Sources of Revenue:

General Fund

Legislation creates:

Neither Program nor Fund

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

The stated purpose of this bill is to provide a state income tax exemption to retirees beginning in 2009 of the first $5000 of their retirement income, and then increasing the tax exemption in increments of $5000 each year until 2012 when the total exemption shall equal $20,000. As written, this bill would allow retired persons to reduce their federal adjusted gross income, for purposes of the West Virginia Personal Income Tax, by up to $5,000 for tax year 2010, up to $10,000 for tax year 2011, up to $15,000 for tax year 2012, and up to $20,000 for tax year 2013 and beyond. However, the bill does not provide definitions of “retired person” or “retirement income.” In addition to several federally defined income sources (i.e., taxable Social Security benefits, taxable pension benefits, and taxable Individual Retirement Account (IRA) distributions), taxpayers may also use interest on savings and dividends as “retirement income.” The State Tax Department does not have access to sufficient information on the amount of interest and dividend income that is classified as retirement income. While an accurate estimate of the revenue reduction attributable to passage of this bill cannot be made, the revenue reduction would be significant. In addition to the incremental increase in the amount of retirement income that can be excluded, the value of this proposed tax exclusion will escalate over time as members of the baby-boom generation enter retirement. Assuming that all Personal Income Tax returns claiming the retirement income exclusion would be accepted as filed, additional administrative costs for the State Tax Department would be minimal. However, if any verification of “retirement income” is necessary additional administrative costs for the State Tax Department would be substantial.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2008 Increase/Decrease (use"-")	2009 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	0	0
Personal Services	0	0	0
Current Expenses	0	0	0
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	0	0
2. Estimated Total Revenues	0	0	0

Explanation of above estimates (including long-range effect):

Passage of this bill would allow retired persons to reduce their federal adjusted gross income, for purposes of the West Virginia Personal Income Tax, by up to $5,000 for tax year 2010, up to $10,000 for tax year 2011, up to $15,000 for tax year 2012, and up to $20,000 for tax year 2013 and beyond. However, the bill does not provide definitions of “retired person” or “retirement income.” In addition to several federally defined income sources (i.e., taxable Social Security benefits, taxable pension benefits, and taxable Individual Retirement Account (IRA) distributions), taxpayers may also use interest on savings and dividends as “retirement income.” The State Tax Department does not have access to sufficient information on the amount of interest and dividend income that is classified as retirement income. While an accurate estimate of the revenue reduction attributable to passage of this bill cannot be made, the revenue reduction would be significant. In addition to the incremental increase in the amount of retirement income that can be excluded, the value of this proposed tax exclusion will escalate over time as members of the baby-boom generation enter retirement. Assuming that all Personal Income Tax returns claiming the retirement income exclusion would be accepted as filed, additional administrative costs for the State Tax Department would be minimal. However, if any verification of “retirement income” is necessary additional administrative costs for the State Tax Department would be substantial.

Memorandum

Person submitting Fiscal Note: Mark Muchow
Email Address: kpetry@tax.state.wv.us