Virginia Subtractions From Income
Before you can calculate your tax amount, you must first determine your Virginia taxable income (VTI), upon which your tax is based. Federal adjusted gross income (FAGI) is the starting point for computing (VTI) on individual tax returns. Your FAGI is calculated on your federal individual tax return, which must be completed prior to filing your Virginia return.
Virginia law exempts from income tax certain types of income that may have been reported in FAGI. Those items, listed below, should be subtracted when computing VTI.
- Age Deduction for Taxpayers Age 65 and Over
- Social Security Act and Equivalent Tier 1 Railroad Retirement Act Benefits
- State Income Tax Refund or Overpayment Credit
- Obligations of the U.S.
- Disability Income
- Income from Virginia Obligations
- Federal Work Opportunity Tax Credit Wages
- Tier 2 and other Railroad Retirement and Railroad Unemployment Benefits
- Virginia Lottery Prizes
- Virginia National Guard Income
- Military Pay and Allowances for Service in a Combat Zone or a Qualified Hazardous Duty Area
- Retirement Plan Income Previously Taxed by Another State
- Virginia College Savings Plan Income Distribution or Refund
- Unemployment Compensation Benefits
- First $15,000 of Basic Military Pay
- Federal and State Employees
- Income Received by Holocaust Victims
- Payments Made Under the Tobacco Settlement
- Pension income of Medal of Honor Recipients
- Fixed Date Conformity Subtractions
- Military Death Gratuity Payments
- Subtraction for Certain Death Benefits
- Gains from Land Preservation
- Long-Term Capital Gains
- Historic Rehabilitation
- First-Time Home Buyer Savings Accounts
- Discharge of Student Loan
Virginia law also provides for a number of deductions in computing Virginia taxable income. Be sure to review those provisions before completing your income tax return.
Enter the amount of wages or salaries for active and inactive service in the National Guard of the Commonwealth of Virginia for persons of rank O3 and below included in federal adjusted gross income. This amount may not exceed the amount of income received for 39 days or $3,000, whichever is less. Reminder: This subtraction does not apply to members of the active or reserve units of the Army, Navy, Air Force or Marines, or the National Guard of other states or the District of Columbia. If you claim this subtraction, you cannot claim a Credit for Low-Income Individuals or Virginia Earned Income Credit.
Military Pay and Allowances to Active Duty Service in a Combat Zone or a Qualified Hazardous Duty Area
A subtraction can be claimed for all military pay and allowances attributable to service in a combat zone or qualified hazardous duty area designated by order of the President of the United States with the consent of Congress. Virginia's conformity with federal law allows the exclusion of certain military pay associated with duty in combat zones and hazardous duty areas as provided under the Internal Revenue Code. The amount of the Virginia subtraction is the portion of an officer's pay that is not currently excluded from federal adjusted gross income under the Internal Revenue Code provisions. Report on Schedule ADJ, line 6, Code 30. Code of Virginia Section 58.1-322 [C] 
A Virginia subtraction is allowed for individuals who receive distributions from retirement plans. The subtraction can be taken only if the individual was taxed on contributions originally made to the retirement plan in another state that were deductible from federal adjusted gross income during the same period. The subtraction applies to qualifying distributions from a qualified pension, stock bonus or profit-sharing plan as described by IRC Section 401, an individual retirement account or annuity established under IRC Section 408, a deferred compensation plan as defined by IRC Section 457, or a federal government retirement program. Conditions for Qualification:
- Contributions must have been made to an IRS Qualified Plan;
- The contributions must have been deductible for federal income tax purposes; and
- The contributions must have been subject to income tax in another state.