Governor Youngkin has 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. There are a variety of income tax tools that drastically simplify things. 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.
The included language in the upcoming state budget to eliminate the state tax on tips follows legislation filed last Friday by Senate Republican Leader Ryan McDougle and Caucus Chair Mark Obenshain to codify the reform and align Virginia’s tax policy with federal guidelines.
“Hard-working Virginians deserve to keep the tips they earn for their service,” said Senator McDougle. “Those tips are directly given to workers by customers for service up and beyond their pay. Governor Youngkin’s inclusion of this policy in the budget is an important step in our support of hard working Virginians and we’re proud to introduced the bill to put it in the Code of Virginia.”
Senator Obenshain added, “Supporting the Governor’s ‘No Tax on Tips’ proposal ought to be a no-brainer for anyone truly interested in helping hardworking Virginians. It’s rare to find an issue where both Kamala Harris and Donald Trump have agreed, but this is the one thing they’ve both supported in principle. If Democrats dig in their heels against this policy, it is a slap in the face to the workers they claim to represent. This initiative is not only a lifeline for service industry employees but also a critical boost for restaurants struggling to attract and retain workers, allowing them to remain competitive in today’s challenging economy.”
The bill introduced by McDougle and Obenshain would end the state’s practice of taxing gratuities, bringing Virginia in line with federal law and guaranteeing that tips remain untaxed by the state.
