Virginia for retirees: Social Security untaxed, pensions taxed, and the $12,000 age deduction that disappears

A Virginia retiree pays no state tax on Social Security, whatever the amount and whatever the other income. That is the good news and it is unconditional. Everything else that arrives in retirement, a private or government pension, traditional IRA and 401(k) withdrawals, required minimum distributions, annuity payments, Roth conversions, is Virginia taxable income at the ordinary rates, which means 5.75% on nearly all of it. Virginia offsets that with two things. At 65 each person may deduct up to $12,000 of income, but the deduction shrinks by a dollar for every dollar of adjusted federal AGI above $50,000 for a single person or $75,000 for a couple, so it is gone at $62,000 and $87,000. And military retirement pay gets its own $40,000-per-person subtraction with no age or income test. The federal $6,000 senior deduction, taken below the AGI line, never reaches the Virginia return at all.

The planning follows directly. For a retired couple near the $75,000 line, the age deduction turns a $10,000 IRA withdrawal into $10,000 of taxable income plus $10,000 of lost deduction, a marginal Virginia rate of 11.5% on that slice. Qualified charitable distributions, which keep RMDs out of AGI, protect the deduction. Roth conversions should be sized with the $75,000 line in view, or done before 65, or done in a year when the deduction is already lost anyway.

Social Security

Whatever part of a Social Security or Tier 1 Railroad Retirement benefit the federal return taxes is in federal AGI on line 1 of Form 760, and Schedule ADJ subtracts all of it. There is no age test, no income limit and no cap. The subtraction is of the federally taxable amount, since that is all that was ever in AGI; if the federal formula taxed $30,000 of a $38,000 benefit, $30,000 comes off and the Virginia tax on the benefit is zero. The same taxable Social Security is also removed from the income test for the age deduction, which keeps a large benefit from costing a retiree that deduction.

Pensions, IRAs and 401(k)s

Virginia has no general pension or retirement income exclusion. A state or federal government pension, a teacher’s pension from another state, a corporate pension, IRA withdrawals, 401(k) and 403(b) distributions, 457 plans and the taxable part of a commercial annuity are all taxed as ordinary income. So is an early withdrawal at 45. Where the pension was earned does not matter; federal law lets only the state of residence tax retirement income, and Virginia does.

Two retirement items do come off. Up to $20,000 of disability income received for permanent and total disability may be subtracted, but not by anyone who takes the age deduction; at 65 the taxpayer compares the two and takes the larger. And retirement income that was already taxed by another state when it was contributed, because that state did not allow the deduction the IRS allowed, may be subtracted to avoid taxing it twice.

The age deduction

This is Virginia’s substitute for a pension exclusion, and its design is the single most important thing a Virginia retiree should understand. Each person who is 65 or older by January 1, 2027, may deduct up to $12,000 on Schedule ADJ. For anyone born on or before January 1, 1939, it is a flat $12,000 with no income test. For everyone else it is $12,000 reduced by one dollar for every dollar of “adjusted federal adjusted gross income” over $50,000 for a single filer or $75,000 for a married couple, counting both spouses’ income together whether they file jointly or separately. Adjusted federal AGI is federal AGI minus the taxable Social Security in it, so Social Security does not count against the limit but a pension, an IRA withdrawal, interest, a capital gain or wages all do.

A single filer’s window is $50,000 to $62,000. The reduction is applied to the couple’s combined $24,000, so every dollar of income between $75,000 and $87,000 costs the couple a dollar of deduction. Between those two numbers the effective Virginia rate on a withdrawal is 11.5%.

Three cautions. First, the Department’s 2025 instructions describe the income-tested group by birth date, and the 2026 instructions should move the window to people born on or before January 1, 1962 (verify); anyone who turns 65 during 2026 qualifies for the 2026 return. Second, a person who takes the age deduction may not also take the $20,000 disability subtraction, and nobody on a return that claims the age deduction or the $800 age exemption may claim the Virginia earned income credit or the low-income credit. Third, the deduction is per person: if one spouse is 65 and the other is 62, only one $12,000 is in play, but the income test still uses both incomes.

Military retirement

Virginia’s Military Benefits Subtraction lets each person subtract up to $40,000 of military retirement pay, Survivor Benefit Plan payments and other military benefits paid to a surviving spouse, for 2025 and later years. The age requirement that applied in the first two years is gone; a retired master sergeant of 42 gets the full subtraction. Both spouses may claim it if both receive eligible pay, so a dual-military couple can subtract $80,000. A divorced former spouse receiving a share of the pension qualifies. What does not qualify: Thrift Savings Plan withdrawals, and CSRS or FERS civil-service pensions, even where military years were bought into them.

