FISCAL NOTE
Date Requested: January 13, 2022
Time Requested: 03:21 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1899 |
Introduced |
HB4076 |
|
|---|
| 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 the full amount of social security benefits from personal income taxation.
According to our interpretation of this bill, this bill exempts all Social Security benefits from personal income tax without any income restrictions for tax years beginning on or after January 1, 2023. Under current law, a decreasing modification for Social Security benefits is allowed when the federal adjusted gross income of a married couple filing a joint return does not exceed $100,000, or $50,000 in the case of a single individual or a married individual filing a single return. Current statute allows 35 percent of the amount of Social Security benefits included in federal adjusted gross income for taxable years beginning on or after January 1, 2020, to be excluded for taxpayers in those income brackets. For taxable years beginning on or after January 1, 2021, this reduction increased to 65 percent and on January 1, 2022, it increased to 100 percent.
Passage of this bill would reduce General Revenue Fund collections by $27.0 million in FY2023 and subsequent fiscal years from current year returns. The provisions of this bill would exclude all federally taxable Social Security benefits from State taxable income. 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.
In addition, taxpayers with taxable Social Security benefits and income above $100,000 for a joint return and $50,000 for a single return could amend their returns for tax years 2020 and 2021, resulting in a larger reduction in revenue during the initial year. The bill removes the income requirement for all years.
Additional administrative costs incurred by the State Tax Department would be $56,500 in FY2023 and $45,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2022
Increase/Decrease
(use"-") |
2023
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
56,500 |
45,000 |
| Personal Services |
0 |
45,000 |
45,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
1,500 |
0 |
| Other |
0 |
10,000 |
0 |
| 2. Estimated Total Revenues |
0 |
-27,000,000 |
0 |
Explanation of above estimates (including long-range effect):
According to our interpretation of this bill, this bill exempts all Social Security benefits from personal income tax without any income restrictions for tax years beginning on or after January 1, 2023. Under current law, a decreasing modification for Social Security benefits is allowed when the federal adjusted gross income of a married couple filing a joint return does not exceed $100,000, or $50,000 in the case of a single individual or a married individual filing a single return. Current statute allows 35 percent of the amount of Social Security benefits included in federal adjusted gross income for taxable years beginning on or after January 1, 2020, to be excluded for taxpayers in those income brackets. For taxable years beginning on or after January 1, 2021, this reduction increased to 65 percent and on January 1, 2022, it increased to 100 percent.
Passage of this bill would reduce General Revenue Fund collections by $27.0 million in FY2023 and subsequent fiscal years from current year returns. The provisions of this bill would exclude all federally taxable Social Security benefits from State taxable income. 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.
In addition, taxpayers with taxable Social Security benefits and income above $100,000 for a joint return and $50,000 for a single return could amend their returns for tax years 2020 and 2021, resulting in a larger reduction in revenue during the initial year. The bill removes the income requirement for all years.
Additional administrative costs incurred by the State Tax Department would be $56,500 in FY2023 and $45,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to exempt the full amount of social security benefits from personal income taxation.
The bill’s changes to W. V. Code §11-21-12(c)(8) remove the income caps on eligibility for the reducing modification. However, it remains unclear if the removal of those caps is prospective only or if it is retroactive to tax years 2020 and 2021. Although the bill’s title does not address retroactivity, the language of the bill arguably results in removal of the income caps retroactive to tax years 2020 and 2021. Taxpayers whose gross income made them ineligible for the reducing modification in 2020 or 2021 could be eligible to file amended returns claiming a reducing modification for taxable Social Security benefits.
The bill’s language creates a similar problem with regard to the phased-in percentages for tax years 2020 and 2021. Since the new language of paragraph (D) proclaims that the modification is for “the full amount of Social Security benefits” and the bill retains the language in paragraph (D) that makes it applicable to paragraphs (A), (B), and (C), it could be argued that the bill allows a retroactive modification in the amount of 100 percent of Social Security benefits for tax year 2020 (instead of 35 percent) and 100 percent of Social Security benefits for tax year 2021 (instead of 65 percent). This result would mean that taxpayers receiving Social Security benefits in tax year 2020 (and tax year 2021 if they have filed a return prior to the bill’s effective date) would be entitled to file amended returns claiming an increased reducing modification.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov