Military Tax Guide for Virginia: Service Members, Veterans and Families

Military families in the Fredericksburg area live with a tax situation few civilians face: pay that is partly tax-free, a "home" state that may be hundreds of miles away, a spouse who can pick a different state, and a PCS every few years. This military tax guide for Virginia explains the federal rules every service member should know and the Virginia-specific rules for anyone stationed at Marine Corps Base Quantico, Naval Support Facility Dahlgren or Fort A.P. Hill, plus the veterans and retirees who stay here after they take off the uniform.

Taxable vs. nontaxable military pay

Your Leave and Earnings Statement mixes taxable pay with tax-free allowances, and only the taxable part shows up in box 1 of your W-2. IRS Publication 3 lists every item, but the big ones are below.

Excluded allowances still help you. You can deduct mortgage interest and real estate taxes on a home you pay for with BAH if you itemize. You can also elect to count nontaxable combat pay as earned income for the Earned Income Tax Credit when that raises the credit.

Combat zone pay, deadlines and the TSP

• Exclusion: enlisted members and warrant officers exclude all pay for any month they serve even one day in a combat zone or qualified hazardous duty area. Commissioned officers exclude up to the highest enlisted pay plus imminent danger pay. For 2025 that cap was $10,983 a month, and it goes up with each year's pay table. The exclusion shows up automatically on your W-2 (box 12, code Q).
• Federal deadlines: filing and paying are postponed until 180 days after you leave the combat zone, plus the number of days that were left in the filing period when you entered. Spouses generally get the same extension.
• Virginia deadlines: the federal extension plus 15 days, or one year from the original due date, whichever is later. Write "Combat Zone" across the top of the return and envelope.
• TSP: tax-exempt combat pay can go into the traditional TSP and come out tax-free later (the earnings are still taxable). Combat zone service also allows contributions up to the overall annual additions limit, which is $72,000 for 2026.

State of legal residence: the decision that drives everything

Three different "home" terms show up in military paperwork, and only one controls your state taxes:

Under the Servicemembers Civil Relief Act (SCRA), you don't gain or lose a domicile just because orders move you. If you entered service as a Virginian, Virginia keeps taxing you as a resident wherever you serve until you take real steps to establish a new domicile (living there, registering to vote, titling a car, intending to return). Updating DD Form 2058 alone isn't enough.

Military spouses: MSRRA and the 2018 and 2022 updates

The Military Spouses Residency Relief Act (2009) let spouses keep their domicile when they follow the service member on orders. The Veterans Benefits and Transition Act of 2018 let spouses elect the service member's state even if they never lived there. A 2022 law added the permanent duty station as a third choice. Virginia's own guidance confirms all three options and adds that spouses "are not required to choose the same residence."

The choice matters in dollars. A spouse earning $50,000 at a Stafford employer who elects Florida (the service member's domicile) can save roughly $2,000 a year in Virginia tax. Self-employment income may or may not be protected depending on the business, and rental income from Virginia property is always taxable here.

Virginia tax rules for active-duty members

If you are a Virginia resident

• Military basic pay subtraction: up to $15,000 of basic pay, reduced $1 for every $1 above $15,000 and gone at $30,000. You need 90 days or more of active duty, inside or outside Virginia. Claiming it disqualifies you from Virginia's low-income credits.
• Combat and hazardous duty pay: any of it that is still in federal AGI (for example, an officer's pay above the federal cap) can be subtracted on the Virginia return.
• Virginia National Guard: pay for up to 39 days of service or $5,500, whichever is less, for ranks O-6 and below.
• Overseas on May 1: if you're stationed outside the U.S. or Puerto Rico on the due date, you have until July 1 to file and pay ("Overseas Rule"). If you're deployed outside the U.S. in a noncombat assignment, you get until 90 days after the deployment ends ("Overseas Noncombat").

If you are stationed here as a nonresident

Your active-duty pay isn't Virginia income. If Virginia tax was withheld from it by mistake, fix your state on your pay record and file Form 763-S for a refund. Anything that isn't military pay, like a weekend job, a rental house in Spotsylvania, or a side business, is Virginia-source income and goes on Form 763.

