Virginia State Income Tax: Rates and Rules for Residents
- Matt Brennan, CFP®
- 3 hours ago
- 9 min read
Tom and Linda Carter spent 35 years building a $2.5 million portfolio. When they retired to Virginia Beach, friends told them Virginia was "tax-friendly for retirees."
Six months later, their CPA delivered the news: their $180,000 in IRA distributions was taxed at 5.75% — the same rate as their working income.
The age deduction they'd read about? Gone. Their income was $12,000 too high to claim a single dollar of it.
Disclosure: The following narrative regarding "Tom and Linda Carter" is a hypothetical illustration used to demonstrate financial planning concepts. It does not represent the experience of actual clients. Hypothetical financial planning illustrations have inherent limitations, including that they are prepared with the benefit of hindsight and do not reflect actual results of any specific client situation.
The Carters aren't unusual. They're typical. And without a withdrawal strategy built around Virginia's actual tax rules — not the headlines — a couple like them could overpay by $2,000 or more per year in avoidable state taxes. Over a 20-year retirement, that's $40,000 left on the table.
Key Takeaways
Virginia's top rate hits fast. The 5.75% top bracket kicks in at just $17,000 of taxable income — virtually all retirement income above that is taxed at the top rate.
Social Security is fully exempt. Virginia does not tax Social Security benefits at the state level — a genuine advantage over many neighboring states.
The age deduction vanishes for many affluent retirees. The $12,000 per-person deduction phases out dollar-for-dollar above $75,000 in adjusted income for married filers. At $99,000, it's worth zero.
Standard deduction sunset looms after 2026. Virginia's $17,500 married standard deduction is scheduled to drop to $6,000 after tax year 2026 unless legislators act — a $11,500 increase in taxable income.
$40,000+ in avoidable taxes over a 20-year retirement for couples who don't plan their withdrawals around Virginia's deduction thresholds and sunsets.
No estate or inheritance tax. Virginia imposes neither — a meaningful edge over Maryland and DC for high-net-worth families.
Virginia Income Tax Rates: The Brackets That Haven't Moved in Decades
Yes, Virginia has a state income tax. It uses a progressive system with four brackets — but the top rate arrives so quickly that many retirees pay it on nearly every dollar of income.
Here are the current Virginia income tax rates for tax year 2026:
2% on the first $3,000 of taxable income
3% on income from $3,001 to $5,000
5% on income from $5,001 to $17,000
5.75% on all income above $17,000
These brackets apply the same way regardless of filing status — single, married filing jointly, or head of household.
For context: a married couple with $100,000 in taxable income pays the top 5.75% rate on $83,000 of it. The lower brackets save you roughly $260 compared to a flat 5.75% tax. That's it.
One thing Virginia does not do: give you a break on investment gains. Unlike the federal tax code, Virginia taxes long-term capital gains as ordinary income — at the same 5.75% rate as wages and retirement distributions.
If you're selling appreciated stock or real estate, the state tax bite is identical to the tax on your pension check, making it critical to understand strategies to reduce Virginia income tax before realizing large gains.
The Myth: "Virginia Has Low Tax Rates."
It sounds reasonable. The 5.75% top rate is below the national average for states with income taxes. But the rate isn't the full story — it's where the rate starts that is different from other states.
Virginia's top bracket begins at $17,000. California's top rate starts above $1 million. The result: a Virginia retiree with $200,000 in income pays the top rate on 91.5% of every dollar. The "low rate" applies to almost everything.
How Virginia Taxes Retirement Income
Social Security benefits are fully exempt from Virginia income tax. You can subtract the entire taxable amount from your Virginia return — no income limits, no phase-outs.
That's where the good news ends.
Pensions, 401(k) distributions, and traditional IRA withdrawals are fully taxable as ordinary income. Virginia offers no general pension exclusion — unlike Pennsylvania (which exempts all retirement income) or Maryland (which provides a $41,200 pension exclusion for retirees 65+).
