FISCAL NOTE
Date Requested: February 26, 2025
Time Requested: 07:10 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3412 |
Introduced |
SB610 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to exempt personal income tax on overtime pay.
According to our interpretation, the income received by a full-time hourly paid employee as compensation for work performed in excess of 40 hours per week would not be subject to West Virginia Personal Income Tax beginning in Tax Year 2026. Beyond the requirement that a full-time hourly employee work more than 40 hours during one or more weeks of the year, there are no additional definitions relating to the scope of this decreasing modification. The income exclusion would not be limited to overtime paid in accordance with the Fair Labor Standards Act (FLSA) or any other existing labor criteria relating to wage payment rules for employees working more than 40 hours per week. Based on the recent experience of a similar Law enacted in Alabama, the projected annual General Revenue Fund loss associated with passage of this bill would be expected to range somewhere between $70 million and $100 million or more beginning in FY2027. Some employee/employer behavior modification might be expected to better maximize the benefit associated with this income exclusion.
Additional administrative costs incurred by the State Tax Department would be $16,500 for the remainder of FY2025, $93,000 in FY2026, and $90,000 per year in FY2027 and thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2025
Increase/Decrease
(use"-") |
2026
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
16,500 |
93,000 |
90,000 |
| Personal Services |
0 |
90,000 |
90,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
3,000 |
0 |
| Other |
16,500 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation, the income received by a full-time hourly paid employee as compensation for work performed in excess of 40 hours per week would not be subject to West Virginia Personal Income Tax beginning in Tax Year 2026. Beyond the requirement that a full-time hourly employee work more than 40 hours during one or more weeks of the year, there are no additional definitions relating to the scope of this decreasing modification. The income exclusion would not be limited to overtime paid in accordance with the Fair Labor Standards Act (FLSA) or any other existing labor criteria relating to wage payment rules for employees working more than 40 hours per week. Based on the recent experience of a similar Law enacted in Alabama, the projected annual General Revenue Fund loss associated with passage of this bill would be expected to range somewhere between $70 million and $100 million or more beginning in FY2027. Some employee/employer behavior modification might be expected to better maximize the benefit associated with this income exclusion.
Additional administrative costs incurred by the State Tax Department would be $16,500 for the remainder of FY2025, $93,000 in FY2026, and $90,000 per year in FY2027 and thereafter.
Memorandum
The stated purpose of this bill is to exempt personal income tax on overtime pay.
The language of the bill’s title is unclear. Rather than “exempting personal income tax on overtime”, it would be more accurate to say that this bill exempts overtime pay from the Personal Income Tax.
This bill does not define overtime pay, and the lack of a definition could be a major problem in administration. Perhaps a cross reference to W.Va. Code §21-5C-3 establishing overtime pay would be appropriate to clarify the definition.
This bill is silent as to some wage earners who may work three, twelve-hour days per week and count as a full work week with excess hours eligible for overtime. Likewise, some wage earners may, by contract, agree with the employer when “overtime” hours apply. Further, the bill does not address a possible scenario where a taxpayer works for more than one employer, working for no single employer for more than 40 hours a week but for more than 40 hours in the aggregate.
Person submitting Fiscal Note: Mark Muchow
Email Address: RADfiscal@wv.gov