Stock Option Advisor Match

Virginia Stock Options Tax: A Solid Story for Northern Virginia Tech Employees

Virginia is home to Amazon Web Services' headquarters in Herndon, Capital One's corporate campus in Tysons Corner, and a dense cluster of defense tech and government IT contractors — Booz Allen Hamilton, SAIC, Leidos, CACI, Northrop Grumman — where equity compensation is a standard component of senior-level packages. Virginia's tax regime handles stock options reasonably well compared to the national worst cases:

The main limitations: no long-term capital gains preference (all gains taxed at the same 5.75%), and a DC-area commuter complexity that can affect how options are sourced for Northern Virginia employees who live across state lines. Here's the full picture for 2026.

Rule Virginia California New York
ISO exercise — state income tax? No — VA follows federal; no state income at exercise2 Yes — up to 13.3% as ordinary income at exercise No — NY follows federal
Top income tax rate (2026) 5.75% (graduated brackets, see below)1 Up to 13.3% Up to 10.9%
QSBS (§1202) exclusion Yes — VA conforms to §1202 including OBBBA changes3 No — full gain taxable in CA regardless of federal exclusion Yes — NY conforms to §1202
State AMT on ISOs? No — Virginia has no state AMT4 Yes — CA state AMT applies to ISO exercises No — New York has no state AMT
City income tax? None — Arlington, Reston, Tysons: no city income tax5 No city income tax NYC: up to 3.876% city tax on NQSO spreads
LTCG preference? None — same 5.75% on all capital gains1 None — same 13.3% on all gains None — same top rate on all gains
ISO exercise as PA ordinary income? No — Virginia defers to federal Yes — same CA trap No

The bottom line: Virginia is a mid-tier state for stock option holders. It avoids the worst traps (ISO taxation at exercise, state AMT, QSBS non-conformity) while still imposing a meaningful income tax. For most AWS, Capital One, and defense-tech employees, the relevant questions are the federal AMT exposure on ISOs and how to sequence exercises against the qualifying-disposition holding clock — the Virginia tax component is predictable and lower than most comparable tech hubs.

Virginia Income Tax: Graduated Brackets, 5.75% Top Rate

Virginia's income tax structure uses graduated brackets under Va. Code §58.1-320.1 These brackets have been unchanged for decades and apply identically to all filing statuses:

Virginia Taxable Income Rate Tax on This Bracket
First $3,000 2% $60
$3,001 – $5,000 3% $60
$5,001 – $17,000 5% $600
Over $17,000 5.75% 5.75% on all income above $17,000

In practice, any meaningful stock option event — an NQSO exercise, a qualifying ISO disposition, an RSU vest — pushes income well above $17,000. The effective marginal rate on these events is 5.75% for the vast majority of Virginia tech employees. The graduated structure matters only for the first $17,000 of Virginia taxable income; at typical tech compensation levels, the top bracket dominates.

Virginia taxes long-term capital gains at the same ordinary income rates — there is no LTCG preference rate at the state level. A qualifying ISO disposition (held 2+ years from grant, 1+ year from exercise) generates long-term capital gain federally, taxed at 15–20% federal. In Virginia, that same gain is taxed at 5.75%. The qualifying-disposition strategy still makes sense for federal optimization; Virginia is simply neutral on the holding period choice.

Income Type Virginia Rate (2026) Federal Rate (illustration, 37% bracket)
Wages / ordinary income 5.75% 37%
NQSO exercise spread (W-2 income) 5.75% 37% + FICA
ISO exercise spread (at exercise) 0% — no VA tax at exercise 0% ordinary (AMT preference item only)
ISO qualifying disposition (long-term gain) 5.75% 20% (+ 3.8% NIIT if applicable)
ISO disqualifying disposition — bargain element 5.75% 37%
Long-term capital gains (held >12 months) 5.75% — same as short-term 15–20%
QSBS gain excluded under §1202 0% — VA conforms to §1202 exclusion 0% (federally excluded)

ISO Treatment in Virginia: No State Tax at Exercise

Virginia computes individual income tax starting from federal adjusted gross income (AGI), with Virginia-specific additions and subtractions.2 Exercising an ISO does not produce federal AGI — the spread is an AMT preference item under IRC §56(b)(3), not an income inclusion. Because Virginia piggybacks on federal AGI, Virginia imposes no income tax when you exercise an ISO. The Virginia tax bill is deferred entirely until you sell the shares.

