Yes, but you will need to subtract this income when you prepare your Virginia State return in your Turbo tax program.
Follow Dave’s very helpful specific instructions, my comments are:
Turbotax does NOT DO THIS AUTOMATICALLY. I completed my federal taxes and then it showed Virginia as my home state and on the bottom it said finished with states. If you click this thinking that Turbotax has already completed your Virginia tax forms without your intervention you will MISS THE ENTIRE VIRGINIA MILITARY RETIREMENT DEDUCTION! I thought it was asking if there were any OTHER states that I needed. You have to ENTER the Virginia tax section at that point and complete the section on military retired pay exemptions. If you do what I almost did you will lose a SIGNIFICANT Virginia tax deduction. In my case it was over $1700!
Please be very careful with this section! Turbotax has rightly claimed they have included the new military retirement exemption BUT it does NOT do it automatically! When I finished my federal taxes, the next page for the state tax gives the wrong impression that they have already included the Virginia military retirement income deduction but it does NOT!
When I read that they had “fixed” the problem I was pleased. Unfortunately, it STILL needs work because the first page you come to after your federal taxes is completed, left me with the impression it was done. I went through the turbotax final check and it did not show up as an error or that they needed more information. Fortunately, I was sensitive to the possibility of an error and went back and waded through each of the questions for my Virginia tax. You have to consciously remember to go through your state section or you will miss the deductions!