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Virginia Retirement Tax Friendliness

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Overview of Virginia Retirement Tax Friendliness

Social Security retirement benefits are not taxed in Virginia. Other types of retirement income, such as pension income and retirement account withdrawals, are deductible up to $12,000 for seniors. Property and sales tax rates are low.

This calculator reflects the changes under the 2018 Trump Tax Plan.
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You will pay of Virginia state taxes on your pre-tax income of
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Quick Guide to Retirement Income Taxes
is toward retirees.
Social Security income is taxed.
Withdrawals from retirement accounts are taxed.
Wages are taxed at normal rates, and your marginal state tax rate is %.
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    Jim Barnash is a Certified Financial Planner with more than four decades of experience. SmartAsset’s retirement expert is passionate about helping both individuals and business owners prepare for retirement. Jim has run his own advisory firm, worked for large financial services companies and even acted as a consultant to help other advisors grow their businesses. He is an author and public speaker on a variety of financial topics. Jim previously served for six years as President and Chairman for the Financial Planning Association. He also instructs others about the topic – Jim has created and taught courses on financial planning at DePaul University and William Rainey Harper Community College.

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Virginia Retirement Taxes

Photo credit: ©iStock.com/omersukrugoksu

The Commonwealth of Virginia is known for its rich history (eight presidents have hailed from Virginia) and diverse landscape. It stretches from the Blue Ridge Mountains across the Chesapeake Bay to the Atlantic coast. Retirees in Virginia can enjoy sandy beaches, one of the state’s 400 golf courses and a hike in the mountains – all in one weekend.

Virginia also has relatively low retirement taxes. Social Security retirement benefits are not taxed in Virginia. Other types of retirement income, such as pension income and retirement account withdrawals, are deductible up to $12,000 for seniors.

As described below, Virginia’s sales taxes and property taxes are also very low. Read on to learn more key facts about Virginia’s retirement taxes.

Is Virginia tax-friendly for retirees?

Yes. Virginia has a number of exemptions and deductions that make the state tax-friendly for retirees. It exempts all Social Security income from the state income tax. It also provides seniors with a deduction of $12,000 per year against all other forms of retirement income. Seniors who rely solely on Social Security and other retirement income totaling less than $12,000 do not have to pay state taxes on retirement income in Virginia.

Senior homeowners will fare well in Virginia, as the state has very low property tax rates. Likewise, the average state and county sales tax rate is 5.63%, among the lowest in the U.S.

Is Social Security taxable in Virginia?

No. The state of Virginia exempts all Social Security income from taxation. Some Social Security retirement benefits may still be taxed at the federal level, however.

Are other forms of retirement income taxable in Virginia?

Yes. Income from retirement accounts like a 401(k) or an IRA) is taxable, as is any pension income. Much of that income is also deductible, however. Virginia offers an age deduction of up to $12,000 for persons age 65 and older. The age deduction is also available to taxpayers below the age of 65 but it phases out for filers with income over $50,000 (for single filers) or $75,000 (for joint filers).

That deduction can be applied to any retirement income, whether from a pension, a 401(k) or an IRA. If total retirement income is less than $12,000, it is essentially tax-free. Above that limit, however, income is taxed at the rates shown in the table below.

Income Tax Brackets

All Filers
Virginia Taxable IncomeRate
$0 - $3,0002.00%
$3,000 - $5,0003.00%
$5,000 - $17,0005.00%
$17,000+5.75%

How high are property taxes in Virginia?

Fairly low. The average effective property tax rate in Virginia is 0.79%. This is the 17th lowest in the country. Property values in Virginia vary significantly between different parts of the state. In the cities and counties that are part of the Washington, D.C. metro area, median home values are typically higher than $400,000 and most homeowners pay over $3,000 annually in property taxes. In western Virginia, home values (and property taxes) are much lower and most homeowners pay less than $1,000 annually.

What property tax relief is available to seniors in Virginia?

Most counties and independent cities in Virginia offer some form of property tax relief to seniors who own a home in their jurisdiction. Eligibility requirements vary by area, but in general seniors must be at least 65 years old and have household income of less than $72,000. In many counties, low-income earners are entirely exempted from property taxes.

Photo credit: ©iStock.com/photohoo

How high are sales taxes in Virginia?

Virginia has among the lowest sales taxes in the country. The general sales tax rate in the state is 5.3%. Additionally, some counties and independent cities collect a tax of 0.7%. That means the total sales tax paid in Virginia will be either 5.3% or 6%. Even at the highest rate of 6%, Virginia’s sales tax is among the 15 lowest in the U.S.

Groceries are not exempt from sales tax but they do face a lower rate of 2.5%. Sales tax exemptions that could help retirees in Virginia include prescription drugs and most over-the-counter medicine.

What other Virginia taxes should I be concerned about?

Capital gains in Virginia are taxed as regular income. If, for example, you have an investment property that you intend to sell during retirement, it’s important to remember than any gains made on that property will face tax rates of up to 5.75%.

Most Tax Friendly Places for Retirees

SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.

Highest
Lowest
Rank City Income Tax Paid Property Tax Rate Sales Tax Paid Fuel Tax Paid Social Security Taxed?

Methodology Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.

To calculate the expected income tax this person would pay in each location we applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at the federal, state, county and local levels.

We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For fuel taxes, we first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.

For each city we determined whether or not Social Security income was taxable.

Finally, we created an overall index weighted to best capture the taxes that most affect retirees. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2016 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration