Virginia residents are required to report all income on their Virginia individual income tax return that they report on their federal income tax return. This includes income from sources outside the state. Nonresidents who earn income in Virginia will generally owe taxes to Virginia on that income.

The credit for taxes paid to another state is intended to keep you from paying taxes to two states on the same income. If you earned income that is also taxed by another state, this credit may be available to you. To claim it, you will need the Schedule OSC  and a copy of your other state’s return(s)

Residency and the credit

The guidelines for claiming the credit differ based on your residency. During the tax year for which you are claiming the credit, were you a resident, a nonresident, or a part-year resident?

See our residency guidelines if you are not sure.
 

If you’re a Virginia resident, all of your income is subject to Virginia individual income tax, no matter where it was earned or what its source. If you received income from another state and were required to pay income taxes as a nonresident in that state, you may be eligible for a credit for the income taxes you paid to that state provided the income is also taxed by Virginia. This credit generally only applies to domiciliary (permanent) residents of Virginia. If you earn income in a state that doesn’t have an income tax, you are not eligible for this credit on that income.  

What income qualifies for the credit?

You can only claim the credit for income tax that you paid to another state on qualifying income which is:

  • earned income
  • business income
  • capital gains 

Qualifying income does not include capital gains from the sale of an asset used in a trade or business.  

Claiming the credit

To calculate the credit, see Schedule OSC and the resident individual income tax return, Form 760 instructions .  

Required documents

  • If you’re claiming a credit for more than one state, calculate each credit separately using the Schedule OSC. 
  • Attach a copy of each state’s return and schedules to your Virginia return along with your completed Schedule OSC. 
  • Required forms for each state that has an individual income tax.

Because your state withholding may differ from the taxes you actually owe the other state(s), you can’t use W-2s, 1099s, or Schedule K-1s to support a claim for this credit.  

Special circumstances 

Requirements for certain states

  • If you have income from Arizona, California, or Oregon sources, do not claim this income on your Virginia income tax return. Claim a credit on the nonresident income tax return for the appropriate state. 
    • If you own a pass-through entity with income from any of these states and you participate in the filing of a composite return, please consult Public  Documents 16-91 and 07-207. 
  • If you have income from Washington, DC, you are not eligible for this credit. If your employer withheld Washington, DC taxes, file the D-40B Nonresident Request for Refund to request a refund of your withholding. 
  • If you earned wages, salaries, or other income from Kentucky, Maryland, Pennsylvania, or West Virginia sources, you can only claim the credit on any qualifying income that is taxed by these states. Before claiming this credit, read the other states’ nonresident instructions to find out if your income is taxable or exempt. If your income is exempt, follow the other state’s instructions to get a refund of your withholding. 
  • Border states: If you’re required to file a return with Virginia and one of the border states (Kentucky, Maryland, North Carolina, or West Virginia), you may qualify for a special calculation of taxes owed if:
    • The taxable income from the other state is only wages, salaries, or business income from federal Schedule C that is taxed by the state, and
    • Your Virginia taxable income is at least equal to the qualifying taxable income on the other state’s return.

*When calculating income from a border state, don’t include income that is exempt from income tax in the border state, even if it is earned or business income from federal Schedule C. If you’re filing a joint return and each spouse filed a return separately in one of the border states, each spouse can use the border state computation to compute the credit.  

Married Taxpayers

If you’re a married taxpayer and don’t file a joint return in Virginia and the other state, you may need to adjust your taxable income to compute the credit correctly. 

  • If you filed separately in the other state, but jointly in Virginia, include only the Virginia taxable income earned by the filer whose income was taxed by the other state.
  • If you filed jointly in the other state, but separately in Virginia, include only the taxable income reported by the filer on the other state’s return.
  • If you and your spouse are included in the same composite return or are entitled to a credit for corporation income tax paid by an S Corporation in which you are both shareholders, you must each compute income and credits separately.

S-Corporations and Pass-Through Entities

  • Corporation income tax: If you are claiming a credit on corporation income tax paid to a state that doesn’t recognize the federal S Corporation election, attach a statement from the corporation that documents your share of the income, tax liability, and tax paid. 
  • Pass-through entity composite returns: If you are an owner or shareholder in a pass-through entity, and you are included in a nonresident composite return filed by the pass-through entity in another state, attach a composite filing statement from the pass-through entity showing your inclusion in the filings as well as your share of the income, tax liability, and taxes paid. Preferred formatting for a composite filing statement.

If you're a part -year resident, generally you only pay tax on the income earned while you were in Virginia. 

If you received income from Virginia sources while you were a nonresident, follow the guidelines for nonresidents.

If you earned income in another state while you were still a Virginia resident, you may be able to claim a credit for the taxes paid to the other state.

Claiming the credit

For more information, see Schedule OSC and the instructions for the Form 760PY, part-year resident income tax return.

Required documents 

  • If you’re claiming a credit for more than one state, calculate each credit separately using the Schedule OSC.
  • Attach a copy of each state’s return and schedules to your Virginia return along with your completed Schedule OSC.
  • Required forms  for each state that has an individual income tax. 

Because your state withholding may differ from the taxes you actually owe the other state, you can’t use W-2s, 1099s, or Schedule K-1s to support a claim for this credit. 

Need more information?

For details about what income qualifies for this credit and special filing circumstances, see the Residents page. 

Generally, if you’re a nonresident, you can’t claim a credit for taxes paid to another state on your Virginia return unless you are a resident of:

  • Arizona,
  • California
  • Oregon  

Washington, DC – In most cases, residents do not need to file Virginia income tax returns. See Reciprocity for more information.  

What income qualifies for the credit?

You will be eligible for this credit only if the income that you paid taxes on to one of these states is also taxed by Virginia.

You can only claim the credit for income tax that you paid to another state on qualifying income which is:

  • earned income
  • business income
  • capital gains

Qualifying income does not include capital gains from the sale of an asset used in a trade or business.

Claiming the credit

For more information, see the Schedule OSC and the instructions for Form 763, Nonresident Individual Income return.

Required documents

  • Attach a copy of the other state’s return and schedules to your Virginia return along with the completed Schedule OSC. 
  • Required forms for each state that has an individual income tax.  

Because your state withholding may differ from the taxes you actually owe the other state, you can’t use W-2s, 1099s, or Schedule K-1s to support a claim for this credit.  

Special circumstances 

This credit cannot be claimed on a Virginia composite return. For more information, see Pass-Through Entity Withholding Guidelines Public Document 15-240). Check the laws of your state of residency to see if you may be able to claim a credit on that state’s return. 

Married Taxpayers 

If you’re a married taxpayer and don’t file a joint return in Virginia and the other state, you may need to adjust your taxable income to compute the credit correctly.

  • If you filed separately in the other state, but jointly in Virginia, enter only the Virginia taxable income earned by the filer whose income was taxed by the other state.
  • If you filed jointly in the other state, but separately in Virginia, enter only the taxable income reported by the filer on the other state’s return.