Virginia 2026 Tax Changes — What Residents & Business Owners Must Know
Starting January 1, 2026, major federal tax changes go into effect as key provisions of the Tax Cuts and Jobs Act (TCJA) expire and updated rules under the One Big Beautiful Bill Act (OBBBA) move into place.
Virginia residents — who pay a progressive state income tax based on federal AGI — will feel these impacts immediately.
- W-2 earners in Northern Virginia, Richmond, Norfolk, Virginia Beach, Arlington, Chesapeake
- Government employees, defense contractors, and federal workers
- Tech professionals and medical workers
- Small business owners, LLCs, S-Corps, and freelancers
- Real estate investors and landlords
- STR hosts across coastal and urban markets
- Families with children
- Retirees drawing taxable income
- Dual-income households
Key 2026 Federal Changes Affecting Virginia
Standard Deduction Shrinks
TCJA’s expanded standard deduction ends in 2026.
OBBBA does not extend this part of the law.
- Single: ~$8,300
- Married Filing Jointly: ~$16,600
- Head of Household: ~$12,400
Because Virginia uses federal AGI for state taxable income, Virginians will owe more on federal and state levels.
Federal Income Tax Brackets Increase
- 12% → 15%
- 22% → 28%
- 24% → 31%
- dual-income households
- defense contractors and federal employees
- tech and government workers in Northern Virginia
- healthcare workers and educators
- households earning $75K–$350K
Higher federal taxable income increases both federal and Virginia state tax liability.
QBI Deduction Made Permanent Under OBBBA
OBBBA permanently preserved the 20% Qualified Business Income (QBI) deduction.
- LLCs
- S-Corps
- sole proprietors
- contractors
- freelancers
- certain rental activities
- updated income thresholds
- SSTB phaseout changes
- stricter IRS documentation requirements
Virginia does not offer a state-level QBI deduction.
Child Tax Credit Shrinks
- from about $2,000
- To roughly $1,000 per child
- with reduced refundability
Families in Northern Virginia, Richmond, and Hampton Roads will see lower refunds.
Marriage Penalty Returns
With TCJA’s marriage relief ending:
- joint filers reach higher brackets sooner
- credits phase out more quickly
- combined incomes increase federal AGI
This affects Virginia’s many dual-income professional households.
Virginia–Specific Tax Considerations
1. Virginia Uses Federal AGI for State Taxation
- reduced federal deductions
- increased federal taxable income
- reduced federal credits
…all increase Virginia state taxable income.
This will be noticeable for middle- and upper-middle-income households.
2. Real Estate Owners & Landlords Will Feel Federal Changes
Growing markets include:
- Northern Virginia (Arlington, Alexandria, Fairfax)
- Richmond
- Virginia Beach
- Norfolk
- Chesapeake
- Charlottesville
- capital gains
- depreciation
- rental loss classification
- STR participation and documentation
- timing of sales or exchanges
Appreciating home values in many Virginia regions increase federal capital gains exposure.
3. STR Owners Must Prepare for New Federal Rules
- Virginia Beach
- Richmond
- Northern Virginia
- Charlottesville
- Blue Ridge and Shenandoah regions
- stricter STR participation rules
- reduced bonus depreciation
- enhanced IRS safe harbor requirements
- stronger recordkeeping expectations
4. Government & Defense Sector Workers Are Strongly Impacted
- federal employees
- military families
- defense contractors
- intelligence community workers
These workers often fall in the income ranges most affected by the 2026 bracket increases.
5. Retirement Income Planning Matters More in 2026
- IRA withdrawals
- pension income
- 401(k) distributions
- taxable investment income
Higher federal brackets increase total retirement taxation for Virginia retirees.
Who Is Most Affected in Virginia (2026)
- Dual-income professional households
- Federal employees and defense contractors
- Business owners and freelancers
- Real estate investors and landlords
- STR hosts
- Families with children
- Retirees with taxable income
- Middle- and upper-middle-income earners
What Virginia Residents Should Do Before December 31, 2025
- Review federal and state withholding
- Maximize retirement contributions
- Consider Roth conversions
- Review QBI eligibility and business structure
- Maintain STR participation documentation
- Evaluate capital gains exposure
- Plan timing for property and investment sales
- Build a comprehensive federal + Virginia tax strategy for 2025–2026
Virginia 2026 Tax FAQ
Does Virginia conform to QBI?
No. QBI is federal-only.
Will Virginia taxes rise?
Tax rates stay the same, but taxable income increases due to federal changes.
Are families affected?
Yes. Reduced credits and deduction changes reduce refunds.
Are STR owners impacted?
Yes. Participation and documentation rules tighten.
Are retirees affected?
Yes. Higher federal brackets increase retirement withdrawal taxes.
Get your 2026 Virginia Tax Strategy
Virginia residents face major tax changes in 2026.
Reduced deductions, increased brackets, updated rental rules, and new business requirements make proactive planning essential.