Virginia Subtractions From Income
The starting point for computing Virginia taxable income is federal adjusted gross income. Virginia law specifically exempts from income tax certain types of income that may have been reported in federal adjusted gross income. Those items should be subtracted in computing Virginia taxable income. The allowable subtractions are listed below.
- 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
- Operation Joint Endeavor Combat Pay
- 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
- Gain on the Sale of Land for Open Space Use
- 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
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.
Federal and state employees whose total salary from all employment during the taxable year is $15,000 or less may subtract up to $15,000 of the salary received from a federal or state government job. Virginia employees working in universities, colleges and community colleges who are eligible for the subtraction include, but are not limited to: Virginia employees of state-supported institutions of higher education in the Commonwealth, and employees of publicly supported comprehensive community colleges. Federal employees who are not eligible for the subtraction include but are not limited to the following: Members of the active or reserve components of Army, Navy, Air Force, or Marines, National Guard of Virginia, any other state, or District of Columbia. Additionally, local government employees and United States Postal Service employees are not eligible for the subtraction. If the total salaries reported exceed $15,000, you may not claim the subtraction. For example, an individual who earned $10,000 in a federal or state government job and $15,000 in a private sector job during the taxable year 2005 would NOT be eligible for the subtraction. Unearned income, such as pensions and annuities, is not considered in determining eligibility for the subtraction. For example, an individual who received federal or state government wages of $14,000 and pension income of $35,000 during the taxable year WOULD be eligible to claim the subtraction. Report on Schedule ADJ, Line 6, Code 39. Code of Virginia Section 58.1-322 [C] 
Individuals may claim a subtraction for income resulting from the return or replacement of assets stolen during the Holocaust and throughout the time period leading up to, during, and directly after World War II, if that income was included in federal adjusted gross income. The subtraction is the amount of income from the return or replacement of assets that has not been deducted or excluded from income on your federal return. Report on Schedule ADJ, Line 6, Code 40. Code of Virginia Section 58.1-322 [C] 
Individuals and corporations may subtract income received as the result of payments from the Tobacco Master Settlement Agreement, the National Tobacco Grower Settlement Trust, or the Tobacco Loss Assistance Program. Report on Schedule ADJ, Line 6, Code 41. Code of Virginia Section 58.1-322 [C] 
Individuals and corporations may subtract the gain on the sale of land to an organization that dedicates the land for open-space use. The amount of the subtraction is the gain included in federal adjusted gross income, not the gross sale amount. Report on Schedule ADJ, Line 6, Code 42. Code of Virginia Section 58.1-322 [C] 
Military retirement income received by individuals awarded the Medal of Honor can be subtracted from federal gross income. The amount of the subtraction is the amount of military retirement benefits reported in federal adjusted gross income. The subtraction does not apply to benefits received by a surviving spouse. Report on Schedule ADJ, Line 6, Code 44. Code of Virginia Section 58.1-322 [C] 
Retroactive to taxable year 2001, survivors of military personnel killed in the line of duty may claim a subtraction for military death gratuity payments made after September 11, 2001, to the extent that the payments were included in federal adjusted gross income. Report on Schedule ADJ, Line 7, Code 46. Code of Virginia Section 58.1-322(C)(31).
Effective for taxable years beginning on or after January 1, 2007, individuals may subtract death benefit payments received from an annuity contract to the extent that such payments are subject to federal income tax. Report on Schedule ADJ, Line 6, Code 49. .Code of Virginia Section 58.1-322(C)(32).
Gains from Land Preservation - To the extent an individual's federal gain includes gain or loss recognized on the sale or transfer of a Land Preservation Tax Credit, the individual is required to subtract the gain or add back the loss on their Virginia return. Report on Schedule ADJ, Line 6, Code 51.
Income taxed as a long-term capital gain, or any income taxed as investment services partnership income for federal tax purposes is allowed as a subtraction provided the income is attributable to an investment in a "qualified business" as defined in Va. Code § 58.1-339.4 or in any other technology business approved by the Secretary of Technology. Qualified businesses include those related to advanced computing, advanced materials, advanced manufacturing, agricultural technologies, biotechnology, electronic device technology, energy, environmental technology, medical device technology, nanotechnology, or any similar technology related field. The business must have its principal facility in Virginia and less than $3 million in annual revenues for the fiscal year preceding the investment. The investment must be made between the dates of April 1, 2010, and June 30, 2015. Taxpayers claiming the Qualified Equity and Subordinated Debt Credit cannot claim this subtraction relating to investments in the same business. In addition, no investment is "qualified" for this deduction if the business performs research in Virginia on human embryonic stem cells. Report on Schedule ADJ, Line 6, Code 52. Code of Virginia Section 58.1-322(C)(35).