This treatment puts Virginia in the majority of states — and directly contrasts with two notable exceptions: California (FTB Publication 1004 taxes the ISO spread as ordinary income at exercise, up to 13.3%) and Pennsylvania (taxes ISO spreads as ordinary income at exercise at 3.07%). A Virginia AWS employee and a California counterpart exercising the same ISOs face a dramatically different state tax event in the exercise year.

Example: ISO exercise at Amazon Web Services (Herndon). You exercise 8,000 ISOs with a $40 strike when the AWS stock FMV is $100. The spread is $480,000.
  • Federal: No regular income tax at exercise. $480,000 is a federal AMT preference item — depending on other income, you may owe federal AMT of approximately $100,000–$135,000 at 26–28% AMT rate (use the ISO AMT Calculator to model your specific exposure).
  • Virginia: $0 state income tax at exercise. The $480,000 spread does not appear in Virginia AGI. Virginia tax is deferred until the shares are sold.
  • California comparison: The same exercise at a Cupertino-based company would generate $480,000 of California ordinary income — at 12.3% CA marginal rate, roughly $59,040 owed to the FTB in the exercise year, on top of any federal AMT.

Virginia eliminates one layer of tax-year cash demand that California and Pennsylvania impose. The federal AMT is still real and must be planned for; the state component is simply not a factor at exercise time in Virginia.

ISO qualifying disposition in Virginia

For a qualifying disposition (shares held at least 2 years from grant date and at least 1 year from exercise date, per IRC §422(a)(1)), the entire gain is long-term capital gain at the federal level. Virginia taxes that gain at 5.75% regardless of holding period. The federal savings from qualifying-disposition status are real and meaningful — the bargain element at exercise shifts from 37% ordinary income (disqualifying) to 20% LTCG (qualifying). Virginia imposes 5.75% either way, so the qualifying-disposition strategy is driven entirely by the federal math.

ISO disqualifying disposition in Virginia

If you sell ISO shares before satisfying the qualifying-disposition holding period, the bargain element becomes W-2 ordinary income. Virginia taxes that income at 5.75%. The additional appreciation above the exercise-date FMV is a capital gain, also taxed at 5.75% in Virginia — the same rate as the ordinary income component. The disqualifying-vs-qualifying choice in Virginia is neutral at the state level; the significant federal rate differential (37% ordinary vs. 20% LTCG) is where the decision matters.

NQSO Treatment: FICA + Federal + 5.75% Virginia

NQSO exercise spreads are W-2 ordinary income — subject to FICA at the federal level, federal income tax at the marginal rate, and Virginia income tax at 5.75%. When you sell NQSO shares after exercise, appreciation above the exercise-date fair market value is a capital gain, taxed at 5.75% in Virginia (same rate as ordinary income).

Example: NQSO exercise at Capital One (Tysons Corner). You exercise 5,000 NQSOs with a $60 strike, FMV = $120. Spread = $300,000.
  • Virginia income tax at exercise: $300,000 × 5.75% = $17,250
  • Federal income tax (37% bracket): ~$111,000
  • FICA: 6.2% Social Security on spread up to the $184,500 SS wage base not already consumed by regular salary6; 1.45% Medicare on full spread; 0.9% Additional Medicare if total wages exceed $200,000 (single filer threshold)
  • California comparison: Same $300,000 spread at 13.3% CA = $39,900 state tax vs. $17,250 in Virginia — a $22,650 difference on a single exercise event.

