The Complete Guide to Virginia Retirement Taxes

But a retiree needs to think about more than lifestyle factors; taxes are one of the key criteria that should inform your decision. Tax policies vary by state, and understanding a state’s tax rules can help substantially you with your retirement plans.

If you’re thinking about retiring in Virginia, you need to think about how much you’ll actually pay in taxes there.

In this article, we’ll break down how Virginia taxes retirement income, including Social Security, pensions, and other common sources of income.

Virginia Retirement Taxes: What Retirees Need to Know

Retirees living in Virginia may be responsible for paying both federal income tax and Virginia state income tax, depending on their total income and the types of retirement funds they receive. Certain types of retirement income, such as Social Security benefits, may be exempt from state taxes in Virginia but could still be subject to taxation at the federal level. Federal tax rules apply nationwide, but each state has its own approach to taxing retirement income.

This article focuses specifically on Virginia’s state tax rules and how they apply to retirees. When we refer to “Virginia retirement taxes,” we mean the way the state taxes different types of retirement income. That can include pension payments, withdrawals from retirement accounts such as 401(k)s and IRAs, investment income like interest or dividends, and other forms of earnings during retirement. Virginians generally don’t have to pay local income taxes, though.

Understanding how Virginia treats these sources of income can help you better estimate your potential state tax liability and plan your retirement finances more effectively.

Is Virginia Tax-Friendly for Retirees?

When you’re evaluating retirement destinations, taxes should be an important consideration.

Virginia is not a no-income-tax state like Florida or Tennessee. Both of these and a handful of other states do not require their residents to pay state income taxes.

However, Virginia is still considered relatively tax-friendly for many retirees compared with states that tax Social Security benefits or impose estate or inheritance taxes. For retirees with moderate incomes, Virginia’s exemptions and deductions can significantly reduce the amount of state tax owed. While the state does tax several types of retirement income, its policies provide some important advantages that make it appealing to many retirees.

Below are some key factors that shape Virginia’s overall retirement tax picture.

Social Security Benefits Are Not Taxed

Virginia does not tax Social Security retirement benefits. This aligns it with a majority of states that fully exempt Social Security from state income taxes. For retirees who rely heavily on these benefits, this policy can substantially reduce their overall tax burden compared with states that partially or fully tax Social Security income.

However, other retirement income may be partially taxed.

No Estate or Inheritance Tax

Virginia does not impose either an estate tax or an inheritance tax. That means assets passed on to heirs generally are not subject to additional state-level taxation at death. While federal estate tax rules may still apply to very large estates, most retirees in Virginia will not face a separate state estate tax.

Age-Based Retirement Income Deduction

Virginia offers an age deduction for older residents. Taxpayers age 65 and older may qualify to deduct a portion of their income from state taxes, depending on income levels and filing status. This income-based age deduction can help reduce taxable income for pension payments and retirement account withdrawals.

Eligibility for the age deduction is determined by the taxpayer’s birth date and filing status. The deduction is available to those who have reached age 65 by the end of the tax year, and the amount allowed depends on whether the taxpayer is a single filer or married taxpayer.

For married taxpayers, the age deduction is calculated based on the joint adjusted federal adjusted gross income (AFAGI) of both spouses. When filing jointly, both the taxpayer’s income and the spouse’s income are considered in determining the maximum allowable deduction. Single filers and single taxpayers have separate income thresholds, and the deduction amount is based solely on the individual taxpayer’s income. Income thresholds for both single filers and married taxpayers affect the maximum deduction that can be claimed.

Military Retirement Income Subtraction

Virginia provides a specific subtraction for military retirement income. Eligible retirees may subtract up to $40,000 of their military retirement pay from their Virginia taxable income for tax year 2025 and later. This is another one of the military retirement benefits that makes the state particularly attractive for military retirees.

Graduated Income Tax System

Virginia uses a graduated income tax system, with rates ranging up to a top rate of 5.75%. While this means some retirement income is taxed, the top rate is moderate compared with higher-tax states.

Moderate Property Taxes

Property taxes in Virginia are generally considered moderate relative to national averages. Rates vary by locality, but many retirees find housing-related taxes manageable compared with high-tax states in the Northeast or West Coast.

Mid-Range Sales Tax

Virginia’s sales tax is also in the middle range nationally. The statewide rate is combined with local rates in many areas, but overall consumption taxes tend to be neither especially high nor especially low. The total sales tax paid by Virginia residents can vary depending on the locality and the types of goods or services purchased.

Overall, while Virginia is not a completely tax-free retirement destination, its mix of exemptions, deductions, and moderate tax rates can make it a reasonably tax-friendly option for many retirees.

