FISCAL NOTE
Date Requested: January 12, 2024
Time Requested: 12:36 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2024 |
Introduced |
HB4597 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Increases Revenue From Existing Sources, 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 reduce the amount of personal income tax paid by West Virginia taxpayers to $0 for those earning $60,000 or less.
Based on our interpretation, the legislation would amend §11-21-4e to be effective for taxable years beginning on or after January 1, 2025. The legislation amends the Personal Income Tax rates so that there is an effective rate of 0 percent on first $60,000 of taxable income ($30,000 for married filing separate) and a tax rate of 6.5 percent on taxable income in excess of $60,000 plus $2,775 (6.5 percent on taxable income in excess of $30,000 plus $1,387.50 for married filing separate).
The wording of the legislation creates a tax “cliff” for those filing with taxable incomes over $60,000 ($30,000 for married filing separate) with these taxpayers experiencing a significant increase in tax liability partially due to the increase in the applicable tax rate to 6.5 percent from the current rate of 5.12 percent. For example, a single taxpayer with taxable income of $60,000 would pay $0 tax and a single taxpayer with taxable income of $60,001 would owe $2,775 in tax. This huge marginal tax difference will likely encourage behavioral modifications to lower incomes. The legislation is effective for tax years beginning after December 31, 2024.
The legislation will amend existing Personal Income Tax code, which could cause some confusion regarding tax rates for the periods immediately prior to the effective period of the bill. Further, W.Va. Code §11-21-4g, enacted during the 2023 legislative session, which reduced tax rates and W.Va. Code §11-21-4h which allowed for future rate reductions would likely make the legislation difficult to implement.
According to our interpretation, the proposed legislation would increase General Revenue Fund collections by roughly $55.1 million in FY2025, $154.7 million in FY2026 and by slowly increasing amounts in subsequent fiscal years. Revenue increases associated with higher tax rates on taxpayers with more than $60,000 of taxable income ($30,000 for married filing separately) more than offsets lower revenue from those with taxable income below the stated thresholds.
Additional administrative costs incurred by the State Tax Department would be $45,000 in FY2025.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2024
Increase/Decrease
(use"-") |
2025
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
45,000 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
45,000 |
0 |
| 2. Estimated Total Revenues |
0 |
55,100,000 |
154,700,000 |
Explanation of above estimates (including long-range effect):
Based on our interpretation, the legislation would amend §11-21-4e to be effective for taxable years beginning on or after January 1, 2025. The legislation amends the Personal Income Tax rates so that there is an effective rate of 0 percent on first $60,000 of taxable income ($30,000 for married filing separate) and a tax rate of 6.5 percent on taxable income in excess of $60,000 plus $2,775 (6.5 percent on taxable income in excess of $30,000 plus $1,387.50 for married filing separate).
The wording of the legislation creates a tax “cliff” for those filing with taxable incomes over $60,000 ($30,000 for married filing separate) with these taxpayers experiencing a significant increase in tax liability partially due to the increase in the applicable tax rate to 6.5 percent from the current rate of 5.12 percent. For example, a single taxpayer with taxable income of $60,000 would pay $0 tax and a single taxpayer with taxable income of $60,001 would owe $2,775 in tax. This huge marginal tax difference will likely encourage behavioral modifications to lower incomes. The legislation is effective for tax years beginning after December 31, 2024.
The legislation will amend existing Personal Income Tax code, which could cause some confusion regarding tax rates for the periods immediately prior to the effective period of the bill. Further, W.Va. Code §11-21-4g, enacted during the 2023 legislative session, which reduced tax rates and W.Va. Code §11-21-4h which allowed for future rate reductions would likely make the legislation difficult to implement.
According to our interpretation, the proposed legislation would increase General Revenue Fund collections by roughly $55.1 million in FY2025, $154.7 million in FY2026 and by slowly increasing amounts in subsequent fiscal years. Revenue increases associated with higher tax rates on taxpayers with more than $60,000 of taxable income ($30,000 for married filing separately) more than offsets lower revenue from those with taxable income below the stated thresholds.
Additional administrative costs incurred by the State Tax Department would be $45,000 in FY2025.
Memorandum
The stated purpose of this bill is to reduce the amount of personal income tax paid by West Virginia taxpayers to $0 for those earning $60,000 or less.
The title of the bill is defective in that it only references the reduction for individuals, joint filers, heads of households, estates and trust and fails to reference the reduction for married individuals filing separately. The title of the bill also does not reference the increase in tax for those with taxable income above $60,000 ($30,000 for married filing separately).
The personal income tax rate adjustments set forth in W.Va. Code §11-21-4g during the 2023 session are not contemplated since this bill was originally drafted prior to the 2024 session. Currently, the highest tax rate is 5.12% per W.Va. Code §11-21-4g (2023, and future personal income tax rate reductions are contemplated by W.Va. Code §11-21-4h (2023).
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov