Youngkin proposes exempting tips from Virginia's state income tax

Virginia Gov. Glenn Youngkin this week announced a proposal to exempt service tips from Virginia's state income tax, a move he said would put an estimated $70 million annually back into the pockets of more than 250,000 Virginians.

The Republican governor touted the plan as a way to lower the cost of living in the commonwealth.

"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," Youngkin said in a statement. "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."

Under the proposal, waiters, waitresses, bartenders, hair stylists, bellhops and concierges, and others who receive tips as part of their regular income would be able to claim a deduction on their state tax return, as long as the income also is included in their federal adjusted gross income. The Department of Taxation would use IRS data and employer-reported W-2 information to ensure compliance.

The Virginia Department of Taxation and the Virginia Employment Commission estimate that more than 250,000 Virginians working in the food service, personal service, and hospitality industries could benefit from the proposed tax relief.

Youngkin's office said the state's strong financial health, including record employment, rising revenues and surpluses, strong reserves, and a AAA bond rating, would enable such a tax relief option without affecting state funding.

Virginia House of Delegates Speaker Don Scott (D-Portsmouth) told WTVR that his party would look closely at the proposal but generally would support such an initiative.