Virginia Military Benefits Subtraction

If you live in Virginia and receive a military pension, you need to be aware of Virginia’s Military Benefits subtraction.

It is especially important to be aware of this exclusion if you prepare your taxes yourself, because the design of tax software often makes it easy for this to be missed.

 

What is the Virginia military benefits subtraction?

Military pensions are often included in a taxpayer’s federal income.

However, a certain amount of a taxpayer’s military pension is excluded from their Virginia income. Because a Virginia tax return starts with federal AGI and adjusts it, this exclusion is considered a "subtraction."

In 2025, the subtraction is up to $40,000 per taxpayer for any military pension. This was phased-in over several years – earlier years had a lower cap.

Qualifying income is military retirement income paid to a retiree and benefits paid to surviving spouses. Benefits defined in IRC code 134 are also qualifying income. The subtraction does not apply to distributions from TSPs.

Also, in previous years, there was a minimum age to claim the credit, but now there is no minimum age.

Why is it easy to miss the Virginia military benefits subtraction?

It is easy to miss the Virginia military benefits subtraction when filing your taxes, particularly when filing yourself. This is because there will typically be a separate box you need to check to indicate that the pension is military related. It can be easy to forget to do this when you are quickly inputting the 1099R into the software.

The box you need to select may also be less pronounced because this is only a state benefit.

If you realize you’ve missed the subtraction in recent years, you can file an amendment to get a refund.

Example

Harold is a Virginia taxpayer who has $60,000 of Virginia taxable income before accounting for the military benefits subtraction. He had $45,000 of military pension income, so he is able to claim the maximum $40,000 subtraction. After the subtraction, Harold’s Virginia taxable income is $20,000. His Virginia tax due has dropped from $3,193 to $893 – a tax difference of $2,300:

How does this relate to your situation?

If you are interested in discussing the Virginia military pension subtraction further or any other part of your tax situation, feel free to schedule a meeting or contact me via email (crawford@ulmerfinancial.com).

I bring together clients’ investments and tax preparation in one place, so they don’t have to deal with multiple advisors. The goal is to make managing your money and filing your taxes easier.