest deduction is above the line and flows through, saving up to $144 at 5.75% on the $2,500 maximum. Virginia does offer two credits for donors to education: the Education Improvement Scholarships credit, 65% of a donation to an approved scholarship foundation that funds private school tuition for lower-income students, and the Neighborhood Assistance Act credit, 65% of a donation to an approved nonprofit; both are by application and capped statewide (verify). They help families who give, not families who pay tuition.

Teachers get a new deduction for 2026: up to $500 of unreimbursed classroom supplies and professional development, for anyone who worked at least 900 hours in a Virginia public or private school as a teacher, counselor, principal, special needs staff or aide, provided the expenses were not claimed federally.

Foster care and adoption

A family with a child in permanent foster care, placed by a local social services agency, deducts $1,000 per child for each year the child lived in the home all year and is claimed as a dependent. Virginia has no adoption credit of its own; the federal adoption credit is a credit and does not reach the Virginia return.

Two-earner couples: the Spouse Tax Adjustment

Because the brackets are the same for a joint return as for a single one, a married couple with two incomes pays more Virginia tax filing jointly than they would as two singles; the lower brackets are used once instead of twice. The Spouse Tax Adjustment on Form 760 gives back part of that, up to $259, for joint filers where both spouses have income. It is a worksheet, not an election, and good software fills it in. A couple can instead file separately in Virginia from a joint federal return, Filing Status 3, which occasionally does better when one spouse has most of the income and a large subtraction.

What trips families up

• Claiming the nonrefundable EITC when the refundable one was available, or claiming two of the three credits.
• A grandparent taking the age exemption on a return that would have qualified for the refundable EITC.
• Entering the federal dependent care credit as the Virginia deduction instead of the expenses.
• Virginia529 contributions deducted by the contributor instead of the account owner, or an out-of-state plan deducted.
• Expecting a Virginia child tax credit or a head-of-household standard deduction. Neither exists.
• A dependent child with a summer job filing with the full $8,750 standard deduction; a dependent’s standard deduction is limited to earned income.