If you're drawing $150,000 from IRAs, Virginia taxes it the same as $150,000 in salary, so coordinating withdrawals with how long your investments can last in retirement is essential.
Roth IRA distributions are tax-free at the state level if they're qualified — Virginia follows federal treatment here.
Virginia does offer an age deduction of up to $12,000 per qualifying taxpayer aged 65 or older. A married couple with both spouses qualifying could claim up to $24,000. But the income limits are tight.
The deduction begins phasing out at $75,000 in Adjusted Federal Adjusted Gross Income (AFAGI) for married filers — and it shrinks dollar-for-dollar. By $99,000 in AFAGI, it's gone completely.
Unique to Virginia, AFAGI is your federal adjusted gross income minus any taxable Social Security benefits. That exclusion helps — but for many affluent retirees drawing $150,000+ from retirement accounts, the age deduction is a headline without a benefit, underscoring the value of a fee-only retirement-focused financial advisor who understands Virginia’s rules.
The Hidden Connection: How Virginia's Deduction Phase-Out Doubles Your Marginal Rate
Here's what a lot of Virginia tax guides skip: the age deduction phase-out doesn't just take away a tax break. It creates a hidden marginal rate spike that effectively doubles the tax you pay on each additional dollar of income in the phase-out zone.
Here's the math. Each dollar of AFAGI above $75,000 (married) does two things:
It gets taxed at 5.75% — the normal top rate.
It eliminates $1 of age deduction, which increases your taxable income by $1 — costing you another 5.75%.
Combined: 5.75% + 5.75% = 11.50% effective marginal rate during the phase-out window. That's double the posted rate — and it applies to every dollar of AFAGI between $75,000 and $99,000 for a married couple where both spouses qualify.
Now layer the standard deduction sunset on top. Virginia's current standard deduction is $17,500 for married filers (2026) — but it's scheduled to revert to $6,000 after tax year 2026 under current law. HB 12, a 2026 bill to make the higher amount permanent, died in committee. A budget special session is set for April 23, 2026, which could address it — but nothing is guaranteed.
If the sunset hits, a married couple claiming the standard deduction would see their taxable income jump by $11,500 overnight. At 5.75%, that's an extra $661 per year in state taxes — without earning a single dollar more.
For a couple like the Carters — income above the age deduction threshold and exposed to the standard deduction sunset — the combined annual cost is roughly $2,000 in potentially avoidable state taxes, and failing to plan can jeopardize how long their retirement money will last.
Multiply that over a 20-year retirement: over $40,000 gone, not because of bad investments, but because of unplanned withdrawals.
The Numbers That Matter
$17,000 — Where Virginia's top 5.75% rate starts. Almost everything you earn above this is taxed at the highest rate.
$75,000 AFAGI — Where the age deduction begins disappearing for married filers. Each dollar above this costs you 11.5 cents in state tax.
$17,500 → $6,000 — The standard deduction cliff after 2026 if the legislature doesn't act. That's an $11,500 jump in taxable income.
$0 — Virginia estate tax. No inheritance tax either. A major advantage over Maryland and DC.
Virginia’s lack of estate and inheritance taxes is one variable in a broader landscape of tax-friendly states for retirees, but it doesn’t automatically make it the optimal place for every household.
Virginia Filing: What You Need to Know
A few rules that catch Virginia filers off guard:
Filing deadline: Virginia returns are due May 1 — not April 15. You get an automatic six-month extension to November 1 for filing, but any tax owed must still be paid by May 1.
Standard deduction (2026): $8,750 (single) / $17,500 (married filing jointly). These amounts were increased through legislation enacted during the 2025 General Assembly session.
Personal exemptions: $930 per exemption, plus an additional $800 for each filer aged 65 or older or blind. A married couple both 65+ gets $3,460 in combined exemptions, and many households benefit from working with one of the best financial advisors in Virginia for retirement planning to integrate these details into a broader strategy.
