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Updates to Virginia tax legislation 

October 18, 2022
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  2. Updates to Virginia tax legislation 

After a difficult year passing a state budget, the Virginia General Assembly finally implemented tax changes. 

A variety of legislation was passed by the Virginia General Assembly this year. The below items all went into effect on July 1, 2022, unless otherwise noted. For a full report on all the changes, as this list is not all-inclusive, read the “2022 Legislative Summary” from the Virginia Department of Taxation, available as a PDF at tax.virginia.gov. 

Conformity of Virginia’s tax code to the Internal Revenue Code 

Thanks to fairly quick passage this year, fixed-date tax conformity was signed by Gov. Glenn Youngkin and became law on Feb. 23, 2022. HB 971 was passed by the Virginia House on Feb. 4 and then the Senate on Feb. 17. The bill advanced Virginia's date of conformity with the Internal Revenue Code (IRC) from Dec. 31, 2020, to Dec. 31, 2021. 

The legislation includes full conformity to the American Rescue Plan Act, including the Restaurant Revitalization Fund, and allows full deductibility of expenses paid with Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) for tax years beginning Jan. 1, 2021. The bill also includes a technical amendment to allow fiscal year filers to take advantage of the $100,000 deduction for forgiven PPP loans and Rebuild Virginia grants received in calendar year 2020. Additionally, the final legislation did NOT include an increase in 2020 PPP deductibility to $1 million. 

Virginia will continue to deconform from: 

  • Bonus depreciation allowed for certain assets under federal income taxation. 
  • Five-year carryback of certain net operating losses (“NOLs”) generated in Taxable Years 2008 and 2009. 
  • Tax exclusions related to cancellation of debt income. 
  • Tax deductions related to the application of the applicable high yield debt obligation rules. 
  • The suspension of the federal overall limitation on itemized deductions. 
  • The reduction in the medical expense deduction floor. 

Pass-through entity tax 

The VSCPA successfully helped get HB 1121 and SB 692 passed by the 2022 Virginia General Assembly with several technical amendments, and Gov. Glenn Youngkin signed the bills April 11, 2022. 

The bills adopt the ability to pay entity-level taxes for qualifying pass-through entities (PTE), i.e., the workaround for the State and Local Tax (SALT) cap. We also sought amendments to the bill to address the out-of-state credit (OSC) disallowance highlighted by the Virginia Department of Taxation’s (TAX) Dec. 28, 2021 (PDF), ruling. The OSC will be effective for tax years beginning on and after Jan. 1, 2021, but only with the ability to pay an entity-level tax after-the-fact for 2021 returns because programming cannot be completed in time for the current filing season. That will be available for the 2022–2026 seasons. 

Electronic payment requirement for certain individual income tax payments 

Certain taxpayers who pay estimated taxes must make all income tax payments on or after July 1, 2022, electronically if those payments exceed $1,500 or if their total tax liability exceeds or can reasonably be expected to exceed $6,000.  

Standard deduction increase 

For taxable years beginning on or after Jan. 1, 2022, the standard deduction was increased from $4,500 to $8,000 for single filers and from $9,000 to $16,000 for married filing jointly. 

Individual income tax rebates 

Effective June 17, 2022, individual Virginia taxpayers will receive up to a $250 tax rebate and married filing jointly up to $500. A refund is allowed only up to the amount of the taxpayer’s tax liability after the application of any deductions, subtractions or credits to which the taxpayer is entitled. 

Refundable earned income tax credit (EITC) 

Virginia residents can claim a refundable EITC equal to 15% of the federal EITC they claim for the same taxable year. Only one credit may be claimed in a taxable year by an eligible household. 

Issues under study: Assessment of the tax department’s operating system and more 

Legislation has established groups to investigate certain tax-related issues: 

  • Virginia Tax will conduct an assessment of the agency’s Integrated Revenue Management Systems (IRMS) and then develop guiding principles and options to address any identified shortcomings. 
  • Virginia Tax will study and develop a proposal to require all individuals who conduct local property tax assessments to receive state certification and ongoing recertification to ensure more effective, consistent and equitable assessments. 
  • A working group will examine the processes currently used to collect occupancy taxes and make recommendations for improving efficiency and uniformity. 

The VSCPA will reach out to stakeholders to communicate CPAs feedback on these issues. 

Member resources 

  • Don Farmer’s tax seminars: Visit vscpa.com and search for Don Farmer in the course catalog.