For defense-tech employees with multiple tranches of NQSO grants (standard at Booz Allen, Leidos, SAIC), the Virginia state component is predictable at 5.75% per exercise. The primary variable is FICA — specifically whether the SS wage base has already been reached for the year when you exercise.

QSBS in Virginia: Conformity Including OBBBA

Virginia conforms to IRC §1202 (Qualified Small Business Stock).3 Virginia changed from rolling conformity to a fixed conformity date of December 31, 2025 under Tax Bulletin 26-1 (February 20, 2026), enacted via House Bill 29 signed by Governor Spanberger. Because the OBBBA was signed on July 4, 2025 — before Virginia's fixed conformity date — Virginia's conformity includes OBBBA changes to §1202.

Virginia explicitly decoupled from OBBBA provisions on bonus depreciation (§168(k)), qualified production property expensing (§168(n)), and R&E deductions (§174, §174A). Section 1202 QSBS is not in the list of decoupled provisions, meaning Virginia should respect the OBBBA-enhanced QSBS rules for individual income tax purposes.

OBBBA §1202 thresholds (post-July 2025)

For QSBS acquired on or after July 5, 2025:7

A Virginia founder or early employee at a qualifying startup who early-exercises, files an 83(b) election within 30 days, and holds for 5 years can exclude up to $15M of gain from both federal and Virginia income tax. At 5.75%, a $15M QSBS gain exclusion saves $862,500 in Virginia tax alone — on top of the federal savings.

QSBS comparison: Virginia vs California on a $10M startup gain. An early employee of a Northern Virginia defense-tech startup (under $75M gross assets at time of investment) exercises options via early exercise, files an 83(b) election, holds 5+ years post-OBBBA, sells for $10M gain within the $15M cap.
  • Federal: $10M fully excluded (100%, 5-year hold). Federal tax: near zero on the qualifying gain.
  • Virginia: $10M excluded from VA income (§1202 conformity, OBBBA limits apply). Virginia tax: $0.
  • California: $10M fully taxable at 13.3%. California tax: $1,330,000.
  • Oregon: $10M fully taxable at up to 9.9% (SB 1507 QSBS decoupling, April 2026). Oregon tax: up to $990,000.

Virginia's QSBS conformity is especially relevant for the defense-tech and government-IT sector in Northern Virginia, where startups increasingly compete with established contractors for early talent using option grants.

Virginia QSBS caveat. Virginia's conformity is based on a fixed date of December 31, 2025 — not rolling. Future amendments to §1202 after that date will not automatically apply in Virginia unless the legislature updates the conformity date. If Congress modifies §1202 thresholds or rules after 2025, verify current Virginia conformity before relying on those changes for Virginia tax planning.

No State AMT in Virginia

Virginia has no state alternative minimum tax.4 When you exercise ISOs, you may face federal AMT on the exercise spread — but there is no Virginia AMT layer on top. This distinguishes Virginia from Colorado (3.47% state AMT, Form DR 0104AMT) and Minnesota (6.75% state AMT on ISO exercises under Minn. Stat. §290.091).

The 2026 federal AMT parameters: $90,100 exemption (single filer) / $140,200 (MFJ), with phaseout beginning at $500,000 (single) / $1,000,000 (MFJ) at the OBBBA-restored 50% reduction rate.8 Use the ISO AMT Calculator to model your federal exposure. For Virginia purposes, your state tax on ISO exercises is zero until you sell — only the federal AMT is a live variable at exercise time.

No City Income Tax in Northern Virginia

Virginia does not permit localities to levy personal income taxes.5 Tech employees in Arlington (Amazon HQ2), Herndon (AWS), Tysons Corner (Capital One, DXC, CACI), Reston (Leidos, SAIC), McLean (Booz Allen Hamilton), and Fairfax face state tax only — no city or county income tax layer on stock option income. The combined Virginia state + local rate is a flat 5.75%. Compare this to New York City (combined state + NYC rate up to 14.776% on NQSO spreads), Philadelphia (6.81% combined state + city wage tax for Philadelphia residents), or Portland, Oregon (up to 13.9% combined Oregon state + Metro SHS + Multnomah County PFA).

