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.
If you or your spouse were born on or before January 1, 1952, you may qualify to claim an age deduction of up to $12,000 each. The age deduction you may claim will depend upon your birth date, filing status and income. If you were born:
- On or before January 1, 1939: You may claim an age deduction of $12,000. If you are married, each spouse born on or before January 1, 1939 may claim a $12,000 age deduction. For individuals born after January 1, 1939, the age deduction is based on the criteria below.
- On or between January 2, 1939, and January 1, 1952: Your age deduction is based on your income. A taxpayer's income, for purposes of determining an income-based age deduction, is the taxpayer's adjusted federal adjusted gross income or AFAGI. A taxpayer's AFAGI is the taxpayer's federal adjusted gross income, modified for any fixed-date conformity adjustments, and reduced by any taxable Social Security and Tier 1 Railroad Benefits.
This deduction shall be reduced by $1 for every $1 that the taxpayer's adjusted federal adjusted gross income exceeds $50,000 for single taxpayers or $75,000 for married taxpayers. For married taxpayers filing separately, the deduction will be reduced by $1 for every $1 the total combined adjusted federal adjusted gross income of both spouses exceeds $75,000. You may not claim the age deduction if you claim the Disability Income subtraction. Report on Form 760, line 4.
Virginia law exempts Social Security and Tier 1 Railroad Retirement benefits from taxation. If you were required to include any of your benefits in federal adjusted gross income, subtract that amount on your Virginia return. Do not include Tier 2 Railroad Retirement Benefits and Other Railroad Retirement and Railroad Unemployment Benefits. For subtracting other benefits, see Tier 2 and other Railroad Retirement and Railroad Unemployment Benefits. Report on Form 760, line 5. Code of Virginia Section 58.1-322[C]
Virginia law allows a subtraction for the amount of any state income tax refund or overpayment credit included in federal adjusted gross income. The subtraction is the amount of refund or credit you reported on your federal return. Report on Form 760, line 6. Code of Virginia Section 58.1-322[C]
Virginia law allows a subtraction for income (interest) derived from obligations or income (dividends and gains) derived from the sale or exchange of obligations of the United States, and on obligations or securities of any authority, commission or instrumentality of the United States to the extent the income is included in federal adjusted gross income. The amount to be subtracted is the income less any related expenses already deducted on the federal return. The subtraction applies only to income from direct obligations. For information on obligations that qualify for the subtraction, see PD 94-281. Report on Schedule ADJ, Line 4. Code of Virginia Section 58.1-322 [C] 
Up to $20,000 of disability income as defined by the Internal Revenue Code Section 22 (C ) (2) (B) (iii) can be subtracted when calculating Virginia taxable income. As defined under federal law, the subtraction applies to income received for permanent and total disability. The subtraction is equal to the amount of income received for total or permanent disability, not to exceed $20,000. You may not claim this subtraction if you claim the Age Deduction for Taxpayers Age 62 and Over. Report on Schedule ADJ, Line 5. Code of Virginia Section 58.1-322 [C] [4b]