It depends on the type of disability because there are different procedures for each type of disability.
VA Disability Compensation: If your 100% disability pay comes from the VA, it is alre...
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It depends on the type of disability because there are different procedures for each type of disability.
VA Disability Compensation: If your 100% disability pay comes from the VA, it is already tax-free at the federal level. Because it isn't included in your Federal Adjusted Gross Income (AGI), you do not enter it on your Virginia return.
Taxable Disability Pension: If you receive a taxable disability retirement pension (from an employer or the military), you can subtract up to $20,000.
If you are a veteran with a 100% disability rating, you might also be receiving military retirement pay. Virginia recently increased the subtraction for military retirement. For Tax Year 2025: You can subtract up to $40,000 of military retirement pay.
Here is how to enter the last two steps I just mentioned into your Virginia State return.
1. Military Retirement Subtraction (Up to $40,000)
Even if you entered your 1099-R in the Federal section, TurboTax won't automatically apply the Virginia military subtraction because it doesn't know if you meet the specific VA criteria.
Where to go: In the State tab, proceed through the Virginia interview.
The Screen: Look for a page titled "Here's the income that Virginia handles differently."
The Action: Find the Military section and click Start. You will see an option for Military Benefits Subtraction.
The Result: You must manually confirm the amount of your pension. For tax year 2025, TurboTax will apply Code 60 on your Schedule ADJ to subtract up to $40,000.
2. Disability Income Subtraction (Up to $20,000)
This applies only if you have taxable disability income (like a private disability pension) that was reported as "Wages" on your Federal return.
Where to go: Inside the Virginia state interview, look for "Subtractions from Income."
Select Disability Income reported as Wages.
Important: TurboTax will ask if you want to take this or the Age Deduction. It generally chooses the higher one for you.
Let us know if this is specific enough for you to complete your return.