The arrival of W-2 forms in the mail reminds us, even if we may have momentarily tried to forget, that tax season is upon us. This is no ordinary tax year however. Massive changes in federal tax laws will result in significant changes at the state level as well. No one can speak with authority as to what the differences will be for an individual taxpayer as the state General Assembly has not revised state tax law to reflect the federal changes.
The situation we are in is not new. Anytime the Congress makes changes in federal tax policy the state must adjust to those changes and decide whether to adopt the federal policy or to put in new state provisions. As a conformity state Virginia has generally followed federal policy allowing taxpayers to file state returns using the information on their federal form. The difference this year is that the federal changes are so massive that conformity is not realistic without major changes in the way state forms are filed.
Adding to the fact that the forms may be different is the fact that there are major differences between the way deductions and credits have been handled and what will constitute taxable income. High income taxpayers that were the winners with the federal changes could significantly reduce monies to a state that is already struggling to meet its obligations to funding schools, mental health programs and other priorities.
Essentially Gov. Northam proposed that additional revenues be used for investments in education, workforce development, expanded broadband and targeted tax relief to those who work at the lowest wages. Republicans have proposed a plan to return more money to taxpayers, but there is strong concern that the Republican plan will make big dents in the state budget. All agree that a decision needs to be reached soon for taxpayers to file their tax forms as soon as possible and as accurately as possible. In past years as many as 650,000 taxpayers have filed in the first ten days of February.
I am patron of a bill supported by Gov. Northam that would make a portion of the Earned Income Tax Credit (EITC) refundable to taxpayers based on their income and family size. The current Virginia EITC set at 20 percent of the federal EITC does not allow for a refund of its full value as is done in 23 other states. Under the bill I introduced it is estimated that as much as $250 million would be returned to the pockets of hard-working Virginians who are at the lowest pay levels. This helps not only those workers but since low-income residents typically spend that money on goods and services, it boosts the local economy as well.
There is a sense of urgency in the General Assembly that this issue be resolved as soon as possible because it impacts every household. Not only is there a great deal of confusion, but that confusion will be multiplied many times as people start to prepare their returns with incomplete directions. The challenge has been known for several months. Tax season is upon us. Our tax policy needs to resolved now.