Federal/state linkage: If you claim the standard deduction on your federal return, you must claim it on your Virginia return too. If you itemize federally, you itemize for Virginia.
No estate or inheritance tax. Virginia repealed its estate tax effective July 1, 2007, and does not impose an inheritance tax. Compare that to Maryland — which charges both an estate tax on estates over $5 million and a 10% inheritance tax — and Virginia's advantage for high-net-worth families becomes clear.
Check This Now: Your Virginia Tax Self-Assessment
Here's what you can check right now.
Pull your 2024 Virginia return (Form 760). Look at Line 1 (FAGI). Subtract any taxable Social Security on Line 5. That's your AFAGI. If it's above $75,000 (married), your age deduction is already shrinking.
Check Line 11 — your standard deduction. If it shows $17,500 (MFJ), know that this amount is scheduled to drop to $6,000 after tax year 2026 under current law. Ask your advisor: what's the plan?
Look at your capital gains. Find Schedule D on your federal return. Every dollar of long-term gain is taxed at 5.75% by Virginia — there's no preferential rate. If you're harvesting gains, the state bite matters.
Check your estimated payments. Virginia's filing deadline is May 1 — not April 15. If you're making quarterly estimated payments, confirm they're calibrated to Virginia's schedule, and use tools like a free retirement cash-flow calculator to see how those payments fit into your long-term plan.
If you checked those four items and felt a knot in your stomach, that's the signal. Virginia's tax code rewards precision and punishes autopilot — especially for retirees with $1M+ portfolios who are drawing down assets.
Book a Pro-Forma Tax Analysis → The Carters discovered they were overpaying by $2,000 a year because no one modeled Virginia's age deduction phase-out against their withdrawal plan. A pro-forma analysis maps your income sources against Virginia's thresholds — so you stop leaving money on the table.
[Disclosure: Results depend on your specific income sources, tax situation, and whether future legislation changes Virginia's deduction rules.]
With $40,000+ at stake over a 20-year retirement, the math is worth an hour of your time, especially if you’re evaluating whether $2 million is enough to retire at 60 under Virginia’s tax rules.
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Frequently Asked Questions
Does Virginia Have State Income Tax?
Yes. Virginia levies a progressive income tax with four brackets. Rates range from 2% to 5.75%. The top rate applies to all taxable income above $17,000 — regardless of filing status.
What Are the Current Virginia State Income Tax Rates?
For tax year 2026: 2% on the first $3,000, 3% on $3,001–$5,000, 5% on $5,001–$17,000, and 5.75% on everything above $17,000.
These brackets have remained unchanged for decades and apply identically to all filing statuses.
Who is Required to File a Virginia State Income Tax Return?
You must file if you are a Virginia resident with enough gross income to require a federal return, or if your Virginia adjusted gross income exceeds $11,950 (single) or $23,900 (married filing jointly).
Part-year residents and nonresidents with Virginia-source income must also file.
Are There Any Deductions or Credits Available to Reduce Virginia State Income Tax?
Retirees considering locations like Williamsburg, Virginia as a retirement destination often weigh these deductions and credits as part of their overall plan.
Yes. Key deductions include the standard deduction ($8,750 single / $17,500 MFJ for 2026), personal exemptions ($930 each), the age deduction (up to $12,000 per taxpayer 65+, subject to income limits), and the full subtraction of Social Security benefits.
Virginia also offers credits for low-income taxpayers, political contributions, and land conservation. However, the standard deduction is scheduled to sunset after 2026 — potentially reverting to $3,000/$6,000.
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About the author:
Senior Financial Advisor
Matt is a Senior Financial Advisor with Covenant Wealth Advisors and a CERTIFIED FINANCIAL PLANNER™ practitioner. He has over 20 years of experience in the financial services industry in the areas of financial planning for retirement, tax planning, and investment management.
Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER™ professional with the assistance of AI. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible, no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.