The DC-Area Commuter Angle: Reciprocity and Its Limits

Northern Virginia's tech workforce is regionally mobile — many AWS, Capital One, and defense-tech employees live in Maryland, DC, or across the Potomac while working in Virginia. Virginia has income tax reciprocity agreements with Maryland, the District of Columbia, West Virginia, Kentucky, and Pennsylvania.9 Under these agreements, individuals who live in one reciprocity state and work in Virginia typically owe income tax only to their home state, not to Virginia — and vice versa.

Important limitation: reciprocity covers wages, not all compensation. Virginia's reciprocity agreements are designed for W-2 wages and salaries from employment. The application to equity compensation is less straightforward:
  • NQSO exercises generate W-2 income and may qualify for reciprocal treatment — a Maryland resident exercising NQSOs from Virginia employment may owe Maryland tax only, not Virginia tax. But this depends on how each state characterizes the event and whether the reciprocity language covers deferred compensation.
  • ISO qualifying dispositions produce capital gains, which are investment income — typically not covered by wage reciprocity agreements. A Maryland resident who holds ISO shares to qualifying disposition likely owes Virginia tax on the gain (sourced to Virginia workdays during the grant-to-exercise period) even though their NQSO wages were reciprocal.
  • DC commuters: If you live in DC and work in Virginia, DC–Virginia reciprocity typically means you file only in DC for wages. But ISO qualifying-disposition gains, QSBS gains, and capital gains from stock sales may still require a Virginia nonresident return.

The tax treatment of equity compensation across state lines in the DC metro area is genuinely complex. A specialist familiar with Virginia-Maryland-DC equity sourcing is essential if you hold significant grants from cross-state employment.

Nonresident Sourcing: Virginia Claims Options Earned in Virginia

If you received stock option grants while working in Virginia and have since relocated to another state, Virginia may assert a sourcing claim on a portion of the gain when you exercise.10 Virginia uses the standard workdays-ratio approach for allocating stock option income:

VA-source income = exercise spread × (Virginia workdays from grant to exercise ÷ total workdays from grant to exercise)

Former Virginia residents who have relocated to Texas, Florida, or Washington — states with no income tax on NQSO spreads — may still owe Virginia income tax on the Virginia-sourced fraction of their exercise spread. They must file a Virginia nonresident return (Form 763) and pay Virginia tax on the sourced amount.

Example: AWS employee relocates to Texas. You received an NQSO grant in January 2023 while working at AWS in Herndon. You relocated to Austin in July 2025. You exercise in April 2026.
  • Grant to exercise period: January 2023 – April 2026 = ~39 months
  • Virginia workdays: January 2023 – July 2025 = ~30 months
  • Sourcing ratio: 30 / 39 = 77%
  • Exercise spread: $350,000
  • VA-source income: $350,000 × 77% = $269,500
  • Virginia tax due (Form 763): $269,500 × 5.75% = $15,496

Texas has no state income tax, so there is no credit to offset the Virginia tax. The sourcing ratio erodes over time — each year post-relocation, the Virginia share of the grant-to-exercise period shrinks. Whether waiting to exercise meaningfully reduces Virginia exposure depends on the grant date, the stock's outlook, and the size of the spread.

The California-to-Virginia relocator trap

Tech employees who relocated from California to Virginia before exercising grants from California employment face a cross-state sourcing problem. California uses an aggressive workdays-ratio approach: if options were granted during California employment, California asserts a claim on the California-workdays fraction of the exercise spread — even after you've moved to Virginia. Virginia taxes the Virginia-workdays fraction. Depending on your grant dates, you may owe both states tax on the same exercise event, with limited or no credit offsets (each state claims its own sourced share, not overlapping). Model this before exercising any grants that span a California residency period.

