Virginia does not tax most pension income, but the rules depend on when you started receiving it and what type of pension it is.

If you receive a pension from your employer — whether federal, state, local government, or private — Virginia excludes it from state income tax. This is one of the most pension-friendly states in the country. However, if you also receive other retirement income like Social Security, interest, or dividends, those are taxed normally. The pension exemption applies only to the pension itself.

The one exception is if you started receiving your pension before January 1, 1995. Pensions that began before that date are taxed as regular income in Virginia. This affects a small number of retirees, mostly those who retired very early or from long-standing government positions. If your pension started after 1994, you owe no Virginia state tax on it, regardless of the amount.

Key Takeaways

  • Pensions that began on or after January 1, 1995 are completely exempt from Virginia state income tax.
  • Pensions that began before January 1, 1995 are taxed as regular income at Virginia's standard rates.
  • The exemption covers pensions from federal, state, local, and private employers equally.
  • Other retirement income like Social Security, 401(k) withdrawals, and investment earnings are taxed under different rules.

How to report your pension on your Virginia tax return

When you file your Virginia state tax return, you report your pension income on Form 760, Virginia's individual income tax return. If your pension started in 1995 or later, you enter it on the line for pension income but then subtract it as an exclusion — meaning it reduces your taxable income to zero for that source.

Your pension provider sends you a Form 1099-R each January showing the total amount paid to you during the previous year. This is the same form used for federal taxes. You do not need to do anything special; you simply report the gross amount and then claim the exemption if you are may have access to to it. Keep a copy of your 1099-R with your tax records in case Virginia's Department of Taxation asks questions.

If you are unsure whether your pension started before or after January 1, 1995, contact your pension administrator or the human resources department of your former employer. They can tell you the exact date your pension began. This date is what matters for Virginia tax purposes, not the date you retired or the date you first received a check.

What happens if you have a pension that started before 1995

If your pension began before January 1, 1995, Virginia taxes it as ordinary income. You report the full amount on your Form 760 and pay tax at Virginia's standard rates, which range from 2% to 5.75% depending on your total income. There is no exemption or deduction available for pre-1995 pensions.

This rule applies even if you worked for the federal government, a state agency, or a local government. The date the pension started is the only factor that matters. If you have questions about whether your specific pension qualifies, the Virginia Department of Taxation can review your 1099-R and pension documents to make a information. You can reach them through the department's website or by calling their individual income tax line.

Other retirement income and how Virginia taxes it

Social Security benefits are not taxed by Virginia, even though they may be taxed federally depending on your total income. If you withdraw money from a 401(k), IRA, or other retirement account, those withdrawals are taxed as ordinary income by Virginia. Distributions from a Roth IRA are not taxed. Interest and dividends from investments are taxed at your ordinary income rate.

Military retirement pay is treated the same as civilian pensions: if it began in 1995 or later, it is exempt from Virginia tax. If you receive multiple types of retirement income, each is taxed under its own rules. Your total tax bill depends on all sources combined, so having a pension exemption can significantly reduce what you owe if you also have other income.

Federal tax treatment is different from Virginia tax treatment

Virginia's pension exemption does not affect your federal taxes. You still owe federal income tax on your pension income, even though Virginia does not tax it. When you file your federal return (Form 1040), you report the full pension amount. When you file your Virginia return (Form 760), you report it but exclude it from taxable income.

This means you may have a situation where you owe federal tax but no Virginia tax on the same income. This is common and normal. Your federal withholding and Virginia withholding are separate, and your pension provider can adjust how much is withheld for each. If you want to change your withholding, contact your pension administrator and ask for a new W-4P form.

Frequently Asked Questions

Do I have to file a Virginia tax return if my only income is a pension that started after 1995?

No. If your only income is a pension that began in 1995 or later, you have no Virginia tax liability and do not have to file a state return. However, you still must file a federal return if your income exceeds the federal threshold for your age and filing status.

What if I moved to Virginia after I started receiving my pension?

The exemption depends on when your pension started, not when you moved to Virginia. If it started in 1995 or later, Virginia does not tax it, regardless of when you became a resident. If it started before 1995, Virginia taxes it even if you just moved there.

Does the pension exemption apply to my spouse's income?

Yes. Each person's pension is treated separately. If you and your spouse both receive pensions that started in 1995 or later, both are exempt from Virginia tax. If one started before 1995 and one after, only the later one is exempt.

Can I claim the pension exemption if I still work and have other income?

Yes. The pension exemption applies regardless of whether you have other income. If you work part-time or have investment income, your pension is still exempt if it started in 1995 or later. Your other income is taxed normally.

What if my pension provider withholds Virginia tax by mistake?

Contact your pension administrator and provide them with documentation of your pension start date. Ask them to stop withholding Virginia tax and to issue a corrected 1099-R for the year. You can also claim a refund on your tax return if you file one, though you may not need to file if the pension is your only income.