Does Virginia Tax Social Security?

Virginia does not tax Social Security benefits, which means that retirees in the state can get their Social Security income without state tax deductions. However, other forms of retirement income, such as pensions or distributions from retirement accounts, may still be subject to Virginia state taxes.

If you’re worried about taxes in retirement, a financial advisor can help you create a plan to lower your liability. 

Social Security benefits represent a significant part of retirement incomes for many retirees. But not all states tax retirees in the same way. Virginia is one of the more tax-friendly states for retirees because Social Security benefits are not subject to state income tax. The federal government, by comparison, taxes Social Security benefits when combined income exceeds certain thresholds.

For individuals and married couples with income exceeding specific federal thresholds, up to 85% of Social Security benefits may be taxable at the federal level. So while Virginia’s decision not to tax Social Security benefits helps reduce retirees’ overall tax liabilities, you should consider how federal guidelines will impact your financial situation to create an appropriate retirement plan. 

Other forms of retirement income may be subject to Virginia taxes. Here are five general types of retirement income and how these are taxed in Virginia:

Pensions are generally taxable in Virginia. However, the state does offer a retirement income deduction for taxpayers aged 65 and older. For 2024, this deduction allows up to $12,000 per person to be subtracted from taxable income, depending on the total adjusted gross income (AGI). For retirees with lower AGIs, this deduction can significantly reduce the tax burden on pension income.

Distributions from traditional IRAs and 401(k) plans are fully taxable as ordinary income in Virginia. The state does not offer a specific deduction for these withdrawals, so they are subject to the standard income tax rates. The tax rate in Virginia ranges from 2% to 5.75%, but ultimately depends on the total taxable income. This means that managing the timing and amount of these withdrawals is important to minimize your tax liabilities.

Withdrawals from Roth IRAs are not taxable in Virginia, provided they meet the federal requirements for a qualified distribution. This includes being at least 59½ years old and having held the account for at least five years. Since Roth IRA contributions are made with after-tax dollars, both the contributions and earnings can be withdrawn tax-free, providing a tax-efficient income source for retirees.

Annuities can be a mix of principal and earnings, with only the earnings portion subject to taxation in Virginia. The taxable portion is treated as ordinary income and is subject to the state’s income tax rates. Understanding how much of your annuity payments are taxable can help with tax planning and ensuring that sufficient funds are set aside for taxes.

Aside from income taxes, retirees in Virginia should be aware of other types of taxes that can also affect their financial situation. Here are four that you should prepare your nest egg for:

• Property taxes: Virginia has relatively moderate property tax rates compared to other states. However, the actual amount of property tax owed depends on the property’s assessed value and the specific rate in the locality. Some counties and cities offer tax relief programs for seniors and disabled individuals, which can reduce or even eliminate property taxes for qualifying residents. Retirees should check with their local tax assessor’s office to see if they qualify for any property tax relief programs.
• Sales taxes: The state sales tax rate in Virginia is 4.3% with an additional local sales tax rate that can bring the total to 5.3% to 7%, depending on the locality. Sales tax applies to most goods and services, which can impact retirees’ spending, especially those with fixed incomes. Budgeting for sales tax is an essential part of managing living expenses in retirement.
• Estate and inheritance taxes: Virginia does not impose an estate tax or inheritance tax, making it more favorable for retirees concerned about transferring wealth to heirs. This policy can be helpful for retirees with a significant amount of assets, as it allows them to pass on their estate without additional state tax burdens. However, federal estate tax laws still apply, so retirees with substantial estates should engage in estate planning to manage potential federal tax liabilities.
• Vehicle taxes: Virginia imposes a personal property tax on vehicles, which is assessed annually based on the vehicle’s value. Retirees should be aware of this tax, as it can add to the overall cost of owning a vehicle. Some localities may offer tax relief or exemptions for seniors, so it’s worth exploring options to minimize this expense.

While Virginia does not tax Social Security benefits, other forms of retirement income, such as pensions and IRA withdrawals, may be subject to state taxes. Retirees should also consider property taxes, sales taxes and other local levies that may impact their financial situation. By planning ahead and taking advantage of available deductions and credits, retirees can optimize their financial well-being and enjoy a comfortable retirement in Virginia. 

• A financial advisor can help you create a personalized plan for your retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• If you want to get a sense of whether you’re on track to meet your goals, SmartAsset’s retirement calculator can help you get an estimate for how much you could have and need.

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