Virginia Retirement Income Tax 2026: The FERS Pension Problem, the Age Deduction Cliff, and the Military Exemption That Changed Everything

Virginia is home to one of the largest concentrations of federal retirees in the country. Northern Virginia and the Shenandoah corridor are filled with FERS and CSRS pensioners whose retirement income is taxed differently here than in almost any other state. Federal pensions have no Virginia deduction or exclusion — every dollar of a FERS annuity is taxed at Virginia rates up to 5.75%. The $12,000 age deduction available to residents 65 and older sounds helpful, but it phases out dollar-for-dollar once income exceeds $50,000 (single) or $75,000 (MFJ). A retired GS-14 couple with a combined $120,000 FERS pension and a $60,000 TSP RMD has an AFAGI of $180,000 — far past the threshold where the age deduction disappears. They owe Virginia income tax at the top 5.75% rate on most of their retirement income.

The one piece of genuinely good news for 2026: Virginia eliminated the cap on the military retirement income subtraction. Under HB2700, signed into law for tax years beginning January 1, 2026, military retirees can subtract 100% of their military retirement pay — not just $40,000, but every dollar. A career Army colonel with a $110,000 military pension owes Virginia income tax on $0 of that income starting this year.

How Virginia taxes each source of retirement income

Virginia income tax brackets (2026)

Virginia's four-bracket structure has been unchanged for decades. All filing statuses use the same brackets — there are no separate MFJ rates. The top rate of 5.75% kicks in at just $17,000 of taxable income, meaning most retirees with meaningful RMDs pay 5.75% on nearly all of their retirement distributions.¹

The cumulative tax on the first $17,000 of taxable income is $720. Everything above $17,000 is taxed at 5.75%. For a retiree with $80,000 in VA taxable income, the effective rate works out to approximately 5.5% — close to the top bracket because the lower-rate income ($17,000) represents such a small fraction of total income.

The age deduction — and why it disappears for most large-IRA retirees

Virginia allows residents age 65 or older to deduct $12,000 per person from their income. A married couple where both spouses are 65 or older can claim up to $24,000 total. However, this deduction phases out dollar-for-dollar once your Adjusted Federal Adjusted Gross Income (AFAGI) exceeds a threshold.¹

What is AFAGI? AFAGI is your federal adjusted gross income minus Social Security benefits included in federal AGI (and certain other VA-specific subtractions). Military retirement pay, once subtracted for Virginia purposes, does not count toward AFAGI.

Federal retirees (FERS and CSRS): the Virginia problem

Virginia has no deduction, exclusion, or subtraction for federal civil service retirement income. Unlike military pay, which became fully exempt in 2026, FERS and CSRS annuities are treated the same as any private pension — fully taxable at Virginia rates.²

This creates a compounding problem for federal retirees in Northern Virginia and other DC-area communities:

• FERS pension: Taxed at 5.75% on the portion above $17,000 of taxable income (which most retirees hit immediately after the standard deduction).
• TSP traditional distributions: Also taxable — same as an IRA RMD. The TSP is a federal 401(k), and Virginia taxes it like one.
• FERS supplement (pre-62): Taxable as ordinary income in Virginia until it ends at age 62.
• Social Security (after age 62 for FERS retirees): Exempt — the one relief VA provides.

Worked example — FERS retiree couple, both 72:

Florida residents in the identical situation owe $0 in state income tax. Pennsylvania residents owe $0 (all retirement income exempt). The $7,400+ annual VA bill on the same income is the primary driver of retirement relocation analysis for federal employees in the DMV area.

Military retirees: the 2026 exemption changes everything

Prior to 2026, Virginia phased in its military retirement income subtraction over four years: $10,000 (2022–2023), $20,000 (2023–2024), $30,000 (2024–2025), and $40,000 (2025–2026). HB2700, signed into law for tax years beginning January 1, 2026, eliminated the cap entirely. Military retirees may now subtract 100% of their military retirement pay — with no dollar limit.³

What this means in practice: A retired Marine colonel with a $130,000 military pension was previously paying Virginia income tax on $90,000 of that income ($130K minus the $40K cap). Starting with the 2026 tax year, that entire $130,000 is subtracted — resulting in $0 Virginia income tax on the military pension.

Military retirees who also have TSP traditional balances still owe VA tax on TSP RMDs — military pay is exempt, but the TSP is a separate retirement account treated like an IRA. A retired E-9 with a $55,000 military pension (now fully exempt) and a $40,000 TSP RMD owes Virginia income tax only on the $40,000 TSP distribution.

Virginia retirement income tax calculator

Enter your 2026 income sources to estimate your Virginia income tax. Military retirement is automatically excluded under the 2026 exemption. Social Security is automatically excluded. The calculator compares your Virginia bill to Florida (no state income tax) as a baseline.

