Last week I discussed the Military Spouse Residency Relief Act and how Virginia applies it. Virginia has some additional tax laws specific to military personnel, and I thought this would be a good time to run through those.

1. If you are military, but not a resident of Virginia, you do not have to  pay income tax on your military pay or on interest earned from deposits in Virginia banks. However, if you have income attributable to Virginia sources  – like an extra part-time job or income from a rental property – this is taxable in Virginia.

Virginia is not unique in this regard. Most states will tax the non-military income of military members. One Navy Petty Officer I know had inherited an IRA during the year. She cashed out the entire amount, which was just about equal to what the Navy was paying her for the year. Her home state, Missouri, didn’t tax her military pay, but they wanted a piece of that IRA distribution. She wasn’t very happy when she found that out, which is why I always encourage people to contact a tax professional whenever something unusual is happening with their finances. It could save you a bundle.

2. Virginia provides a deduction for military basic pay for Virginia residents. Military  personnel who are Virginia residents can exempt up to $15,000 of their basic pay from Virginia income taxes. However, this benefit starts to phase out, dollar-for-dollar at $15,000 of basic pay. If your basic pay is $20,000 you  can deduct $10,000 from your Virginia taxes. {$15,000 – ($20,000 – $15,000)}  = $10,000. The benefit completely disappears at $30,000, so it is only useful to junior personnel. (If you’re a supervisor, make sure your junior personnel are aware of that provision. Most tax software has to be prompted to use that credit.)

3. The wages of O-3 and below serving in the Virginia National Guard are exempt from Virginia income taxes (up to $3,000).

4. If you are stationed outside the US when your Virginia return is due (1  May), then you are automatically granted an extension until 1 July.

5. Remember – if one spouse is a Virginia resident and the other is not,  then the resident of Virginia should file their Virginia return as “Married  Filing Separately” even if their Federal tax return was file “Married Filing Jointly”.  This is for Virginia residents, only. Not all states handle the situation of spouses being from different states the same way. If you are doing your own taxes you will need to research the states where you file.

If you would like some assistance with your taxes, please contact me or schedule an appointment!.