As a part-year Virginia resident, do I use my full-year federal adjusted gross income or only my Virginia-period income to calculate the 10% medical expense deduction floor?

Plain-English summary

Virginia (like the IRS) only lets you deduct medical expenses above a "floor" — a percentage of your income. For the 2021 tax year, that floor was 10% of federal adjusted gross income (FAGI) for Virginia purposes (versus 7.5% federally). A couple filing a part-year Virginia resident return calculated that 10% floor using only the income they earned while living in Virginia, which produced a smaller floor and a bigger deduction. The Department's auditor instead used the couple's full-year FAGI (income earned both in and out of Virginia) to compute the floor, which shrank their allowable deduction and reduced their refund.

The Tax Commissioner sided with the taxpayers. There was no existing statute, regulation, or even form instruction that squarely answered this question — the general part-year resident rule says Virginia taxable income (and its components) should be computed based on the period of Virginia residency, but nobody had spelled out exactly how that applies to a percentage-of-income deduction floor. Given the gap, the Department adopted a clear rule going forward: part-year residents should use only their Virginia-residency-period FAGI (adjusted for "fixed date conformity" modifications, if any) to calculate the medical expense deduction floor — the same figure already reported on the part-year Schedule of Income. The case was sent back to recompute the deduction correctly, though the Department also caught and corrected an unrelated taxpayer error in the same return (a retirement-income item mistakenly treated as a fixed-date-conformity modification).

What this means for you

Part-year Virginia residents who itemize deductions

If you moved into or out of Virginia partway through the year and itemize deductions including medical expenses, use only your Virginia-residency-period FAGI — not your full-year FAGI — to figure the 10% floor. This generally works in your favor, since a smaller floor means more of your medical expenses become deductible.

Filers using tax software or manual calculations

Because this rule isn't spelled out in the form instructions or a regulation, double-check how your software (or your own worksheet) is computing the medical expense floor on a part-year return — a default that pulls full-year FAGI could understate your deduction.

Accountants and tax professionals

This ruling fills a genuine gap: prior guidance addressed the personal exemption, standard deduction, and general itemized-deduction proration for part-year residents, but not specifically how a percentage-of-FAGI floor (like the medical expense floor) should be computed. The Department's answer — use the Virginia-period FAGI figure already reported on Schedule of Income, Part 1, Section A, Line 9, Column 2 — is now the citable position for this recurring part-year computation question. Also note the Department's fixed-date-conformity catch here: a retirement income subtraction is not itself an FDC modification, and shouldn't be used to adjust FAGI for this floor calculation.

Common questions

Q: What FAGI figure do I use for the medical expense deduction floor on a part-year return?
A: Only the FAGI attributable to your period of Virginia residency, adjusted for any fixed date conformity modifications — not your full-year FAGI.

Q: Where do I find that Virginia-period FAGI figure?
A: It's the amount reported in Part 1, Section A, Line 9, Column 2 of the Virginia Schedule of Income filed with a part-year resident return (Form 760PY).

Q: Does this mean I get a bigger medical deduction as a part-year resident?
A: Often yes, since a smaller floor (based on less income) allows more of your actual medical expenses to clear it — but you can also only include expenses actually paid during your period of Virginia residency in the first place.

Q: Does this ruling apply to my return?
A: Not automatically. This is a published ruling addressing a gap in existing guidance as of 2023; check current Schedule A instructions, which may have since been updated to reflect this position directly.

Citations and references

• Va. Code § 58.1-301 (Virginia's IRC conformity)
• Va. Code § 58.1-303 (part-year resident taxed only for the Virginia-residency period)
• 23 VAC 10-110-40 (part-year resident income and deduction computation)
• Virginia Schedule A instructions (fixed date conformity adjustment for the medical expense floor)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-103

Original ruling text

August 31, 2023

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will respond to your letter in which you seek a refund of individual income tax paid by * (the “Taxpayers”) for the taxable year ended December 31, 2021. I apologize for the delay in responding to your letter.

