Governor Glenn Youngkin has unveiled a new budget proposal aimed at exempting service tips from Virginia’s state income tax.
This initiative is expected to return approximately $70 million annually to Virginians and will build on the more than $5 billion in tax relief already delivered under Youngkin’s administration.
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“We have delivered over $5 billion in tax relief to date, and we remain committed to lowering the cost of living for hardworking Virginians. It’s their money, not the government’s,” Governor Youngkin stated. “By removing tips from taxable income, it will directly increase the take-home pay of hundreds of thousands of Virginians and give them more buying power, which in turn will improve financial stability, stimulate local economies, and honor the value of their hard work.”
The Virginia Department of Taxation and the Virginia Employment Commission estimate that more than 250,000 Virginians in the food service, personal service, and hospitality industries could benefit from this proposed tax relief. Workers who receive tips in other industries would also see benefits.
Under the proposal, Virginians who earn tips will be able to claim a deduction on their state tax return, provided the income is included in their federal adjusted gross income. The Department of Taxation will use IRS data and employer-reported W-2 information to ensure compliance.