State Tax Comparison: Virginia vs. Peers on a $500K NQSO Exercise

State Top Rate State Tax on $500K NQSO vs. California
Texas / Florida 0% $0 $66,500 savings
Arizona 2.5% $12,500 $54,000 savings
Colorado 4.4% $22,000 $44,500 savings
Georgia 4.99% $24,950 $41,550 savings
Virginia 5.75% $28,750 $37,750 savings
Massachusetts 5% + 4% surtax above ~$1.08M $25,000 $41,500 savings
New York (NYC residents) 10.9% + 3.876% city $73,880 −$7,380
California 13.3% $66,500 baseline

Six Planning Strategies for Virginia Stock Option Holders

1. Exercise ISOs in low-federal-AMT years — Virginia adds no state complexity at exercise

Because Virginia has no state AMT and no state income at ISO exercise, the only planning variable at exercise time is the federal AMT. The strategy simplifies: identify years where your federal AMTI is lowest (transition year, parental leave, year before a large equity grant), use the ISO AMT Calculator to find your safe exercise zone (the spread amount you can exercise without triggering net federal AMT after credits), and there is no Virginia state component to worry about at exercise. Virginia's bill on an ISO exercise is zero. The state question only surfaces when you sell the shares, at 5.75% at that point.

2. QSBS: Early exercise + 83(b) at Virginia startups can create large tax-free gains

Virginia's §1202 conformity (including OBBBA-enhanced thresholds) means early-exercising options at a Northern Virginia startup under $75M gross assets, filing an 83(b) election within 30 days, and holding 5 years results in $0 Virginia income tax on up to $15M of qualifying gain. The 83(b) election starts the §1202 holding clock at exercise rather than at vesting. For founders and early employees at NoVA defense-tech, fintech, or SaaS startups — where QSBS eligibility is frequently overlooked in favor of federal analysis only — this is the highest-leverage state tax planning available. Both federal and Virginia tax on the qualifying gain are zero.

3. Sequence NQSO exercises to maximize SS wage base exhaustion

NQSO exercise spreads are W-2 wages subject to 6.2% Social Security tax up to the 2026 wage base of $184,500.6 If your regular salary already exceeds the wage base before you exercise NQSOs, the NQSO spread in that year avoids 6.2% SS tax entirely — you pay only 1.45% Medicare plus 0.9% Additional Medicare if wages exceed $200,000. For defense-tech employees with annual salary of $180,000–$200,000 and significant NQSO grants, sequencing exercises into the second half of the calendar year — after salary has consumed the SS wage base — saves 6.2% on the spread amount. Virginia's 5.75% rate applies regardless of timing; the SS optimization is pure federal benefit.

4. Model the DC-area commuter situation before exercising

If you live in Maryland or DC and work in Virginia — or have lived or worked in multiple DC-metro jurisdictions at different points — get a clear picture of how each state characterizes your equity compensation before pulling the trigger on any exercise. Virginia-Maryland-DC wage reciprocity agreements cover employment wages; their application to option spreads, qualifying-disposition gains, and QSBS gains is more nuanced and should be confirmed with a specialist who handles tri-state equity situations. The dollar amounts can be significant: a $500,000 NQSO exercise treated incorrectly across state lines can produce unexpected double taxation or missed filing obligations in three separate jurisdictions.

5. Qualify for the ISO holding period for federal reasons — Virginia is neutral

The qualifying-disposition two-year/one-year holding test (2 years from grant, 1 year from exercise) shifts your federal tax rate from 37% ordinary income to 20% LTCG on the bargain element — a potentially large federal savings. Virginia is completely neutral: qualifying and disqualifying dispositions are taxed at the same 5.75% rate. This means the decision to hold shares through the qualifying-disposition date is 100% a federal calculation. Run the federal numbers — spread size, expected stock appreciation, your marginal rate, AMT credit recovery opportunity — without any state distortion. Virginia won't penalize you for a qualifying hold or reward you for a disqualifying one.

