CRDP or CRSC in Virginia: Does Florida Actually Help?

Every 20-year Hampton Roads retiree eventually asks the same question. Does moving to Florida actually save enough tax to justify the move, once you factor in the Virginia subtraction, CRDP or CRSC, and the non-tax parts of life a retiree actually lives?

The short answer is that the arbitrage exists, but the size depends almost entirely on the retiree’s grade and whether the pension exceeds the Virginia ceiling. In our view, most E-7 and O-3 retirees will find the tax gap smaller than they expected. Most O-5 and O-6 retirees will find it larger. The CRDP or CRSC distinction matters federally but washes out at the state level inside the Virginia subtraction cap.

This piece walks the mechanics, runs three retiree scenarios, and explains where the domicile decision actually turns.

The 30-second CRDP vs CRSC refresher

Both programs exist to restore the dollar-for-dollar offset that would otherwise zero out part of a military retiree’s pension when VA disability compensation is paid. Concurrent Retirement and Disability Pay (CRDP) requires 20 years of service plus a VA rating of 50 percent or higher. Combat-Related Special Compensation (CRSC) requires a combat connection determination by the service branch.

Federally, the treatment differs in one meaningful way. CRDP is taxable retired pay. CRSC is not taxable. That is the canonical reason combat-connected retirees elect CRSC when eligible for both.

Virginia’s subtraction does not care which program is in play. The Virginia military benefits subtraction under Va. Code Section 58.1-322.02, subdivision 18, applies to military retired pay. Because CRSC is already federally non-taxable, it drops out of adjusted gross income before Virginia ever sees it. CRDP flows through as retired pay and hits the subtraction.

The practical result: once you are at or below $40,000 of retired pay, CRDP and CRSC produce the same Virginia tax. The distinction re-emerges only when retired pay exceeds the subtraction ceiling.

Virginia’s $40,000 subtraction: where the ceiling bites

For tax year 2025 and forward, Virginia exempts up to $40,000 of military retirement income from state tax. The Virginia Department of Taxation confirms the figure, though the statutory source is the Code itself. The age-55 requirement that used to gate the subtraction was removed effective tax year 2024.

The ceiling is where grade starts to matter. Using DFAS High-3 mechanics and a standard 2.5 percent per-year multiplier at 20 years of service, a mid-grade retiree’s gross retired pay lands like this (illustrative, based on 2025 E/O rate tables applied at 50 percent of base):

• E-7 at 20 YOS: roughly $28,000 to $32,000 gross retired pay per year
• O-4 at 20 YOS: roughly $47,000 to $52,000
• O-5 at 20 YOS: roughly $58,000 to $64,000

An E-7 is entirely inside the Virginia subtraction. An O-5 has roughly $18,000 to $24,000 of taxable retired pay exposed to Virginia’s top marginal bracket of 5.75 percent above $17,000 of income. That translates to approximately $1,035 to $1,380 of state tax per year that Florida domicile would eliminate.

TSP distributions do not qualify for the subtraction, per Virginia Tax. Any TSP withdrawals a retiree takes stack on top of the pension and fill Virginia’s brackets at full rate.

Florida’s no-tax baseline plus the 100 percent P&T property exemption

Florida is the mirror. No state income tax means zero state claim on the pension, zero claim on CRDP, zero claim on TSP withdrawals, and zero claim on taxable brokerage gains. The Florida Department of Revenue further caps annual homestead assessment increases at 3 percent under Save Our Homes.

For 100 percent permanently and totally disabled veterans, Florida Statute Section 196.081 adds a full real estate property tax exemption on the homestead. That benefit, combined with no state income tax, is structural. It does not sunset and is not subject to annual legislative renewal.

Florida also has no state estate tax, a consideration for retirees whose total estate will settle into the $3M to $10M range that the niche playbook flags as typical for officer households.

Three retiree scenarios, side by side

The table below uses 2.8 percent VA disability COLA effective December 1, 2025, and the 2026 Virginia bracket structure. All figures are illustrative and do not reflect any specific client. Your actual tax will differ based on filing status, rating, other income, and deductions.

Scenario 1. E-7 at 20 YOS, 50 percent VA rating, CRDP.

• Retired pay: $30,000
• VA disability (non-taxable, not in AGI): roughly $12,800 per year at 50 percent single rate
• Virginia tax on retired pay: $0 (fully inside $40K subtraction)
• Florida tax on retired pay: $0
• Annual state tax arbitrage: $0

Scenario 2. O-4 at 20 YOS, 70 percent VA rating, CRDP.

• Retired pay: $50,000
• VA disability (non-taxable): roughly $20,500 per year at 70 percent single rate
• Virginia taxable pension above subtraction: $10,000
• Virginia state tax (approx. 5.75 percent marginal): roughly $575
• Florida state tax: $0
• Annual state tax arbitrage: approximately $575

Scenario 3. O-5 at 20 YOS, 100 percent VA rating, CRSC election.

• Retired pay (after CRSC election): portion shifts to non-taxable CRSC
• Let us assume $20,000 remains as taxable retired pay after CRSC offset, with $40,000 as CRSC
• Virginia taxable pension above subtraction: $0 (below $40K ceiling)
• Florida state tax: $0
• Annual state tax arbitrage: $0 on the pension side, but meaningful if the same retiree holds $200K of taxable brokerage generating $10K of qualified dividends and realized gains. That $10K, taxed at 5.75 percent in Virginia, is approximately $575 that Florida eliminates.