Virginia Income Tax Rates and Brackets

Virginia uses a graduated income tax system, which means different portions of income are taxed at different rates. As income rises, the higher portions fall into higher tax brackets rather than the entire amount being taxed at the highest rate.

The process begins with your federal adjusted gross income (AGI). From there, Virginia makes several adjustments. Certain types of income that are exempt at the state level—such as Social Security benefits—are subtracted.

Next, Virginia applies eligible deductions. These may include the state’s age-based retirement income taxable deduction or the subtraction for qualifying military retirement income.

After these adjustments are made, the remaining amount becomes your Virginia taxable income. The state’s income tax brackets are then applied to that final figure.

These are the current Virginia income tax brackets for individuals:

An important point that often surprises retirees is how the top rate works. The 5.75% rate applies only to income above $17,000, not to all income. However, because the top bracket begins at a relatively low income level, many retirees will have at least some income taxed at 5.75%.

The good news is that exemptions and deductions can reduce the portion of income that ultimately falls into the taxable brackets, potentially lowering the overall state tax bill.

What Retirement Income Is Taxable in Virginia?

Let’s take a closer look at the different parts of their income retirees may have to pay tax on:

Social Security Benefits

Virginia does not tax Social Security benefits at the state level.

Even if a portion of your benefits is taxable under federal law, it remains fully exempt from Virginia state income tax. This means retirees do not have to include Social Security payments when calculating their Virginia taxable income. The same treatment generally applies to Railroad Retirement Tier I benefits, which are structured similarly to Social Security and are also exempt from state taxation.

Importantly, this exemption applies regardless of income level, so higher-income retirees receive the same state tax treatment as those with more modest retirement income.

Pensions

In Virginia, pension income is generally taxable for state income tax purposes. This includes payments from private employer pensions as well as most public pensions. The state typically treats pension income the same way it treats other forms of income; it’s taxed as ordinary income once it becomes part of your Virginia taxable income.

However, some retirees may be able to reduce the taxable amount through the state’s age-based retirement income deduction, which can apply to qualifying retirement income.

Tier 1 Railroad Retirement benefits are exempt from Virginia tax because they are treated similarly to Social Security. Tier 2 Railroad Retirement benefits are also exempt under federal law, but they require a separate subtraction on the Virginia return to back them out of federal adjusted gross income.

401(k) and IRA withdrawals

In Virginia, withdrawals from traditional 401(k) plans and traditional IRAs are generally taxable at the state level.

Because these withdrawals are included in your federal adjusted gross income (AGI), they also flow through to your Virginia tax return and are treated as ordinary income for state tax purposes. This means they may be subject to Virginia’s graduated income tax rates.

In contrast, qualified withdrawals from Roth accounts, such as Roth IRAs or Roth 401(k)s, are typically not taxable in Virginia. That’s because qualified Roth withdrawals are not included in federal AGI, so they are not counted as taxable income on your Virginia return.

Military Retirement Income

Eligible retirees can claim the military retirement subtraction in addition to other Virginia subtractions and deductions for which they qualify, including the age deduction. The two operate independently, since the age deduction’s income-based phase-out is calculated on federal AGI minus taxable Social Security, not on income after the military subtraction.

Investment and Other Income

Virginia generally taxes several types of investment and passive income. Interest income, dividend income, capital gains, and rental income are all typically subject to Virginia state income tax.

These earnings are included in your federal adjusted gross income (AGI), which Virginia uses as the starting point for calculating state taxable income. Because they flow through from the federal return, they are usually treated as ordinary taxable income at the state level unless a specific subtraction or exemption applies.

Thus, retirees who rely on investment portfolios or rental properties may see these income sources included in their Virginia taxable income.

Virginia’s Retirement Income Deductions Explained

Deductions can play an important role in lowering a retiree’s state tax bill in Virginia.

To understand how they work, it helps to distinguish between tax deductions and tax credits.
A deduction reduces the amount of income that is subject to tax, while a credit directly reduces the amount of tax you owe.

Virginia’s main retirement-related tax provisions are deductions, meaning they lower your taxable income rather than providing a direct reduction in the tax bill.

Age 65 and Older Deduction

Virginia provides a retirement income deduction for older residents. Individuals age 65 and older may deduct up to $12,000 of qualifying retirement income from their Virginia taxable income. This deduction can apply to income sources such as pension payments and withdrawals from traditional retirement accounts like 401(k)s and IRAs.

However, the deduction does not apply to Social Security benefits. That’s because Social Security is already fully exempt from Virginia state income tax and is not included when calculating Virginia taxable income.

Income Limits and Phase-Out Rules

The full $12,000 deduction is available only if a taxpayer’s adjusted federal adjusted gross income (AFAGI), which is federal AGI minus any taxable Social Security and Tier 1 Railroad Retirement benefits, falls below $50,000 for single filers or $75,000 for married filers.

