What Is Virginia AGI and How Is It Calculated?

Your Virginia adjusted gross income, or VAGI, is the federal adjusted gross income from your IRS Form 1040 after it has been modified by a set of Virginia-specific additions and subtractions. Those modifications are reported on Virginia Schedule ADJ (Form 760-ADJ), and they exist because Virginia taxes certain income differently than the federal government does.¹ VAGI isn’t the number Virginia actually taxes; it’s the midpoint. From VAGI, you apply a standard or itemized deduction, personal exemptions, and (if you qualify) the age deduction to reach Virginia Taxable Income.

How Virginia Starts From Your Federal Return

Virginia doesn’t build its own income calculation from scratch. It takes your federal adjusted gross income (FAGI) and layers state rules on top. Most Virginia residents required to file a federal return must also file a Virginia return.²

Virginia conforms to the Internal Revenue Code as of a fixed date rather than tracking every federal change automatically. For the 2026 tax year, the General Assembly replaced Virginia’s rolling conformity with a fixed conformity date of December 31, 2025.³ Any federal tax law changes enacted after that date are not automatically reflected on your Virginia return. Where federal and Virginia rules diverge, Schedule ADJ is where you reconcile them.

The adjustments on that schedule fall into two groups. Additions capture income Virginia taxes that your federal return excluded. Subtractions remove income your federal return included but Virginia exempts. Run FAGI through both, and you have VAGI.

Additions to Your Federal AGI

Most Virginia filers encounter only one or two additions, but anyone with out-of-state investments or accelerated business depreciation should look closely.

Out-of-State Municipal Bond Interest

Interest from bonds issued by other states or their local governments must be added back to FAGI.⁴ Federal law exempts municipal bond interest, but Virginia only extends that exemption to its own obligations. If you hold a diversified municipal bond fund, the portion of interest from bonds issued outside Virginia gets added back. Virginia-issued bond interest stays exempt. Your Form 1099-INT and fund statements will tell you the split.

Depreciation and Expensing Differences

Virginia continues to deconform from federal bonus depreciation and certain expanded Section 179 expensing.⁵ If your federal return claimed accelerated depreciation or immediate expensing that Virginia doesn’t allow, you add back the difference between the federal deduction and what Virginia would have permitted. In later years, when Virginia still allows depreciation after the federal deduction is exhausted, you take a corresponding subtraction. In practice this means maintaining a separate Virginia depreciation schedule.

Fixed-Date Conformity Additions

Because Virginia’s conformity is now frozen at December 31, 2025, new federal deductions or exclusions created after that date won’t automatically apply in Virginia. If you claimed one on your federal return, you add back the difference.⁵ Tax Bulletin 26-1 identifies the specific federal provisions Virginia deconforms from, including immediate expensing of qualified production property and domestic research expenditures enacted under 2025 federal legislation.

Other Additions

Less common additions include interest or dividends from certain federal instrumentalities that federal law exempts from federal tax but not from state tax, and lump-sum retirement distributions where you used federal averaging to exclude the amount from FAGI.⁴ There’s also an addition for losses on a first-time homebuyer savings account that you deducted as a capital loss federally, and for charitable contributions where you claimed both a federal deduction and a Virginia tax credit for the same gift.

Subtractions From Your Federal AGI

For many filers, especially retirees and military households, the subtractions matter more than the additions.

Social Security and Railroad Retirement

Virginia fully exempts Social Security income and Tier 1 Railroad Retirement benefits.⁶ Whatever portion of your Social Security was taxable federally, you subtract that entire amount on your Virginia return. For retirees who depend on Social Security, this is often the single largest Virginia adjustment.

U.S. Government Obligation Interest

Interest from U.S. Treasury bonds, notes, bills, and obligations of certain federal agencies is subtracted from FAGI.⁶ States generally cannot tax interest on federal debt. The subtraction covers interest only, not capital gains from selling the obligations. Your Form 1099-INT shows the amount included in your federal income.

Military Retirement Income

Virginia allows a subtraction of up to $40,000 per person for military retirement income from service in the Armed Forces.⁷ The amount phased in over several years, starting at $10,000 for 2022 and reaching the full $40,000 for tax years beginning on or after January 1, 2025. The $40,000 cap applies to the 2026 tax year as well. Recipients of the Congressional Medal of Honor can subtract all military retirement income with no cap.

Disability Income

Taxpayers receiving disability income can subtract up to $20,000.⁶ One restriction: you cannot claim both this subtraction and the age deduction described below. If you qualify for both, compare them and take whichever is larger.

Virginia529 Contributions

Contributions to a Virginia529 college savings plan or Virginia ABLEAmerica account are deductible up to $4,000 per account per year, with unlimited carryforward of any excess.⁸ A $10,000 contribution to one account produces a $4,000 deduction this year and $6,000 carried forward. Taxpayers age 70 and older can deduct the entire contribution in a single year with no cap. The deduction applies only to Virginia-sponsored plans, not out-of-state 529s.

