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Gov. Glenn Youngkin (R) says Virginia workers shouldn’t pay state tax on tips they get from customers.
Adopting the policy — supported on a federal level by both president-elect Donald Trump and vice president Kamala Harris during the recent election — would let tipped workers keep an extra $70 million each year throughout the Commonwealth, the governor’s office said in a press release Monday.
Youngkin says he is proposing the tax change in his upcoming budget. GOP state senators, meanwhile, signaled their support for Youngkin’s proposal in statements Monday, after introducing a bill last week to eliminate state income tax on gratuities.
The governor’s press release is below.
Governor Glenn Youngkin today announced a budget proposal to exempt service tips from Virginia’s state income tax. This proposal will return an estimated $70 million annually to the pockets of hardworking Virginians to further deliver on Governor Youngkin’s commitment to lower the cost of living for working families across the Commonwealth. This builds on the more than $5 billion in tax relief already delivered for Virginians under his administration.
“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,” said Governor Glenn Youngkin. “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 within the food service industry, personal service industry (such as hair stylists), and hospitality industry (such as bellhops and concierges) could benefit from the proposed tax relief. Workers who receive tips from their employment in other industries would also benefit.
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.
The Commonwealth’s robust financial health, marked by record employment levels, rising revenues and surpluses, robust reserves, and a AAA bond rating, enables the Commonwealth to implement meaningful tax relief for Virginians while maintaining fiscal responsibility and sustaining vital investments in public services.
Critics of exempting tips from tax have a number of reasons why they think it’s a bad policy, however, from issues of fairness to a loss of revenue to the risk of distorting labor markets.
“It’s not fair to subsidize Le Cirque waiters but not McDonald’s customer service associates with tax-free tips. Or to so favor a hotel’s housekeeper, but not a homeowner’s house cleaner,” the Tax Policy Center wrote in September. “Or, for that matter, traditional employees and not independent contractors in the growing gig economy.”
What do you think? Should Virginia exempt service tips from state income tax? Or do you oppose the governor’s proposal?
