Virginia House Bill 137 Seeks to Honor Military Service with Expanded Tax Relief, Stalls in Appropriations

RICHMOND, Va. – Legislation aimed at providing greater tax relief to Virginia’s military veterans and their families advanced through the House Finance Committee with overwhelming support but met its end in the Appropriations Committee during the 2026 Regular Session of the Virginia General Assembly.

House Bill 137, introduced by Delegate Michael Feggans of the 97th District in Virginia Beach, proposes to incrementally eliminate the current $40,000 annual cap on the subtraction of military benefits from Virginia taxable income. Under the measure, the cap would rise to $60,000 for taxable year 2028, $80,000 for taxable year 2029, and allow full subtraction of military benefits starting in taxable year 2030 and beyond.

This builds on prior reforms enacted in 2022, which phased in the subtraction from $10,000 in taxable year 2022 to the current $40,000 limit for taxable year 2025 and thereafter. That earlier legislation removed age restrictions, making the benefit available to all qualifying recipients regardless of age starting in 2024. Additionally, the current cap is subject to annual adjustments based on the U.S. Average Consumer Price Index for All Items beginning in taxable year 2026.

Military benefits eligible for the subtraction include military retirement income for service in the Armed Forces of the United States, qualified military benefits under Section 134 of the Internal Revenue Code, payments under the Survivor Benefit Plan to surviving spouses of veterans, and other military benefits paid to surviving spouses of Armed Forces veterans. The subtraction applies as a modification to federal adjusted gross income when computing Virginia taxable income, available whether taxpayers take the standard deduction or itemize.

The bill’s journey began with prefiling on January 4, 2026, followed by printing and offering on January 14. A fiscal impact statement from the Department of Taxation, issued January 18, projected significant General Fund revenue losses: $11.8 million in fiscal year 2027-28, escalating to $36.4 million in 2028-29, $57.2 million in 2029-30, $68.4 million in 2030-31, and $74.9 million in 2031-32. These estimates reflect the growing number of Virginia taxpayers who would benefit from the expanded subtraction, underscoring the measure’s reach among the commonwealth’s substantial military community.

In the House Finance Committee, HB137 received strong backing. On January 25, Subcommittee 1 offered a substitute, which it recommended reporting with referral to Appropriations by a 10-0 vote on January 26. The full committee reported the bill from Finance with substitute (printed as 26106178D-H1) and referred it to Appropriations on January 28, first by a 18-0 vote, then reconsidered and reported again 22-0 before referral.

Despite this unanimous progress, the Appropriations Committee left the bill in committee on February 18, effectively ending its chances for passage in the 2026 session. The substitute from Finance Subcommittee 1, detailed in legislative documents, reaffirmed the structure of Virginia Code § 58.1-322.02, which governs various income tax subtractions, positioning the military benefits provision among exemptions for items like Social Security, disability income, National Guard wages, and military pay in combat zones.

Delegate Feggans, a 20-year Air Force veteran representing a district in Virginia Beach—a hub of military installations including Naval Air Station Oceana—championed the bill as chief patron. Virginia’s longstanding commitment to its active-duty personnel, retirees, and survivors is evident in complementary tax provisions, such as exemptions for military death gratuities, basic pay for extended active duty up to $15,000, and property tax relief for 100% disabled veterans.

Proponents argue that fully removing the cap honors the sacrifices of those who served, allowing Virginia to better compete in retaining military families and retirees amid national discussions on veteran benefits. The preliminary fiscal estimates highlight the policy’s scope, with revenue impacts calculated based on data modeling the subtraction’s expansion against Virginia’s conformity to federal adjusted gross income.

As the session progresses, the fate of HB137 serves as a reminder of the challenges in balancing tax relief with budgetary priorities. While it did not advance, its unanimous committee votes signal broad recognition of the value in supporting Virginia’s military heroes through targeted income tax subtractions. Future sessions may revisit the proposal, potentially refining it to address fiscal concerns while advancing the goal of uncapped relief for military benefits.