FISCAL NOTE
Date Requested: January 29, 2026
Time Requested: 06:21 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2920 |
Introduced |
HB4963 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to establish an additional modification reducing federal adjusted gross income relating to taxes on tips and overtime.
According to our interpretation, this bill provides an additional Schedule M modification reducing federal adjusted gross income related to taxes on tips and overtime for tax years beginning on or after January 1, 2026, and before January 1, 2029, in an amount equal to the sum of deductions related to qualified tips and qualified overtime compensation. Qualified tips deductions would be up to $25,000 per year annually. Like its federal counterpart, the proposed Schedule M modification would phase out for taxpayers with modified adjusted gross income over $150,000 per year.
Under the One Big Beautiful Bill, workers may be eligible for new federal deductions for tax years 2025 through 2028 if they receive qualified tips. Additionally, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay, generally, the “half” portion of “time and a half” compensation, that is required by the Fair Labor Standards Act. The IRS estimates that roughly six million workers report tipped wages. The Joint Committee on Taxation estimates that between tax years 2025 through 2029, the total cost of the federal deduction on tips would cost $28.6 billion while the cost of the federal deduction on overtime during this five-year period would be $89.6 billion. The federal deductions are not included in federal adjusted gross income, which is the starting point for calculation of West Virginia Personal Income Tax liability.
A personal income tax deduction of qualified tips up to $25,000 would reduce State revenues by approximately $4.3 million per year in FY2028 while the decreasing modification for the overtime provisions would reduce revenues by roughly $60.0 million to $70.0 million in FY2028. Considering both the overtime and tip exemptions, passage of this bill would reduce General Revenue Fund collections ranging between $64.3 million to $74.3 million per year from FY2027 through FY2030.
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 |
-69,300,000 |
-69,300,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, this bill provides an additional Schedule M modification reducing federal adjusted gross income related to taxes on tips and overtime for tax years beginning on or after January 1, 2026, and before January 1, 2029, in an amount equal to the sum of deductions related to qualified tips and qualified overtime compensation. Qualified tips deductions would be up to $25,000 per year annually. Like its federal counterpart, the proposed Schedule M modification would phase out for taxpayers with modified adjusted gross income over $150,000 per year.
Under the One Big Beautiful Bill, workers may be eligible for new federal deductions for tax years 2025 through 2028 if they receive qualified tips. Additionally, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay, generally, the “half” portion of “time and a half” compensation, that is required by the Fair Labor Standards Act.
The IRS estimates that roughly six million workers report tipped wages. The Joint Committee on Taxation estimates that between tax years 2025 through 2029, the total cost of the federal deduction on tips would cost $28.6 billion while the cost of the federal deduction on overtime during this five-year period would be $89.6 billion. The federal deductions are not included in federal adjusted gross income, which is the starting point for calculation of West Virginia Personal Income Tax liability.
A personal income tax deduction of qualified tips up to $25,000 would reduce State revenues by approximately $4.3 million per year in FY2028 while the decreasing modification for the overtime provisions would reduce revenues by roughly $60.0 million to $70.0 million in FY2028. Considering both the overtime and tip exemptions, passage of this bill would reduce General Revenue Fund collections ranging between $64.3 million to $74.3 million per year from FY2027 through FY2030.
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
Person submitting Fiscal Note: Mark Muchow
Email Address: RADfiscal@wv.gov