by Steve Haner
Governor Glenn Youngkin has proposed that Virginia conform its tax rules to most of the changes in federal taxes adopted by Congress last summer, including recognizing a state tax deduction for tip income, overtime pay and interest payments on car loans.
Those tax policy recommendations are part of the Republican’s final introduced state budget package, which he presented to legislators on Wednesday at a joint meeting of the House and Senate financial committees. Their fate will be decided early next year by the legislators and incoming Democratic Governor Abigail Spanberger.
The departing Governor also proposed to make other tax cuts he enacted during his term permanent, including the state’s current standard deduction amount of $8,750 per person or $17,500 per couple and the higher Earned Income Tax Credit. Without legislative action the standard deduction would revert in 2027 to $6,000 per couple, which was the allowed deduction at the start of his term. The higher deduction saves a married couple up to $661 per year, so losing it would hurt.
“There is no need for any new taxes and there is no need for tax increases,” Youngkin told the assembled legislators and Spanberger, who was watching in the front row. He included in that admonition the carbon tax on electricity imposed by the Regional Greenhouse Gas Initiative (RGGI), which he ended but which Spanberger has pledged to reimpose, reaping half a billion dollars per year from energy customers.
Youngkin is proposing only partial compliance with the new federal deductions for tips and overtime income, and the car loan interest. Deductions would not be available this current year, unlike the federal deductions. Starting with tax year 2026, a taxpayer who qualified for those deductions at the federal level could take 25% of that amount off on their state tax return, and in subsequent years it rises to 50% of the federal amount.