6. Former Virginia residents: calculate your sourcing ratio before exercising

If you relocated from Virginia to a no-tax or low-tax state (Texas, Florida, Washington, Nevada) and still hold unexercised grants from Virginia employment, your sourcing ratio determines how much Virginia can still claim. The ratio erodes over time: each post-relocation month adds to the denominator without adding to the Virginia numerator. If you moved in 2024 and your grants were made in 2021, a substantial portion of your grant-to-exercise period may already be post-Virginia. Whether the expected future erosion justifies waiting longer to exercise — accepting additional stock price risk and AMT planning complexity — depends on the grant dates, the spread, and the stock's outlook. An advisor can model whether a 12–18 month extension meaningfully reduces Virginia's claim on a specific grant.

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Virginia's 5.75% rate and QSBS conformity make it a reasonable state for stock option planning — but the details still require specialist modeling. Federal AMT on ISO exercises, the DC-area commuter and reciprocity complexity, nonresident sourcing if you hold grants from Virginia employment after relocating, and QSBS timing at Virginia startups all involve irreversible decisions. A specialist who handles Northern Virginia equity compensation regularly will spot planning angles a generalist will miss. Free match, no obligation.

Stock Option Advisor Match is a matching service. We connect you with vetted fee-only financial advisors who specialize in stock-option planning. We do not provide advice and do not manage money.

