Is VRS Retirement Taxable? Federal and Virginia Tax Rules

Yes, VRS Pension Income Is Taxable

Monthly VRS pension payments are subject to both federal income tax and Virginia state income tax. VRS withholds from each check based on the elections you make when you file your retirement application — or anytime afterward through myVRS.

The pension is not exempt from tax at either level, unlike some states that exclude public pension income entirely. Virginia offers a partial relief for older retirees, but the pension is otherwise treated as ordinary income.

Federal Tax Withholding

You set your federal withholding using the IRS Form W-4P equivalent through myVRS or by filing a paper form. You choose a filing status (single, married filing jointly, etc.) and can specify additional withholding or claim the standard deduction amount. VRS applies the IRS withholding tables to each monthly payment.

If you don't submit a withholding election, ask VRS what default will apply and review whether it fits your tax situation.

Virginia State Tax

Virginia state income tax can apply to pension income. The Commonwealth provides a tax subtraction for qualified individuals aged 62 and older, subject to income thresholds. Check current Virginia Department of Taxation guidance or consult a tax professional to determine your eligibility.

You set Virginia state withholding separately from federal through myVRS. The system lets you specify a fixed dollar amount or a percentage.

PLOP and DC Lump-Sum Taxes

If you elect a Partial Lump-Sum Option Payment (PLOP) or take a distribution from a Hybrid defined contribution account and receive the cash directly, VRS must withhold 20% for federal income tax and 4% for Virginia state tax before disbursement.

On a $60,000 PLOP paid directly: $12,000 federal + $2,400 Virginia = $14,400 withheld upfront. An early-withdrawal tax penalty may also apply in some cases; consult a tax professional about your circumstances.

A direct rollover to an eligible IRA, 401(k), 403(b), or 457 plan defers immediate taxation and avoids withholding on the rolled-over amount. Ask VRS whether a PLOP can be split between direct payment and rollover.

Form 1099-R

Every January, VRS mails Form 1099-R reporting the prior year's gross pension distributions, taxable amounts, and tax withheld. Use this form when filing your federal and state returns. If you took a PLOP or DC distribution, that appears as a separate distribution on the same or an additional 1099-R.

Adjusting Your Withholding

You can update your federal and Virginia withholding elections at any time through myVRS — you're not locked into what you chose at retirement. A common adjustment: retirees who initially over-withhold reduce their elections after filing their first return and seeing the actual tax liability.

The Virginia VRS Retirement Guide covers the tax withholding setup process, the Virginia age-62 subtraction, and the PLOP rollover procedures to help you structure the tax side of retirement.

See more Virginia guides →