Virginia military retirement subtraction: the current rule

You'll find conflicting numbers online because the subtraction phased in over several years, and some sites still describe older, smaller versions that had an age requirement. Here is the rule straight from Virginia Tax's Military Benefits Subtraction FAQ: each recipient may subtract eligible military benefits included in federal income up to:

• What qualifies: military retirement pay for service in the U.S. Armed Forces, Survivor Benefit Plan payments to a surviving spouse, and other military benefits paid to a veteran's surviving spouse. A former spouse receiving a share of retired pay can claim it on their share.
• What doesn't: TSP distributions, and CSRS or FERS pensions, even if you bought back military time. VA disability compensation isn't taxable in the first place, so there's nothing to subtract.
• Stacking: you can take it along with the age deduction, and with the disability income subtraction as long as it isn't the same dollars.

PCS moves, the TSP and selling a home

• Moving expenses: active-duty members moving on a permanent change of station can still deduct unreimbursed moving and travel costs on Form 3903. Most civilians can't. Government-provided moves, dislocation allowance and TLE/TLA aren't income. Starting in 2026, some members of the intelligence community also qualify.
• TSP limits for 2026: $24,500 in employee contributions, plus $8,000 catch-up at 50 or older ($11,250 for ages 60–63). Roth TSP contributions are taxed now but come out tax-free later, which makes Roth especially attractive for junior members in low brackets.
• Selling a home after PCS: the home sale exclusion ($250,000 single / $500,000 joint) normally requires two years of use in the last five. Members on qualified official extended duty (a duty station at least 50 miles from the home, or living in government quarters) can suspend the five-year clock for up to 10 years. That often lets you rent out your Fredericksburg house for several years and still sell it tax-free. Depreciation taken while it was a rental is still taxable.

Property tax relief for disabled veterans

Virginia's constitution and Code § 58.1-3219.5 exempt the principal residence of a veteran rated by the VA as having a 100% service-connected, permanent and total disability from real estate tax. The exemption covers the home and up to one acre, and localities may exempt more land. A surviving spouse keeps the exemption if the veteran died on or after January 1, 2011 and the spouse doesn't remarry, even after moving to a new home.

Under § 58.1-3668, the same veteran is also exempt from personal property tax on one passenger car, pickup or panel truck registered for personal use. This one ends at the veteran's death.

• Get your VA rating decision letter showing 100% service-connected, permanent and total.
• Apply with your city or county Commissioner of the Revenue (Fredericksburg, Spotsylvania, Stafford, King George or Caroline). You generally apply once.
• Ask whether taxes you paid after the rating date can be refunded.

MilTax, base tax centers, or a professional?

For many service members, free is the right answer. MilTax through Military OneSource offers free software that handles military pay, plus up to five state returns. It's available to active-duty members, eligible family members, survivors, and veterans within 365 days of separation or retirement, and phone consultants can answer MSRRA and combat-pay questions. Installation legal offices often run free VITA tax centers in filing season, too.

A paid preparer earns their fee when the return gets complicated, and in our experience these are the situations that trip up software:

• A rental property left behind after a PCS (depreciation, passive losses, the home-sale clock)
• A spouse with income in more than one state, or a mid-year change in elected residence
• A retiree with military retired pay, a second-career salary and the Virginia subtraction
• A side business or 1099 income, which usually means quarterly estimated taxes
• A late return, an IRS or Virginia notice, or several years to catch up on

Our Fredericksburg office regularly works with families from Quantico, Dahlgren and Fort A.P. Hill. Bring your W-2s, LES, DD Form 2058, PCS orders and receipts (our tax document checklist has the full list) and we'll handle the federal and Virginia returns together through our tax preparation service. If you're planning a retirement or a move, tax planning before the move often saves more than any deduction afterward. For the civilian side of Virginia's rules, see our Virginia state income tax guide.

Written by the Timeless Tax & Accounting teamTimeless Tax & Accounting was founded in 2020 by Nagham Alobaidi and serves clients across Virginia and in other states, in English and Arabic. Reviewed for accuracy against IRS and Virginia Tax guidance as of October 2, 2026.

This page is general information, not tax, legal or financial advice for your specific situation. Tax rules change often — talk with a professional before acting.