The pattern: CRSC elections can collapse the state-level arbitrage on the pension itself, because CRSC is federally non-taxable and never enters Virginia’s base. The arbitrage for CRSC retirees shows up mostly in portfolio income, not pension income.

What the tax table actually means at 20 YOS

Three takeaways that most national CRDP and CRSC guides miss.

First, the CRDP vs CRSC federal distinction does not carry into Virginia for retirees with retired pay under $40,000. The subtraction absorbs it. That is why the federal tax savings from CRSC are not stacked on top of state savings. At the Virginia level, they effectively merge.

Second, the state arbitrage is meaningful for O-5 and O-6 retirees, modest for O-4, and often zero for E-7 and below. The CRS report on CRDP and CRSC supports this by showing that retirement payment size is a function of grade and years of service, and grade is the primary determinant of how much of the pension escapes the Virginia ceiling.

Third, TSP withdrawals and taxable brokerage are where Florida domicile gets its leverage for retirees with meaningful savings. The pension is the headline, but for a retiree who lived below means and has $500K to $1.5M in TSP and taxable assets, annual withdrawals above $40K begin to make Florida’s zero-tax baseline compound.

Non-tax factors that can flip the decision

Tax arbitrage is not the only variable. Several non-tax factors often flip the decision.

SBP. The Survivor Benefit Plan premium is 6.5 percent of the elected base, with a 55 percent annuity paid to the survivor. Neither state taxes SBP, so the program itself is state-neutral. But the broader survivor income stream (SBP plus DIC, now concurrent since the Widow’s Tax repeal in NDAA 2020) interacts with the surviving spouse’s income bracket. A surviving spouse who remains a Virginia resident after the retiree’s death can claim the subtraction on SBP under the current Virginia Tax interpretation.

TRICARE-to-Medicare geography. TRICARE for Life coverage continues across state lines, but Part B premium is set by federal IRMAA thresholds and is state-neutral. Physician network quality and in-network specialist availability vary significantly between Hampton Roads and Florida metro areas. Retirees with complex care needs often find Sentara, Riverside, and EVMS networks harder to replace than the tax savings justify.

In-state tuition legacy. Virginia’s in-state tuition rate at VT, UVA, and ODU is a substantial benefit for retirees with college-age dependents. Dropping Virginia domicile mid-degree can trigger loss of the resident rate. Florida has the Bright Futures scholarship, which works differently but applies only to Florida graduates.

LTC premiums and Medicaid planning. Virginia and Florida both allow homestead protection for Medicaid planning, but the specific carve-outs differ. Florida’s constitutional homestead protection is famously broad, a factor the estate planning community has weighed for decades.

Continued W-2 employment with defense contractors. Retirees who continue in Hampton Roads with HII, Northrop, Booz Allen, or the shipyards often find that Virginia’s 18.80 percent VB locality pay component (for federal civilians) plus local defense-contractor premium compensates for some of the state tax burden. This is the counter-thesis. If you are going to earn $150K+ as a W-2 post-retirement and your work is geographically tied to the Norfolk-Newport News corridor, the math tilts back toward Virginia.

Domicile establishment playbook

Establishing Florida domicile is an affirmative act, not a default that occurs by spending time there. The Virginia Department of Taxation will challenge a claimed domicile change if the facts on the ground do not support it. In our view, a clean Florida move requires most of the following steps documented within a reasonable window:

• File a Florida Declaration of Domicile in the county of residence
• Surrender the Virginia driver’s license; obtain a Florida driver’s license
• Register the primary vehicle in Florida
• Register to vote in Florida; cancel Virginia registration
• Update the address on federal tax returns, investment accounts, IRS filings, DFAS and VA records
• Establish a Florida physical address that is more than a maildrop
• Spend the majority of the year in Florida, not just the six-month minimum, with records

The Military Spouses Residency Relief Act (MSRRA) lets a servicemember spouse retain the servicemember’s domicile, but a retiring servicemember needs to actually sever Virginia ties, not just declare. Virginia has aggressive audit programs for high-income individuals who claim Florida domicile while maintaining a Virginia residence.

Additionally, the Section 121(d)(9) suspension of the primary residence test for up to 10 years applies to military personnel on qualified extended duty but is largely moot for a post-retirement move. Consult a qualified tax professional before the move.

Where to verify your numbers

• VA disability rates: va.gov/disability/compensation-rates/veteran-rates/
• DFAS retired pay calculator: dfas.mil/retiredmilitary/plan/retirement-types.html
• Virginia Code Section 58.1-322.02: law.lis.virginia.gov/vacode/title58.1/chapter3/section58.1-322.02/
• Florida Statute Section 196.081: leg.state.fl.us
• CRS Report R40589 on CRDP and CRSC: congress.gov/crs-product/R40589

For further reading on adjacent planning moves, see our related coverage on Virginia’s $40K military retirement subtraction, the CRDP vs CRSC federal tax comparison, and the Virginia vs Florida military domicile decision framework.

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Ferrante Capital LLC is a registered investment adviser. Information presented is for educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. All investing involves risk, including the possible loss of principal.

FC and its principals may hold positions in securities or asset classes discussed in this article. This analysis is for educational purposes only and does not constitute a recommendation to buy, sell, or hold any security.

Forward-looking statements reflect Ferrante Capital’s current analysis and involve assumptions and estimates. Actual results may differ materially. Past performance is not indicative of future results.

Please consult a qualified financial professional before making investment decisions.