Once AFAGI rises above the applicable threshold, the deduction begins to phase out on a dollar-for-dollar basis. This means that each additional dollar of income above the limit reduces the available deduction by the same amount.

If income exceeds the phase-out range entirely, the deduction may be fully eliminated, leaving the retirement income fully taxable at the state level.

Property Taxes, Sales Taxes, and Estate Taxes

Retirees in Virginia should also be aware of other taxes that can affect their overall cost of living.

Property Taxes

Property taxes in Virginia are levied at the local level, meaning rates vary depending on the county or city where you live. Many localities offer property tax relief programs specifically for seniors, which can reduce the tax burden based on age and income. These programs may include exemptions, credits, or deferrals, making homeownership more affordable for retirees on fixed incomes.

Sales Tax

Virginia has a statewide sales tax applied to most purchases. In some localities, additional local sales taxes are added, slightly increasing the total rate. Certain items are taxed at a reduced rate or are exempt; for example, groceries may be taxed at a lower rate, and prescription medications are fully exempt from sales tax. Retirees should consider these rates when budgeting for everyday expenses.

Estate and Inheritance Taxes

Virginia does not impose a state estate tax or inheritance tax, which can simplify estate planning and reduce tax liability for heirs.

However, very large estates may still be subject to the federal estate tax, so high-net-worth retirees should be aware of federal thresholds when planning their estates.

Overall, while Virginia is relatively moderate in property, sales, and estate taxation, retirees should review local property tax rules and consider how sales and other income taxes could impact their retirement budget. These factors, combined with state income tax rules, help provide a fuller picture of retirement costs in Virginia.

How to Estimate Your Virginia Retirement Tax Bill

Estimating a Virginia retirement tax bill depends heavily on an individual’s personal circumstances, including sources of income, age, and eligibility for deductions.

Let’s consider a practical example to illustrate how exemptions and deductions meaningfully reduce taxable income and overall state tax liability for retirees.

Suppose a married couple filing jointly has the following combined annual income:

• $30,000 from Social Security.
• $40,000 from a pension.
• $20,000 from a traditional IRA withdrawal.
• $5,000 from investments.

If the retiree is eligible, they could also apply the military retirement subtraction, though we won’t include it in this example.

First, we subtract Social Security, which is fully exempt from Virginia state tax. That leaves $65,000 ($40,000 + $20,000 + $5,000) of taxable retirement and investment income.

Next, we apply the age-based retirement income deduction—in this case, the full $12,000 for someone 65 or older—reducing taxable income to $53,000.

Virginia’s graduated income tax brackets are then applied:

• 2% on the first $3,000.
• 3% on $3,001–$5,000.
• 5% on $5,001–$17,000.
• 5.75% on income over $17,000.

Using these brackets, we can estimate that the retiree’s Virginia state tax would be roughly $2,700–$3,000.

Beyond Taxes: Why Many Retirees Choose Virginia

While understanding Virginia’s retirement taxes is important, the state offers much more to retirees than just financial considerations.

Virginia’s diverse geography includes both scenic coastal areas and picturesque mountains, giving residents a wide range of outdoor recreation options.

Access to quality healthcare is strong, with hospitals and clinics throughout the state, which is an important factor for aging adults.

Retirees can also enjoy rich cultural and historical attractions, from colonial Williamsburg to Arlington National Cemetery.

The state strikes a balance between rural and urban living, allowing retirees to choose a quiet small-town lifestyle or stay near bustling metropolitan areas.

On top of that, Virginia’s moderate cost of living makes it more affordable than many Northeast states, making it possible to enjoy a comfortable retirement without stretching finances too thin.

These lifestyle benefits complement the state’s favorable tax treatment for retirees, making Virginia an appealing overall destination.

Enjoy Your Virginia Retirement With Bay Creek

For retirees looking to enjoy the very best of Virginia living, Bay Creek on Virginia’s Eastern Shore is an ideal destination.

This premier community offers a wealth of amenities, including championship golf courses, a private beach, and a full-service wellness center. It’s easy to stay active and enjoy a vibrant lifestyle here.

Living in Cape Charles adds additional benefits: charming small-town shops and dining, scenic waterfront views, easy access to nature and cultural attractions, and more.

Bay Creek also offers a range of real estate options to suit different lifestyles and budgets, from waterfront homes to golf course residences. Those interested in Bay Creek can learn more about available rental options, explore opportunities to purchase a home, or schedule a real estate discovery visit designed for prospective Bay Creek purchasers.

This article is designed to provide helpful information about the tax benefits of living in Virginia, but it is not a substitute for professional financial planning. Because tax laws can change and individual circumstances vary, please consult a licensed tax professional regarding your specific financial situation before making any tax-related decisions.