Legal changes resulting from the Tax Cuts and Jobs Act of 2017 meant that Virginia taxpayers were expecting their tax liability to increase for 2018, at least on state taxes. This blunder has now been avoided, thanks to a bill that just passed through the Virginia General Assembly.
One-time refund to offset higher state taxes
Now signed into law by Gov. Northam, the new statute will send millions of dollars back to Virginia residents. One of the key provisions is a one-time refund of $110 for individual filers and $220 for couples.
The purpose of these rebates is to compensate state residents for the higher state taxes they will have to pay as a result of the new federal law. The total amount the state government expects to distribute in these one-time gifts is around $420 million.
Changes to the Virginia standard deduction
After the federal government passed the Tax Cuts and Jobs Act, the state of Virginia was not coordinated with Washington’s new tax system. Filers who took the standard federal deduction would be required under state law to take Virginia’s much lower deduction. This, in turn, would lead to much higher state taxes being paid. Virginia’s new law eliminates this situation.
Specifically, the new tax law will raise the standard deduction on Virginia’s tax return to $4,500 for individuals and $9,000 for married couples. Another feature of the state law is the elimination of a cap on the amount of local property taxes that can be deducted on itemized returns.
Benefits for Virginia businesses
Business taxation in Virginia will also be impacted by the new law. Income received from corporate investments outside the United States will be protected. Also, businesses will be able to deduct a percentage of the interest they are unable to claim on Uncle Sam’s 1040.
Individual and business tax breaks in Virginia’s new law total nearly a billion dollars. Delegate Schuyler T. VanValkenburg (D-Henrico) summed up the legislature’s work: “We wanted tax relief for people who weren’t getting it in the federal plan and that’s what we got.”
Still have questions?
If you would like to know more about how the changes in the tax law affect you, contact an accountant at Glass Jacobson today.
The increase in the standard deduction is paltry $3000 for a couple does not solve the larger problem of having to file a VA return with a standard deduction if you file
a Federal return with the new higher standard deduction.Example taxpayer has
itemized $25,000 for couple over 65 (includes $2,000 VA tax payments) If he files a standard deduction Fed. return he benefits by the additional $1600 (26,600) but he must file a VA standard return losing $14,000 in deductions ($23,000 less the $9,000 )
Solution not adopted by the legislature decouple the choice of deduction from the Fed deduction.
Mr. Gold- thank you for your response.
Unfortunately, you are correct as you still have to claim the standard deduction in VA, if you chose standard on the Federal return. The same is true if you claim itemized deduction on Federal, you must do the same for VA. Therefore, you need to consider the combined tax effect for your Federal and VA tax when making the choice of standard deduction versus itemized. So, even if the standard deduction is greater on the Federal return, the loss of the deductions on the VA return may make it more beneficial to take the lower itemized deduction on the Federal return so you can also itemize in VA.
What was the final outcome on personal exemptions? Do the VA personal exemptions still exist for 2019 over and above the increased standard deduction?
Hi John – thank you for the great question. The standard deduction will be raised to $4,500 single and $9,000 joint in 2019, and there will be a personal exemption you can take above that – $930 per person.
Does TAX BULLETIN 10 – 1 for spouses of military members apply only to active duty or is there any tax laws that also apply for disabled veterans’ spouses pertaining to the spouse being exempt from income tax as an employee. I know about the personal property exemption for 100% disabled veterans.
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