FISCAL NOTE
Date Requested: January 16, 2026
Time Requested: 03:58 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1666 |
Introduced |
SB460 |
|
|---|
| CBD Subject: |
Finance and Administration |
|---|
|
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.
Summarize in a clear and concise manner what impact this measure will have on costs and revenues of state government.
The stated purpose of this bill is to exempt tips and overtime from state personal income taxes to encourage economic development through workforce participation and to encourage tourism by supporting the service industry.
According to our interpretation, for tax years beginning on or after January 1, 2027, income received by a full-time hourly paid employee as compensation for work performed in excess of 40 hours per week and all tips and other gratuities earned by an employee would not be subject to West Virginia Personal Income Tax. 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 the overtime income tax exemption provision in this bill would be expected to range somewhere between $70 million and $100 million or more beginning in FY2028. Some employee/employer behavior modification might be expected to better maximize the benefit associated with this income exclusion.
Assuming no behavioral modification on the parts of taxpayers and their employers, a personal income tax deduction of all qualified tip income would reduce State revenues by approximately $5.0 million per year in FY2028. Actual costs will likely be higher due to possible conversions of some wage incomes toward greater tip income due to the tax preference. This proposed modification differs in definition from the temporary federal deduction for tips. Considering both the overtime and tip exemptions, passage of this bill would reduce General Revenue Fund collections ranging between $75 million to $105 million per year beginning in FY2028.
Additional administrative costs incurred by the State Tax Department would be $109,800 in FY2027 and $90,000 per year in FY2028 and thereafter.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2026
Increase/Decrease
(use"-") |
2027
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
109,800 |
90,000 |
| Personal Services |
0 |
90,000 |
90,000 |
| Current Expenses |
0 |
3,300 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
16,500 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
-105,000,000 |
Explanation of above estimates (including long-range effect):
Please explain increases and decreases in personal services, current expenses, repairs and alterations, assets, other costs and revenues, including assumptions and data sources and delineation between start-up and ongoing costs. Please also include a long-range schedule of costs and revenues if fiscal impact is expected to vary in future years.
According to our interpretation, for tax years beginning on or after January 1, 2027, income received by a full-time hourly paid employee as compensation for work performed in excess of 40 hours per week and all tips and other gratuities earned by an employee would not be subject to West Virginia Personal Income Tax. 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 the overtime income tax exemption provision in this bill would be expected to range somewhere between $70 million and $100 million or more beginning in FY2028. Some employee/employer behavior modification might be expected to better maximize the benefit associated with this income exclusion.
Assuming no behavioral modification on the parts of taxpayers and their employers, a personal income tax deduction of all qualified tip income would reduce State revenues by approximately $5.0 million per year in FY2028. Actual costs will likely be higher due to possible conversions of some wage incomes toward greater tip income due to the tax preference. This proposed modification differs in definition from the temporary federal deduction for tips. Considering both the overtime and tip exemptions, passage of this bill would reduce General Revenue Fund collections ranging between $75 million to $105 million per year beginning in FY2028.
Additional administrative costs incurred by the State Tax Department would be $109,800 in FY2027 and $90,000 per year in FY2028 and thereafter.
Memorandum
Please identify any areas of vagueness, technical defects, reasons a bill would not have a fiscal impact, and/or any special issues not captured elsewhere on this form.
Person submitting Fiscal Note: Mark Muchow
Email Address: radfiscal@wv.gov