January 19, 2023

What You Need to Know About Virginia Active Military and Veteran Tax Benefits

As reported by the Military Times, WalletHub recently ranked the State of Virginia as the number one state for military retirees. Among the many benefits offered to active duty military and Veterans, are several tax benefits.

Summary of Virginia Military and Veteran Tax Benefits  

Virginia Military Retirement Income Subtraction

As of 2022, a veteran who is at least 55 years old and who was honorably discharged after active duty in the U.S. Armed Forces can claim up to $10,000 in military retirement pay tax-free. In 2023, the number increases to $20,000; in 2024, $30,000; and after 2025, $40,000. The law also applies to surviving spouses of military retirees.

Virginia Income Tax Deduction for Military Pay

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.

Virginia Income Tax Exemption for National Guard

For Virginia National Guard Service members in pay grades of Captain (0-3) and below, up to 39 calendar days of service or $3,000 of National Guard Pay (whichever is less) may be deducted from income taxes.

Nonresident Military Spouses and Dependents Virginia Tax Exemption

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.  

No Virginia Taxes on Combat and Hazardous Pay Duty

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.

Medal of Honor Recipients Virginia Income Tax Subtraction 

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.

Virginia Taxes on Military Disability Retirement Pay

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:

  • Disability compensation and pension payments paid to Veterans or their families
  • Grants for homes designed for wheelchair living
  • Grants for motor vehicles for Veterans who lost their sight or the use of limbs, or
  • Benefits under a dependent-care assistance program.

Virginia State Taxes on U.S. Department of Veterans Affairs Disability Dependency and Indemnity Compensation (DIC) 

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. 

Additional Online Services for Virginia Resident Military Members

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.   

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