QCDs: reduce AFAGI and preserve the age deduction

Qualified Charitable Distributions (QCDs) are excluded from federal AGI — meaning they also reduce your AFAGI for Virginia's age deduction phase-out test. A single retiree with $58,000 in AFAGI — just $8,000 above the $50,000 phase-out threshold — can contribute $8,000 directly from an IRA to charity via QCD. The QCD brings AFAGI to $50,000, restoring the full $12,000 age deduction and saving approximately $690 in Virginia income tax on top of the federal benefit.⁵

For married couples close to the $75,000 MFJ threshold, the math is even more favorable. A couple with $85,000 AFAGI who would otherwise lose $10,000 of their $24,000 joint age deduction can give $10,000 from an IRA via QCD, restore the full deduction, and save approximately $575 in Virginia tax — all while reducing federal income, IRMAA exposure, and provisional income for Social Security taxation simultaneously. The 2026 QCD limit is $111,000 per IRA owner. See our QCD calculator for the combined federal + state benefit.

Roth conversions: time them before or after leaving Virginia

Virginia taxes Roth conversions as ordinary income in the year converted — the full amount converted is added to AFAGI (and potentially knocks out the age deduction). If you are planning to relocate to Florida, Texas, Nevada, or another no-income-tax state, completing Roth conversions after establishing domicile in the destination state can eliminate the VA tax on those conversions entirely.

The arithmetic: A 69-year-old converting $80,000/year in Virginia for three years before moving to Florida pays 5.75% on each conversion year — roughly $4,400 per year × 3 = $13,200 in VA state tax on the conversions alone. The same conversions completed as a Florida resident cost $0 in state income tax. On a three-year, $240,000 total conversion plan, the timing choice saves $13,200 in Virginia tax.

This does not mean you should delay conversions indefinitely waiting to move — the federal tax savings from pre-RMD conversions still apply regardless of state. But if relocation is already in your near-term plan, coordinate the timing with your advisor to sequence conversions in the lower-tax state wherever possible. See our Roth conversion sizing calculator and pre-RMD Roth conversion guide.

Virginia property tax: the offset retirees should factor in

Virginia's average effective property tax rate is approximately 0.80% — meaningfully lower than neighboring Maryland (~0.99%), New Jersey (~2.23%), or Illinois (~2.07%). For a home assessed at $550,000, the typical Virginia property tax bill is around $4,400/year, compared to $7,700 in New Jersey for the same value.

Virginia localities vary significantly. Northern Virginia counties (Fairfax, Loudoun, Arlington) tend to have higher assessed values and higher effective bills even at similar rates, given home prices. Rural Shenandoah Valley and Southwest Virginia localities are substantially lower. Seniors in some localities can apply for partial property tax relief — requirements vary by jurisdiction and are not statewide.

When comparing Virginia to a no-income-tax state like Florida, the property tax comparison matters. Retirees who move from Northern Virginia to Florida often find lower state income taxes but higher property taxes in desirable retirement communities (Sarasota, Naples, Palm Beach). The net comparison is household-specific.

VA vs other retirement states — the high-level picture

Planning strategies for Virginia retirees

1. Use QCDs to stay below the age-deduction phase-out threshold

If your AFAGI is within $12,000–$24,000 of the phase-out threshold ($50K single / $75K MFJ), a targeted QCD can preserve part or all of your age deduction. The age deduction saves at the 5.75% marginal rate for most retirees — worth $690–$1,380 per $12,000 of deduction preserved. See the QCD calculator for the combined federal IRMAA and state benefit.

2. In-kind TSP distributions to avoid VA withholding traps

TSP RMDs are subject to Virginia withholding. If you are relocating and take an RMD in January of the year you move, you may owe Virginia tax on it even if you establish domicile in your new state by December 31 — Virginia prorates based on days of residency. Work with your advisor on the timing of large TSP distributions in a relocation year.

3. Coordinate Roth conversion timing with any planned relocation

If moving to a no-income-tax state is in your 3–5 year plan, evaluate which Roth conversions to complete in Virginia versus the destination state. Conversions completed after domicile change avoid VA income tax. See our retirement tax relocation guide for federal law protections and domicile change requirements.

4. Review TSP vs IRA rollover decision

The TSP has advantages (G Fund, low expenses) but requires you to take RMDs from the TSP separately — you cannot aggregate TSP RMDs with IRA RMDs. If you want to use QCDs from retirement accounts (which require the funds to be in an IRA), a full or partial TSP rollover to an IRA is necessary. Rolling to a traditional IRA does not change Virginia taxability but gives you more planning tools. See our TSP RMD guide.