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Originally published January 19, 2023 and updated April 10, 2025
According to WalletHub, Virginia ranks as the third-best state for military retirees in 2025. Among the many advantages the state offers to active-duty service members and veterans are several valuable tax benefits.
Virginia has recently updated its tax policies regarding military retirement pay, eliminating the previous age requirement for claiming the Military Benefits Subtraction. Beginning with the 2024 tax year, all military retirees, regardless of age, can subtract up to $30,000 of their military retirement income from their Virginia taxable income. This subtraction increases to $40,000 for the 2025 tax year and beyond.
It’s important to note that this subtraction applies only to military retirement income included in your federal adjusted gross income. Distributions from the Thrift Savings Plan (TSP) or similar accounts do not qualify for this subtraction.
Additionally, you may claim the Military Benefits Subtraction alongside other subtractions—such as the Disability Income Subtraction or Age Deduction—as long as each applies to a different source of income. For example, if you receive both military pension and disability income, you can claim both subtractions, provided they don’t overlap.
These updates reflect Virginia’s commitment to supporting its military retirees by reducing their tax burden and acknowledging their service.
Active military personnel residing in Virginia earning less than $30,000 (base pay) may deduct up to $15,000 of their income from federal taxes on their Virginia state return. For every $1 of income over $15,000, the maximum subtraction is reduced by $1. Service members must be on active duty for 90 days or more to qualify for this deduction.
The subtraction for the Virginia National Guard Service pay has been increased from $3,000 to $5,500. Additionally, eligibility has been expanded to include service members in the ranks of O6 and below, whereas previously, it was limited to ranks of O3 and below.
Under the Military Spouses Residency Relief Act, income earned by a nonresident military spouse or dependent living in Virginia to be with a Servicemember spouse/parent permanently stationed in the state does not have to pay Virginia income tax. The spouse and dependents must reside in the same state as the Servicemember to be eligible.
The State of Virginia does not tax combat pay or hazardous duty pay for active-duty military personnel; therefore, this income does not have to be included when filing Virginia state taxes.
Veterans who were awarded the Congressional Medal of Honor do not have to pay taxes on military retirement pay in Virginia. However, this subtraction does not apply to benefits received by a surviving spouse.
Military disability retirement payments from pensions, annuities, or similar allowances for injury or sickness due to active service in the U.S. Armed Forces is not considered taxable income in Virginia. Examples of disability benefits include:
Surviving spouses, children, or parents of Servicemembers who died in the line of duty, or the survivor of a Veteran who died from a service-related injury or illness may be eligible for the tax-free monetary benefit VA Dependency and Indemnity Compensation (VA DIC). See the U.S. Department of Affairs Dependency and Indemnity Compensation Fact Sheet for more information and to apply.
As a Veteran-owned business, we’re committed to helping our active duty and retired military service clients achieve the best possible tax outcome. To learn more about how we can help you, please schedule a free consultation below.
