Does Virginia Tax Federal Pensions? Age Deduction and Subtractions

Yes, Virginia does tax federal pensions. Distributions from the Civil Service Retirement System (CSRS), the Federal Employees Retirement System (FERS), and the Thrift Savings Plan (TSP) all flow into your Virginia taxable income and can be taxed at rates up to 5.75%. The Commonwealth offers real relief through a military retirement subtraction of up to $40,000 and an age deduction of up to $12,000 for retirees 65 and older, but you have to claim them. Skip the paperwork and you pay tax on the full amount.

How Virginia Taxes Your Federal Pension

Virginia starts its calculation from your federal adjusted gross income. Whatever pension income you reported to the IRS carries onto your Virginia return before any state-level adjustments.¹ If it was taxable federally, it’s taxable in Virginia unless a specific subtraction or deduction removes it.²

CSRS annuities, FERS pensions, and TSP withdrawals are treated the same way. A monthly annuity check and a lump-sum TSP distribution both count as ordinary retirement income for state purposes, and Virginia does not offer a blanket exemption for retirement income the way some neighboring states do.³

The rate schedule is graduated but compresses quickly:

Up to $3,000: 2%
$3,001 to $5,000: 3%
$5,001 to $17,000: 5%
Over $17,000: 5.75%

Because the top bracket starts at just $17,001, almost every federal retiree with a meaningful pension lands in the 5.75% tier.⁴ That’s why the subtractions below are worth the effort.

What Comes Off the Top: Social Security and Railroad Retirement

Social Security benefits are fully exempt from Virginia income tax. Any taxable Social Security you had to include in your federal AGI comes back out on your Virginia return.¹ Tier 1 Railroad Retirement benefits get the same treatment because federal law taxes them under the same rules as Social Security.⁵

Tier 2 Railroad Retirement is different. Those payments stay taxable in Virginia, just like a CSRS or FERS pension.¹

There’s a second reason the Social Security exemption matters. Virginia’s age deduction is means-tested against a figure called adjusted federal adjusted gross income (AFAGI), which is your federal AGI reduced by any taxable Social Security and Tier 1 Railroad Retirement benefits. Those exempt benefits don’t count against you when the state tests whether you qualify for the age deduction, and that can be the difference between a full deduction and none.

Military Retirement Subtraction

Retired from any branch of the U.S. armed forces and 55 or older? Virginia lets you subtract up to $40,000 of military retirement income from your state taxable income for the 2026 tax year.⁶ At the 5.75% top rate, that’s $2,300 off your tax bill.

The subtraction covers only the military retirement pay actually included in your federal AGI, and it extends to surviving spouses receiving Survivor Benefit Plan or other military survivor payments.⁶ It does not apply to CSRS or FERS pensions. A military retiree who also has a civil service pension can claim the military subtraction on the military portion and separately claim the age deduction on the civilian pension income if eligible.

Two related provisions round this out. Congressional Medal of Honor recipients receive a full exemption on military retirement income with no cap and no age requirement, but you cannot stack it with the general military subtraction on the same dollars.⁶ VA disability compensation and Dependency and Indemnity Compensation are already excluded from federal AGI, so they never appear on your Virginia return and need no subtraction.⁷

The Age Deduction for Retirees 65 and Older

Virginia’s age deduction is the primary relief available to civilian federal retirees. If you’re 65 or older by the end of the tax year, you can deduct up to $12,000 from your Virginia taxable income, though the rules turn on your birth date.⁸

Born on or before January 1, 1939? You get the full $12,000 with no income test.

Born after that date? The deduction is means-tested. The full $12,000 is available if your AFAGI is $50,000 or less for single filers, or $75,000 or less for married filers. Above those thresholds, the deduction shrinks by one dollar for every dollar of excess income.⁸ A single filer with AFAGI above $62,000, or a married couple above $87,000, gets nothing.

Two details catch people out. For married couples filing separately, the threshold is still the couple’s combined AFAGI of $75,000, not each spouse’s individual income. And each qualifying spouse gets their own $12,000 deduction, so a couple where both are 65 or older can deduct up to $24,000 if their combined AFAGI stays at or below $75,000.

Because AFAGI subtracts taxable Social Security and Tier 1 Railroad Retirement before the means test runs, retirees drawing both a federal pension and Social Security often qualify even when their raw federal AGI looks too high.¹

Disability Income Subtraction

Federal retirees who left service due to a permanent and total disability can subtract up to $20,000 of disability income. The disability must meet the definition in Internal Revenue Code § 22(c)(2)(B)(iii), and only the disability income included in your federal AGI counts.¹

Here’s the trade-off: you cannot claim both the disability income subtraction and the age deduction on the same return. If you qualify for both, run the numbers. For most retirees with disability income above $12,000, the $20,000 subtraction wins. If your disability income is modest but you have other taxable retirement income, the age deduction applied to the broader base may be worth more.

Military retirees have more room. They can claim the military retirement subtraction and the disability income subtraction on the same return, provided the same dollars aren’t used for both.⁷

Setting Up Withholding So You Don’t Owe in April

Most federal pension checks arrive with no Virginia tax withheld unless you ask for it. For a CSRS or FERS annuity paid by the Office of Personnel Management, you can set up or change Virginia withholding through OPM’s online portal at servicesonline.opm.gov or by calling 1-888-767-6738.⁹

If withholding falls short, you may need to make quarterly estimated payments on Form 760ES. For 2026, estimated payments are required when your expected Virginia liability after withholding and credits exceeds $1,000.¹⁰ Payments are due May 1, June 15, September 15, and January 15 of the following year.

You avoid the underpayment penalty by paying at least 90% of your current-year liability or 100% of last year’s, combining withholding and estimated payments. Retirees with steady income usually find the prior-year safe harbor simplest.

Filing the Return

Virginia individual returns are due May 1, not April 15.¹¹ Residents file on Form 760, and any of the subtractions or deductions above go on Schedule ADJ. That schedule is where you enter the military retirement subtraction, the Social Security subtraction, and the age deduction. The totals flow to the front page of Form 760 and reduce your taxable income before the rates apply.

If your total Virginia tax for the year exceeds $6,000, or any single estimated or extension payment exceeds $1,500, you must file electronically.¹² Keep your 1099-R forms and any worksheets you used for the means-tested age deduction. If you claimed the disability subtraction instead, hold on to the disability determination too.

1
Virginia Department of Taxation. Subtractions
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Virginia Department of Taxation. Virginia Taxes and Your Retirement
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Virginia Tax. Rulings of the Tax Commissioner 16-180
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Virginia Tax. How Virginia Tax Is Calculated
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Virginia Code Commission. Virginia Code 58.1-322.02 – Virginia Taxable Income; Subtractions
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Virginia Code Commission. Code of Virginia 58.1-322.02 – Virginia Taxable Income; Subtractions
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Virginia Department of Taxation. Military Benefits Subtraction FAQ
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Virginia Code Commission. Code of Virginia 58.1-322.03 – Deductions From Virginia Taxable Income
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U.S. Office of Personnel Management. How Do I Change My Voluntary Withholdings?
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Virginia Tax. Draft 2026 Form 760ES – Estimated Income Tax Payment Vouchers
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Virginia Tax. When to File
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Virginia Tax. Electronic Filing Requirements