FACTS

The Taxpayers filed a 2021 part-year Virginia resident individual income tax return, claiming itemized deductions attributable to their period of Virginia residence. The Taxpayers used the federal adjusted gross income (FAGI) attributable to their period of Virginia residence to calculate the 10% of FAGI “floor” below which medical expense deductions may not be claimed. Under review, the Department determined that the entire amount of FAGI should have been used to compute the floor, thereby decreasing their allowable medical expense deduction. As a result, the Taxpayers were issued a reduced refund. The Taxpayers appeal, contending that they should be allowed to use the portion of their FAGI attributable to their period of Virginia residence to compute the medical expense deduction floor.

DETERMINATION

Virginia Code § 58.1-301 provides, with certain exceptions, that the terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia . For individual income tax purposes, Virginia conforms to federal law, in that it starts the computation of Virginia taxable income (VTI) with FAGI. Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Chapter 3 of Title 58.1 of the Code of Virginia .

Virginia Code § 58.1-303 provides, in relevant part:

Any person who, during the taxable year, becomes a resident of Virginia, whether domiciliary or actual, for purposes of income taxation, by moving to the Commonwealth from without during such taxable year, shall be taxable as a resident for only that portion of the taxable year during which he was a resident of the Commonwealth.

Accordingly, VTI for part-year residents is computed by determining income, deductions, subtractions, additions, and modifications attributable to the period of residence in Virginia. Part-year residents may claim a Virginia personal exemption, prorated based upon the number of days that the taxpayer was a Virginia resident. Further, part-year residents may claim a prorated Virginia standard deduction if they claim the standard deduction for federal income tax purposes. Part-year residents who claim itemized federal deductions must claim Virginia itemized deductions that include only those deductions for which the payments that created the deductions were made while the taxpayer was a Virginia resident. See Title 23 of the Virginia Administrative Code (VAC) 10-110-40.

Generally, for both Virginia and federal income tax purposes, the deduction for medical expenses may be claimed only to the extent total medical expenses exceed a floor amount. For the 2021 taxable year, the federal floor was 7.5% of FAGI, while the Virginia floor was 10% of FAGI. As explained in the Virginia Schedule A instructions, the FAGI used in determining the Virginia floor must be adjusted for fixed date conformity (FDC) modifications, if applicable. An adjustment to FAGI is not made for any Virginia additions, subtractions, or deductions other than FDC modifications.

In this case, the Taxpayers elected to itemize deductions on their 2021 federal income tax return. In computing their Virginia itemized deductions, the Taxpayers included expenses that were paid during their period of Virginia residence, including medical expenses paid in Virginia.

No guidance is provided in the statute, regulations, or form instructions regarding the method taxpayers should use for determining the medical expense deduction floor for part-year residents. Absent specific guidance, the Department has determined that taxpayers should use only the FAGI, as adjusted for FDC modifications, attributable to their period of Virginia residence to determine the floor for any medical expenses allowed as a deduction on their part-year Virginia resident income tax return. This amount is currently reported in Part 1, Section A, Line 9, Column 2 of the Virginia Schedule of Income that is submitted with a part-year Virginia resident return.

The case will be returned to the unit that made the adjustment to allow the appropriate medical expense deduction based on this determination. That unit is also directed to correct the FDC modification claimed on the Taxpayers’ Virginia Schedule of Income because the Taxpayers mistakenly adjusted their FAGI for a retirement income subtraction, which is not an FDC modification. That correction will result in an increase in the income attributable to the Taxpayers’ period of residence outside Virginia reported on Line 7 of Form 760PY.

If that unit requires more information, the Taxpayers must provide the information within the time allotted. The Taxpayers will receive an updated schedule of adjustments and will be issued a refund, as warranted. If the Taxpayers disagree with any further adjustments, they may submit an appeal within 90 days pursuant to Virginia Code § 58.1-1821.

The Code of Virginia sections and regulation cited are available online 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 (804) ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4457.X