Compromise reached on rolling income tax conformity in Virginia

By Emily Walker, CAE

Budget amendments made by committees in Virginia’s House and Senate during the 2025 Virginia General Assembly session threatened the great strides we made to simplify tax season. Luckily, due to overwhelming support from members and our lobbying team, the VSCPA was able to influence the final language in the budget conference report with a compromise.

Both the House and Senate budget reports contained similar language that undermined the modified rolling income tax conformity created by our 2023 legislation. This legislation included revenue safeguards, such as not automatically conforming to federal changes affecting revenues by $15 million or more and limiting other changes to a total of $75 million. However, the House and Senate approved amendments that removed these thresholds, stating that Virginia will not conform to federal income tax changes that have any fiscal impact. This was accomplished through a series of complex enactment clauses that would've made the change permanent.

Additionally, the amendments were made with no legislation or budget amendment previously introduced, nor any opportunity for public input or testimony. Basically: No warning.

Through discussions with budget conferees, we discovered lawmakers were uncertain about anticipated federal tax code changes in the coming months. We proposed compromise language that would pause rolling conformity for the tax year 2025, instead of making permanent changes. Thanks to member efforts in reaching out to legislators, along with our lobbying work, we were able to influence the final language in the budget conference report. The new language will pause rolling conformity from Jan. 1, 2025, until Jan. 1, 2027, with the exception of federal tax extenders, which will be adopted automatically unless Virginia has already deconformed from them. 

Changing budget language where there is existing consensus is incredibly challenging, so this is a HUGE win! Thank you to everyone who took the time to engage with legislators on this critical tax policy issue. The budget, and therefore this change, won't be final until it's signed by Gov. Glenn Youngkin. We expect the governor will have some changes to the budget, but we do not anticipate any further changes to conformity.

What now? Tax year 2024 is not affected by this change because rolling conformity was in place. However, we WILL need legislative action to address conformity for any federal changes between Jan. 1, 2025, and Jan. 1, 2027. If there are changes affect tax year 2025, we will push for emergency legislation during next year's General Assembly session. Additionally, Virginia will still automatically conform with any federal extension of Tax Cut and Jobs Act (TCJA) provisions — as long as the change is just an extension, not a new or modified provision.

Rolling income tax conformity is a significant policy issue for the VSCPA. Lawmakers spent the previous two decades passing retroactive emergency tax conformity legislation each year to update Virginia’s conformity to the U.S. Internal Revenue Code (IRC) — causing tax season filing delays and angst for tax preparers and taxpayers alike. The success was the culmination of a multi-year effort to earnestly and aggressively advocate for rolling conformity.

We'll continue to monitor any other developments related to tax conformity.