Other Subtractions Worth Checking

Up to $5,500 of Virginia National Guard wages for active or inactive service, for those ranked O6 and below.⁶
Refunds or credits for overpayment of income taxes imposed by Virginia or another state, since the refund was already included in FAGI.
Virginia Lottery prizes under $600 that were included in federal income.
Up to $5,000 received as a reward for information leading to the apprehension and conviction of criminals.

The statute lists more than 25 subtractions in total, including niche items like interest on Virginia-issued bonds and wages tied to the federal Work Opportunity Credit that couldn’t be deducted federally. If your income sources are unusual, work through the Schedule ADJ instructions line by line.

From VAGI to Virginia Taxable Income

After the additions and subtractions, you have VAGI. Three further reductions get you to the number Virginia actually taxes.

Standard or Itemized Deduction

For the 2025 and 2026 tax years, Virginia’s standard deduction is $8,750 for single filers and $17,500 for married couples filing jointly, with half those amounts for married filing separately.⁹ These figures are well below the federal standard deduction, which is why some taxpayers who take the federal standard still find Virginia itemizing worth examining.

If you itemize for Virginia, you start with your federal Schedule A itemized deductions and remove any state and local income taxes you deducted. Virginia doesn’t let you deduct state income tax when calculating Virginia tax. The federal SALT deduction allows up to $40,000 in combined state and local taxes for most filers,¹⁰ but the state income tax portion gets stripped out for Virginia purposes. Property and sales taxes within your federal SALT total remain. Compare the result to the Virginia standard deduction and use whichever is larger.

Personal and Dependent Exemptions

Virginia still allows personal exemptions even though the federal system suspended them. You get $930 for yourself, $930 for your spouse if filing jointly, and $930 for each dependent claimed on your federal return.¹¹ Taxpayers who are 65 or older by January 1, or who are legally blind, get an extra $800 exemption each.⁹ A married couple in their late sixties with two dependents would combine these to $5,320: $930 four times, plus $800 twice.

The Age Deduction

Taxpayers 65 or older, or who were born on or before January 1, 1939, can take an additional deduction of up to $12,000.⁹ The deduction phases out based on your “adjusted federal adjusted gross income,” which is FAGI minus any taxable Social Security and Tier 1 Railroad benefits.¹² That distinction matters. A retiree with $60,000 in FAGI and $20,000 in Social Security has adjusted FAGI of $40,000 for this calculation, well under the threshold.

For single filers, the $12,000 deduction shrinks by $1 for every $1 of adjusted FAGI above $50,000 and disappears at $62,000. For married filers, the phase-out starts at $75,000 and ends at $87,000.⁹ Married couples filing separately measure their combined adjusted FAGI against the $75,000 threshold. And remember, you can’t claim both the age deduction and the disability income subtraction, so check which produces the bigger benefit.

What Rate Your Virginia Taxable Income Pays

Once you reach Virginia Taxable Income, four brackets apply:¹³

2% on the first $3,000 of taxable income
3% on income from $3,001 to $5,000, plus $60
5% on income from $5,001 to $17,000, plus $120
5.75% on income above $17,000, plus $720

These brackets haven’t been adjusted for inflation in decades, so most Virginia taxpayers with any meaningful income land in the top bracket. Because the rate is effectively flat at higher incomes, every dollar you miss in subtractions or deductions is taxed at 5.75%, which is why getting VAGI right is worth the time it takes.

1
Virginia Department of Taxation. 2025 Virginia Schedule ADJ (Form 760-ADJ)
2
Virginia Code Commission. Virginia Code 58.1-341 – Returns of Individuals
3
Virginia Tax. Virginia’s Rolling Conformity to the Internal Revenue Code Replaced with Fixed Date of December 31, 2025
4
Virginia Code Commission. Virginia Code 58.1-322.01 – Virginia Taxable Income; Additions
5
Virginia Department of Taxation. Tax Bulletin 26-1 – Date of IRC Conformity
6
Virginia Code Commission. Virginia Code 58.1-322.02 – Virginia Taxable Income; Subtractions
7
Virginia Legislative Information System. Virginia Code 58.1-322.02 – Virginia Taxable Income; Subtractions
8
Invest529. Tax Benefits of a 529 Plan
9
Virginia Code Commission. Virginia Code 58.1-322.03 – Virginia Taxable Income; Deductions
10
Internal Revenue Service. Topic No. 503, Deductible Taxes
11
Virginia Tax. Exemptions
12
Virginia Tax. Subtractions
13
Virginia Department of Taxation. Tax Rate Schedule and Tax Table