Short answer: yes. Your monthly VRS benefit is subject to federal income tax and, if you live in Virginia, Virginia income tax; after-tax contributions in it aren't taxed again. Refunds and PLOPs paid to you have tax withheld, and the health insurance credit is tax-free. See refunds, the PLOP and the health insurance credit. Estimate your benefit in the calculator.
Your monthly benefit
The monthly benefit is subject to federal income tax and, if you live in Virginia, Virginia income tax. After-tax contributions in the benefit are not taxed again. VRS does not withhold taxes for other states; update withholding (myVRS or VRS-15) if you move. Plan 1 Handbook p. 55, Taxes; Retiree Handbook p. 9, Taxes on Your Benefits
The VRS sources say only that your benefit is subject to Virginia income tax if you live in Virginia. They don't cover Virginia's own deductions or subtractions.
We don't estimate Virginia tax. Check with a tax adviser or the Virginia Department of Taxation.
Plan 1 Handbook p. 55, TaxesLump sums
Refunds and PLOPs paid directly: 20% federal and (Virginia residents) 4% state withholding; possible 10% IRS early-withdrawal penalty before 59 1/2. DC distributions: same withholding; no early-withdrawal penalty from the Hybrid 457 or COV 457 on leaving employment, but the penalty can apply to Hybrid 401(a) / Cash Match distributions before 59 1/2. Plan 1 Handbook p. 18, p. 46; Retiree Handbook p. 9, Taxes on Defined Contribution Plan Distributions
Tax-free and other items
- The health insurance credit is non-taxable and is not included in the 1099-R. Plan 1 Handbook p. 56, 1099-R Form
- Imputed income on group life coverage over $50,000 is taxable and subject to FICA; VRS withholds FICA and issues a W-2 while it applies. Plan 1 Handbook p. 56, 1099-R Form
From the handbooks
- Your VRS benefit is subject to federal income tax and, if you live in Virginia, Virginia income tax. After-tax contributions aren't taxed again. VRS doesn't withhold other states' taxes.Plan 1 Handbook p. 55, Taxes; Retiree Handbook p. 9
- The health insurance credit is tax-free and isn't included on your 1099-R.Plan 1 Handbook p. 56, 1099-R Form
- Hybrid 457 withdrawals after leaving work have no early-withdrawal penalty. Hybrid 401(a) withdrawals before 59 1/2 may carry the 10% IRS penalty.Retiree Handbook p. 9, Taxes on Defined Contribution Plan Distributions
Questions
Is my VRS pension taxed?
The monthly benefit is subject to federal income tax and, if you live in Virginia, Virginia income tax. After-tax contributions in the benefit are not taxed again. VRS does not withhold taxes for other states; update withholding (myVRS or VRS-15) if you move.
Is the health insurance credit taxed?
The health insurance credit is non-taxable and is not included in the 1099-R.
How are a refund or PLOP taxed?
Refunds and PLOPs paid directly: 20% federal and (Virginia residents) 4% state withholding; possible 10% IRS early-withdrawal penalty before 59 1/2. DC distributions: same withholding; no early-withdrawal penalty from the Hybrid 457 or COV 457 on leaving employment, but the penalty can apply to Hybrid 401(a) / Cash Match distributions before 59 1/2.
This is not tax advice. Ask a tax adviser about your own situation.
Source: VRS Plan 1, Plan 2 and Hybrid Retirement Plan Handbooks for Members, 07-2026 editions (VRSHB-1 07-2026, VRSHB-2 07-2026, HybridHB 07-2026), Plan 1 Handbook pp. 18, 46, 55, 56. Also: Retiree Handbook p. 9. Last reviewed .