  1. Virginia income tax brackets and rates (2026). Va. Code §58.1-320 establishes four graduated brackets: 2% on first $3,000, 3% on $3,001–$5,000, 5% on $5,001–$17,000, and 5.75% on income over $17,000. These brackets apply to all filing statuses and have been unchanged for decades. Virginia taxes all capital gains — short-term and long-term — as ordinary income at these rates; no preferential LTCG rate exists at the Virginia state level. Sources: Virginia Department of Taxation; Va. Code §58.1-320; Tax Foundation: 2026 Virginia Tax Rates & Rankings.
  2. Virginia ISO treatment — no ordinary income at ISO exercise. Virginia computes individual income tax starting from federal adjusted gross income (AGI) under Va. Code §58.1-322. ISO exercises generate an AMT preference item under IRC §56(b)(3) but do not create federal AGI; therefore, Virginia does not recognize ordinary income at ISO exercise. Virginia tax is deferred until shares are sold. This treatment is consistent with Virginia's general conformity to the federal income tax treatment of incentive stock options. In contrast, California (FTB Pub. 1004) and Pennsylvania tax ISO exercise spreads as ordinary state income in the exercise year. Sources: Virginia Department of Taxation — Individual Income Tax Instructions; Va. Code §58.1-322; Virginia Tax Commissioner Ruling 05-32.
  3. Virginia §1202 QSBS conformity and fixed conformity date. Virginia changed from rolling IRC conformity to a fixed conformity date of December 31, 2025, under House Bill 29 (Chapter 7, 2026 Acts of the Assembly), signed by Governor Abigail Spanberger on February 20, 2026. Virginia Tax Bulletin 26-1 (February 20, 2026) announced the change. Virginia explicitly decouples from OBBBA's §168(k) bonus depreciation, §168(n) qualified production property expensing, and §§174/174A R&E deductions. Section 1202 QSBS is not among the decoupled provisions. Because OBBBA was enacted July 4, 2025 — before Virginia's fixed conformity date of December 31, 2025 — Virginia's conformity should include OBBBA-enhanced §1202 thresholds ($15M cap, $75M gross-asset limit, tiered 50/75/100% exclusions). Sources: Virginia Tax: Rolling Conformity Replaced with Fixed Date of December 31, 2025; EY TaxNews: Virginia Changes IRC Conformity, Decouples from Certain OBBBA Provisions; Keystone Global Partners: 2026 QSBS by State.
  4. Virginia has no state alternative minimum tax. Virginia's individual income tax is computed solely on Virginia taxable income under the graduated bracket structure in Va. Code §58.1-320; there is no state-level AMT computation. ISO holders in Virginia face only federal AMT (Form 6251) on exercise spreads — no additional Virginia AMT applies. States with their own AMT include California, Colorado, Iowa, and Minnesota. Source: Virginia Department of Taxation — Individual Income Tax Instructions (Form 760); Va. Code Title 58.1, Chapter 3 (no state AMT provision).
  5. No city income tax in Virginia municipalities. Virginia localities are not authorized to impose personal income taxes. Arlington County, the City of Herndon, Fairfax County, the City of Reston, Tysons Corner, and McLean impose no municipal income tax. All Virginia individual income tax is collected at the state level under Va. Code §58.1-320. This differs from New York City (up to 3.876% city income tax on wages and gains) and Philadelphia (3.74% wage tax for residents). Source: Virginia Department of Taxation; Va. Code Title 58.1 (no enabling provision for local income taxes).
  6. 2026 Social Security wage base: $184,500. NQSO exercise spreads are FICA wages subject to 6.2% Social Security tax (employee share) up to the annual ceiling, plus 1.45% Medicare tax on all FICA wages, plus 0.9% Additional Medicare Tax on wages above $200,000 (single filer threshold). Source: Social Security Administration — Contribution and Benefit Base 2026.
  7. OBBBA §1202 changes (signed July 4, 2025): gross asset limit raised from $50M to $75M; per-issuer exclusion cap raised from $10M to $15M; tiered exclusions 50%/75%/100% at 3/4/5-year hold for QSBS acquired after July 4, 2025. Pre-OBBBA stock retains 100% exclusion at 5 years under prior rules ($50M/$10M limits). Sources: Keystone Global Partners: 2026 QSBS by State; The Startup Law Blog: Complete Guide to QSBS & Section 1202 (2026).
  8. 2026 federal AMT parameters: exemption $90,100 (single) / $140,200 (MFJ); phaseout begins at $500,000 (single) / $1,000,000 (MFJ); phaseout reduction rate 50% per OBBBA-restored rules. AMT rates: 26% on first $244,500 of AMTI over exemption; 28% above. Sources: IRS Rev. Proc. 2025-67; IRS Form 6251 Instructions (2026).
  9. Virginia income tax reciprocity agreements. Virginia maintains reciprocity agreements for wages and salaries with Maryland, the District of Columbia, West Virginia, Kentucky, and Pennsylvania. Under these agreements, residents of one reciprocity state who earn wages in Virginia typically pay income tax only to their home state, not to Virginia. However, the agreements apply to wages/salaries from employment; the application to equity compensation (NQSO exercise spreads, ISO qualifying-disposition gains, QSBS gains) is more complex and may not be fully covered by reciprocity depending on how each jurisdiction characterizes the income. Sources: Virginia Tax: Residency Status; Virginia Department of Taxation nonresident instructions (Form 763).
  10. Virginia nonresident sourcing of stock option income. Virginia sources income from stock options granted during Virginia employment using a workdays-ratio allocation method under Va. Code §58.1-325 and Virginia Department of Taxation nonresident apportionment guidance. The allocation ratio is Virginia workdays during the period from grant to exercise divided by total workdays during the same period. Former Virginia residents must file Form 763 (Virginia Nonresident Income Tax Return) and pay Virginia tax on the applicable fraction of NQSO and ISO disposition income attributable to Virginia workdays. Source: Virginia Department of Taxation — Form 763 Instructions; Va. Code §58.1-325 (allocation of income from intangibles for nonresidents); Phoenix Strategy Group: State Tax Rules for Nonresident Equity Compensation.

Values verified May 2026. Virginia's fixed IRC conformity date is December 31, 2025 (Tax Bulletin 26-1, February 20, 2026). Tax law changes frequently; confirm current-year values and Virginia conformity status with a qualified Virginia tax advisor before making irreversible decisions.