My spouse served on extended active duty for over 90 days AND earned separate National Guard pay in the same year -- can we claim both military subtractions on our Virginia return?

Plain-English summary

A married couple, both Virginia residents, claimed two separate military-pay subtractions on their 2018 return: one for the husband's Virginia National Guard compensation, and one for his basic military pay earned while on extended active duty. The Department's audit allowed the National Guard subtraction but disallowed the basic-pay subtraction and assessed additional tax. The couple appealed, and the Department agreed they were entitled to both.

Virginia offers three distinct military-pay subtractions, and a servicemember can potentially qualify for more than one in the same year -- as long as the same dollar of pay isn't counted toward more than one subtraction. The three are: pay and allowances earned in a combat zone or hazardous duty area; basic military pay for extended active duty exceeding 90 consecutive days (up to $15,000, phasing out as basic pay during that period rises toward $30,000); and Virginia National Guard pay (capped at the lesser of 39 days' worth of pay or $3,000, and only available to personnel ranked captain/O3 or below). All three subtractions only apply to compensation actually included in federal adjusted gross income -- pay already excluded federally can't also generate a state subtraction.

Here, the husband's military orders and leave-and-earnings statements confirmed he served more than 90 consecutive days of extended active duty, and his basic pay during that specific stretch stayed under the $15,000 cap -- so the full basic-pay subtraction applied, with no phase-out reduction. Separately, he earned enough additional National Guard pay during the part of the year he WASN'T on that extended active-duty stretch to independently qualify for the Guard-pay subtraction too. Because the two subtractions were tied to two different, non-overlapping periods of service and pay, there was no double-counting problem, and both were legitimately claimed. The Department abated the assessment.

What this means for you

Military families claiming more than one Virginia subtraction in the same tax year

You can generally claim multiple military-pay subtractions in the same year if they genuinely apply to different pay -- don't assume claiming one subtraction rules out another. Keep clear records (military orders, leave-and-earnings statements) showing which specific days or pay periods each subtraction is based on, so an auditor can see there's no overlap.

Servicemembers claiming the extended-active-duty basic pay subtraction

Make sure your period of active duty exceeded 90 CONSECUTIVE days, and track your basic pay specifically earned during that stretch -- the $15,000-to-$30,000 phase-out is calculated only on basic pay earned while on the qualifying extended active duty, not your total pay for the year.

Virginia National Guard members combining Guard pay with active-duty basic pay in one year

The National Guard subtraction (capped at $3,000 or 39 days' pay, and limited to captain/O3 and below) can be claimed alongside the extended-active-duty basic pay subtraction, provided they're based on different pay for different periods of service.

Common questions

Q: Can I claim more than one of Virginia's military pay subtractions in the same year?
A: Yes, as long as they apply to different compensation and you don't count the same pay toward more than one subtraction. Here, a servicemember validly claimed both the extended-active-duty basic pay subtraction and the National Guard pay subtraction because they covered separate, non-overlapping periods of service.

Q: Does it matter whether I was stationed inside or outside Virginia?
A: For the extended-active-duty basic pay subtraction, no -- it's available whether the servicemember is stationed inside or outside Virginia, as long as the extended active duty and pay thresholds are met.

Q: What rank limit applies to the National Guard pay subtraction?
A: Only Virginia National Guard personnel at the rank of captain (O3) or below can claim that particular subtraction, capped at the lesser of 39 days' worth of pay or $3,000.

Citations and references

• Va. Code § 58.1-322.02(13) (subtraction for combat zone/qualified hazardous duty pay and allowances)
• Va. Code § 58.1-322.02(15) (subtraction for basic military pay on extended active duty over 90 days, phased out between $15,000 and $30,000)
• Va. Code § 58.1-322.02(8) (subtraction for Virginia National Guard pay, capped at 39 days' pay or $3,000, rank of captain/O3 or below)
• P.D. 11-133 (7/25/2011) (military subtractions only apply to compensation included in FAGI)
• P.D. 20-98 (6/2/2020) (only pay earned during the qualifying 90+ consecutive-day extended active duty period counts toward the basic pay subtraction and its phase-out)

Subject

Subtraction : Military - Basic Pay

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-134

Original ruling text

August 31, 2022

Re: § 58.1 1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the individual income tax assessment issued to * and *** (the “Taxpayers”) for the taxable year ended December 31, 2018.

FACTS

The Taxpayers, a husband and wife, were residents of Virginia during the taxable year at issue. The Taxpayers claimed subtractions for the husband’s National Guard and military basic pay on their 2018 Virginia individual income tax return. Under audit, the Department allowed the subtraction for National Guard compensation, but disallowed the subtraction for basic military pay and issued an assessment. The Taxpayers appeal, contending that they may claim the subtraction for basic military pay.

DETERMINATION

Title 58.1 of the Code of Virginia currently provides three subtractions for military compensation. Military servicemembers may be eligible for a subtraction for (1) military pay and allowances earned while serving in a combat zone or qualified hazardous duty area ( Virginia Code § 58.1-322.02 13); (2) military basic pay for personnel on extended active duty for periods in excess of 90 days ( Virginia Code § 58.1-322.02 15); and (3) wages or salaries received for active and inactive service in the National Guard of the Commonwealth ( Virginia Code § 58.1-322.02 8). Servicemembers may be eligible for more than one subtraction, but the same income may not be included in more than one subtraction.

Further, all of the subtractions under Virginia Code § 58.1-322.02 are prefaced by the words “to the extent included in federal adjusted gross income.” As such, no military compensation excluded from FAGI can be used to claim a military subtraction in computing Virginia taxable income. See also Public Document (P.D.) 11-133 (7/25/2011).

Virginia Code § 58.1 322.02 15 provides military service personnel with a subtraction for up to $15,000 of basic military pay received during a taxable year, provided they are on extended active duty for a period in excess of 90 days. The subtraction is reduced when the amount of military basic pay received by the taxpayer exceeds $15,000 and is fully phased out when basic military pay reaches $30,000. The subtraction is available whether the individual is stationed inside or outside of Virginia. In P.D. 20-98 (6/2/2020), the Department ruled that only military pay for the period of time a servicemember served more than 90 consecutive days may be claimed for the subtraction. In addition, for purposes of applying the phase-out, only the amount of basic pay earned while on extended active duty is considered.

Virginia Code § 58.1-322.02 8 allows a subtraction of wages or salaries received by any person for active and inactive service in the National Guard of the Commonwealth of Virginia. The amount of the subtraction is the lesser of the amount of National Guard income received, not to exceed the amount of income from 39 calendar days of service or $3,000. Further, the National Guard personnel may only claim the subtraction if their rank is captain (O3) or below.

The husband’s military orders and leave and earnings statements show that he was on active duty for more than 90 consecutive days and his basic pay did not exceed $15,000 during this time. Therefore, the Taxpayers were eligible for the full subtraction for basic military pay earned while on extended active duty that they claimed on their 2018 Virginia income tax return.

Further, it appears that the husband earned enough additional pay during that part of the 2018 taxable year in which he was not on extended active duty to qualify for the subtraction for National Guard pay under Virginia Code § 58.1-322.02 8. As such, this subtraction was correctly allowed by the Department.

Because the Taxpayers were eligible to claim the basic military pay subtraction, however, the assessment for the taxable year ended December 31, 2018 will be abated.

The Code of Virginia sections and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3981.B

Related Documents

11-133

20-98