As a result of the new federal tax law signed into law in December 2017, many small business owners in Virginia—and across the country—have been giving employees bonuses, instituting pay raises, hiring more workers, and investing in their businesses. However, NFIB/VA State Director Nicole Riley wrote in a Richmond Times-Dispatch op-ed, these benefits will be short-lived in Virginia unless the General Assembly changes the state’s tax laws.
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Currently, under Virginia law, taxpayers pay their state income tax using their federal adjusted gross income. Because a number of business and individual deductions were eliminated at the federal level (but were replaced by doubling the standard deduction and reducing tax rates), Virginia taxpayers will be paying more in state income taxes because their federal adjusted gross income will be larger.
This means that Virginia taxpayers will end up paying much more in taxes if lawmakers don’t make changes to our tax policy — and Virginia stands to get a windfall of about $500 million per year. Gov. Ralph Northam has a plan to address this, but NFIB/VA and some legislative leaders are pushing back on the idea. Under Gov. Northam’s plan, the state’s earned income tax credit would be refundable so that those who qualify would receive a check for the difference between what they owe in taxes and what they’re entitled to as a credit. These funds would be covered, however, by the revenue generated by eliminating small business and individual itemized deductions in Virginia.
“The governor’s plan would lead to a big increase in taxes for small businesses and working families,” Riley said in a statement following the announcement of Gov. Northam’s plan. “Our members want to see Governor Northam and the General Assembly take a thoughtful and broad-based approach to tax reform to ensure that as many taxpayers as possible benefit from the federal tax cuts. When you raise taxes on small businesses, you make it harder for them to grow and create jobs, and that would hurt all Virginians.”
