FISCAL NOTE

Date Requested: January 14, 2019
Time Requested: 11:31 AM
Agency: Tax & Revenue Department, WV State
CBD Number: Version: Bill Number: Resolution Number:
1683 Introduced HB2220
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 create a partial state income tax exemption for Social Security benefits received by taxpayers with federal adjusted gross income under $100,000 if married filing jointly, or under $50,000 if single or married filing separately. The exemption would be phased in to a full exemption over 3 years. For taxable years beginning in 2019, 25% of the Social Security benefits are exempt; in 2021, 50 percent; and in 2021 and thereafter, 100 percent. The bill proposes a decreasing modification for social security income when the federal adjusted gross income of a married couple filing a joint return does not exceed $100,000 or when a single individual or a married individual filing a separate return does not exceed $50,000. The proposed decreasing modification will be phased in over three years. For taxable years beginning on and after January 1, 2019, 25 percent of social security benefits are allowed as a decreasing modification from federal adjusted gross income. For taxable years beginning on and after January 1, 2020, 50 percent of social security benefits are allowed as a decreasing modification from federal adjusted gross income. For taxable years beginning on and after January 1, 2021, 100 percent of social security benefits are allowed as a decreasing modification from federal adjusted gross income. Additionally, according to the provisions of the bill, a taxpayer that claims the proposed decreasing modification for social security income will reduce or no longer qualify for the $8,000 senior citizen modification. According to our interpretation, passage of the bill would reduce General Revenue Fund collections by roughly $2.0 million in FY2020, $5.5 million in FY2021 and $24.0 million in FY2022. The value of the proposed tax exclusion will grow over time as the population ages and the number of individuals receiving social security benefits increases. The Governor’s official revenue estimate incorporates the assumption that the Legislature would enact the Governor’s proposed bill to exempt taxable social security benefits from state taxation beginning in tax year 2019. Therefore, relative to the Governor’s official revenue estimate, the provisions of the bill would increase state tax collections by roughly 48.0 million in FY2020. Additional administrative costs incurred by the State Tax Department would be $51,000 in FY2020, $50,000 per year in FY2021 and FY2022, and $40,000 in subsequent fiscal years. 0



Fiscal Note Detail


Effect of Proposal Fiscal Year
2019
Increase/Decrease
(use"-")
2020
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 40,000
Personal Services 0 0 40,000
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 -2,000,000 0


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


The bill proposes a decreasing modification for social security income when the federal adjusted gross income of a married couple filing a joint return does not exceed $100,000 or when a single individual or a married individual filing a separate return does not exceed $50,000. The proposed decreasing modification will be phased in over three years. For taxable years beginning on and after January 1, 2019, 25 percent of social security benefits are allowed as a decreasing modification from federal adjusted gross income. For taxable years beginning on and after January 1, 2020, 50 percent of social security benefits are allowed as a decreasing modification from federal adjusted gross income. For taxable years beginning on and after January 1, 2021, 100 percent of social security benefits are allowed as a decreasing modification from federal adjusted gross income. Additionally, according to the provisions of the bill, a taxpayer that claims the proposed decreasing modification for social security income will reduce or no longer qualify for the $8,000 senior citizen modification. According to our interpretation, passage of the bill would reduce General Revenue Fund collections by roughly $2.0 million in FY2020, $5.5 million in FY2021 and $24.0 million in FY2022. The value of the proposed tax exclusion will grow over time as the population ages and the number of individuals receiving social security benefits increases. The Governor’s official revenue estimate incorporates the assumption that the Legislature would enact the Governor’s proposed bill to exempt taxable social security benefits from state taxation beginning in tax year 2019. Therefore, relative to the Governor’s official revenue estimate, the provisions of the bill would increase state tax collections by roughly 48.0 million in FY2020. It is also important to note the presence of a cliff in which Taxpayers with similar liabilities will receive different tax treatment. Significant inequity occurs, upon full implementation of this bill, when taxpayers slightly below the income cutoff are eligible to deduct taxable Social Security benefits while Taxpayers slightly above the cutoff are not eligible for the modification. For example, consider two different West Virginia taxpayers who are 65 years of age and filing a joint return. Both received taxable Social Security benefits of $23,000. Person A’s federal adjusted gross income is determined to be $99,999 and Person B’s federal adjusted gross income is determined to be $100,001. Under the proposed bill, Person A would qualify for the decreasing modification for excluding taxable Social Security Benefits while Person B would not. If we assume full exclusion of taxable Social Security benefits are in place, Person A will be able to reduce federal adjusted gross income by the amount of taxable Social Security benefits ($23,000) to determine West Virginia Taxable Income of $72,999 (after subtraction for two personal exemption). This individual’s tax due is $3,619. By comparison, Person B would not be able to reduce federal adjusted gross income by the amount of taxable Social Security benefits, thus West Virginia Taxable Income is $ 88,001 (after subtraction for two personal exemption and the full $8,000 senior modification). Person B would pay an additional $976 of West Virginia Personal Income Tax on incremental income of just $1. This individual’s tax due is $ 4,595. Additional administrative costs incurred by the State Tax Department would be $51,000 in FY2020, $50,000 per year in FY2021 and FY2022, and $40,000 in subsequent fiscal years.



Memorandum


The stated purpose of this bill is to create a partial state income tax exemption for Social Security benefits received by taxpayers with federal adjusted gross income under $100,000 if married filing jointly, or under $50,000 if single or married filing separately. The exemption would be phased in to a full exemption over 3 years. For taxable years beginning in 2019, 25% of the Social Security benefits are exempt; in 2021, 50 percent; and in 2021 and thereafter, 100 percent. The proposed Paragraph (A) of proposed W. Va. Code §11-21-12(c)(12) is not underlined as additions to the Code. Paragraph (E) of proposed W. Va. Code §11-21-12 is a savings clause if any part of the subdivision is found to be unconstitutional the section shall become null and void. The intent may be to void the subdivision, not all of W. Va. Code §11-21-12.



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov