Virginia collects state income tax on wages, investments, and retirement income
Yes, Virginia has a state income tax. The state taxes wages, interest, dividends, capital gains, and retirement income at rates that range from 2% to 5.75% depending on your income bracket. Unlike some states, Virginia does not exempt retirement income or Social Security from taxation, though certain types of retirement accounts receive partial relief.
Virginia's tax system is progressive, meaning the rate you pay increases as your income increases. The state also allows you to deduct the federal income tax you pay, which lowers your Virginia taxable income. This deduction is one of the largest tax breaks available to Virginia residents.
Key Takeaways
- Virginia's state income tax rates range from 2% to 5.75% across six tax brackets, with higher earners paying the top rate.
- You can deduct all federal income tax paid on your Virginia return, which significantly reduces the state tax you owe.
- Social Security benefits, pensions, and retirement account withdrawals are subject to Virginia income tax unless you meet specific age and income thresholds.
- Virginia taxes capital gains and investment income at the same rates as wages, with no special lower rate for long-term gains.
- The state offers a tax credit for taxes paid to other states if you worked or earned income outside Virginia.
Virginia's tax brackets and rates for 2024
Virginia uses six tax brackets. A single filer with taxable income under $3,000 pays 2%. The rate climbs to 3% between $3,000 and $5,000, then 5% between $5,000 and $17,000. From $17,000 to $36,000, the rate is 5.5%. Income between $36,000 and $60,000 is taxed at 5.75%, and anything above $60,000 is also taxed at 5.75%.
Married couples filing jointly have higher brackets at each level. For example, married income under $6,000 is taxed at 2%, and the top bracket of 5.75% applies to income over $120,000. These brackets adjust slightly each year for inflation.
The federal income tax deduction is applied before you calculate Virginia tax, so your actual Virginia tax bill is lower than these rates suggest. If you paid $5,000 in federal income tax, you subtract that from your income before explore Virginia's rates.
How retirement income and Social Security are taxed
Virginia taxes Social Security benefits if your total income exceeds certain thresholds. For single filers, if your adjusted gross income plus half your Social Security benefits exceeds $25,000, some of your benefits become taxable. For married couples filing jointly, the threshold is $32,000. This is the same formula the federal government uses, so you may owe Virginia tax on benefits even if you owe nothing to the IRS.
Pension income and distributions from traditional IRAs and 401(k) accounts are fully taxable as ordinary income. However, Virginia offers a retirement income tax credit for residents age 59½ or older with income under $31,075 (single) or $51,775 (married). This credit can reduce or eliminate tax on up to $12,000 of retirement income, depending on your age and total income.
Military pensions receive special treatment: they are fully exempt from Virginia income tax for all military retirees, regardless of age or income. This exemption applies to pensions from the U.S. military, not state or local government pensions.
The federal income tax deduction and other major tax breaks
The federal income tax deduction is Virginia's largest tax break. You deduct every dollar of federal income tax you paid during the year from your Virginia taxable income. This means if you owe $8,000 in federal tax, you subtract $8,000 from your Virginia income before calculating state tax. For a middle-income household, this deduction can cut the state tax bill in half.
Virginia also allows the standard deduction, which works the same way as the federal standard deduction. For 2024, the standard deduction is $4,500 for single filers and $9,000 for married couples filing jointly. You can choose to itemize deductions instead if your mortgage interest, property taxes, and charitable donations exceed the standard deduction.
Residents who work in another state and pay income tax there can claim a credit for taxes paid to that state. This prevents double taxation if you live in Virginia but work across the border in Maryland or Washington, D.C.
Capital gains and investment income
Virginia does not have a special tax rate for capital gains. Long-term gains from selling stocks, real estate, or other investments are taxed as ordinary income at your regular rate (2% to 5.75%). This differs from the federal system, where long-term capital gains receive preferential rates of 0%, 15%, or 20%.
Dividends and interest income are also taxed as ordinary income. If you receive $500 in dividend income, it is added to your wages and taxed at whatever bracket your total income falls into. There is no dividend exclusion or preferential rate.
Who must file a Virginia tax return
You must file a Virginia return if your Virginia taxable income exceeds the standard deduction for your filing status. For most single filers, that means income over $4,500. For married couples filing jointly, the threshold is $9,000. These thresholds are lower than the federal standard deduction, so you may owe Virginia tax even if you do not owe federal tax.
If you are claimed as a dependent on someone else's return, you must file if you have unearned income (interest, dividends, capital gains) over $1,250 or earned income over $4,500. Even if you do not owe tax, filing may result in a refund if Virginia withheld too much from your paychecks during the year.
Virginia requires employers to withhold state income tax from employee paychecks. The amount withheld depends on the W-4 form you complete. If you have multiple jobs, side income, or significant investment income, you may need to adjust your withholding or make estimated tax payments to avoid owing a large bill at tax time.
Filing important date and payment options
Virginia income tax returns are due on the same date as federal returns, which is typically April 15. If April 15 falls on a weekend or holiday, the important date moves to the next business day. You can request an automatic six-month extension by filing Form 4868 with the IRS; Virginia honors the federal extension automatically.
You can file online through Virginia's tax website, by mail, or through a tax professional. The state offers free filing software for residents with income under $79,000. If you owe tax, you can pay by credit card, debit card, electronic bank transfer, or check. Paying by card or transfer incurs a processing fee, but paying by check does not.
If you underpaid during the year and owe tax on April 15, you can set up a payment plan with the Virginia Department of Taxation. Interest accrues on unpaid balances at a rate set quarterly by the state.
Frequently Asked Questions
Does Virginia tax retirement income differently than wages?
No, Virginia taxes retirement income at the same rates as wages. However, residents age 59½ or older with lower incomes may may have access to for a retirement income tax credit that can reduce or eliminate tax on up to $12,000 of retirement income. Military pensions are completely exempt. Social Security is taxable if your total income exceeds certain thresholds.
Can I deduct state income tax paid to Virginia on my federal return?
Yes, you can deduct Virginia state income tax on your federal return if you itemize deductions. You can deduct either the tax you paid or the tax you owed, whichever is higher. The deduction is capped at $10,000 per year for all state and local taxes combined (including property tax and sales tax).
What happens if I move out of Virginia during the year?
You must file a Virginia return for the part of the year you lived in the state. Your income is prorated based on the number of days you were a resident. You may also owe tax to the state you moved to. Some states have reciprocal agreements that prevent double taxation.
Does Virginia have a sales tax in addition to income tax?
Yes, Virginia has a sales tax of 4.3% at the state level, and most localities add an additional 1% to 2.3%, bringing the total to between 5.3% and 6.3%. Groceries, prescription medications, and medical equipment are exempt from sales tax.
How do I know if I should adjust my withholding?
If you received a large refund last year, you are having too much withheld and should increase your W-4 allowances. If you owed money, you are not having enough withheld and should decrease your allowances. You can adjust your withholding at any time by submitting a new W-4 to your employer.