The subtraction stacks with the age deduction. The Department says so directly: to the extent you qualify for both, you may take both, so long as the same dollars are not subtracted twice. A 67-year-old with a $38,000 military pension and $30,000 of other income subtracts the pension in full and then applies the age deduction to what is left. Note that military retirement pay, though subtracted, still counts in adjusted federal AGI for the age deduction income test; the subtraction removes the tax, not the income.

Roth conversions and RMDs

A Roth conversion is taxed by Virginia in the year of the conversion, at the same rates as any IRA withdrawal, and the converted amount counts in the age deduction income test. For a Virginia retiree the state cost of a conversion is therefore 5.75% of the amount plus, in the phase-out band, another 5.75% of the deduction lost. The best years to convert are the years before 65, when there is no age deduction to lose, or any year in which income will exceed $87,000 joint or $62,000 single regardless. Once converted, qualified Roth withdrawals are not in federal AGI and so are never taxed by Virginia.

Required minimum distributions are taxed the same way. The one tool that helps on both returns is the qualified charitable distribution: money sent directly from an IRA to a charity after age 70½ counts toward the RMD, never enters federal AGI, and so never enters Virginia AGI or the age deduction test. For a Virginia couple in the phase-out band who already give to their church or a food bank, a QCD saves 11.5% of the gift in state tax alone, on top of the federal saving. See RMDs and giving from your IRA.

The federal senior deduction, and why it does not help here

The $6,000 federal deduction for people 65 and older, in effect for 2025 through 2028, is taken after adjusted gross income, alongside the standard deduction. Form 760 starts from AGI, so the deduction never arrives, and no add-back is needed because nothing was removed. The same is true of the extra federal standard deduction for age. Virginia’s own age breaks are the $800 additional exemption at 65, worth $46 at 5.75%, and the age deduction above. The governor’s introduced budget in December 2025 proposed a Virginia subtraction equal to 25% of the federal senior deduction; the budget adopted in June 2026 did not include it.

Capital gains, interest and the brokerage account

Virginia taxes long-term capital gains and qualified dividends as ordinary income; there is no preferential rate. Interest on U.S. Treasury bills, notes and savings bonds is subtracted, as is interest on Virginia state and local bonds, while interest on other states’ municipal bonds is added. A retiree who sells a long-held stock position or a rental property owes 5.75% on the gain and, if 65 and near the line, loses age deduction besides. The home sale exclusion is federal and flows through: a gain that is excluded federally never reaches Virginia AGI.

Withholding and estimated payments

Because pensions and IRA withdrawals are taxed, a retiree with no wages usually needs Virginia tax paid in some other way. Pension and IRA payers will withhold Virginia tax on request, which is the simplest route. Otherwise, estimated payments on Form 760ES are required when the expected tax after withholding and credits exceeds $1,000; that threshold was $150 through 2025, and the increase takes most modest retirees out of the estimated payment system. The due dates are May 1, June 15, September 15 and January 15. Social Security and military retirement, being subtracted, need no Virginia withholding.

Property tax relief for seniors

Virginia has no homestead exemption and no property tax credit on the income tax return. Relief for older homeowners is a local program: under state law each county and city may, by ordinance, exempt or defer real estate tax on the sole dwelling of an owner who is 65 or older or permanently and totally disabled, and each sets its own income and net worth limits. The limits vary enormously. Northern Virginia localities allow incomes well above $70,000 (verify); some rural counties set them far lower, and a few offer nothing. The application is an affidavit filed with the local commissioner of the revenue after January 1 and before April 1, or a later date the locality sets, annually or on a three-year cycle. Where the relief is a deferral rather than an exemption, the deferred tax becomes a lien with interest of up to 8% a year, payable when the home is sold or within a year after the owner’s death. Income for these programs counts Social Security and retirement income in full, even though the income tax does not.

Separately, and statewide, a veteran rated by the VA as 100% service-connected, permanently and totally disabled is exempt from real estate tax on the principal residence, with no income test, and the exemption continues for a surviving spouse who does not remarry (verify). Surviving spouses of service members killed in action have a similar exemption. These are claimed through the local commissioner of the revenue as well.

The car tax, Virginia’s personal property tax on vehicles, has no senior break of its own; the state’s Personal Property Tax Relief share is applied to every qualifying personal vehicle on the local bill.