FISCAL NOTE

Date Requested: January 25, 2022
Time Requested: 04:02 PM

1395	Introduced	HB4384
Agency:	Tax & Revenue Department, WV State
CBD Number:	Version:	Bill Number:	Resolution Number:
CBD Subject:	Retirement

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 first $50,000 of retirement income from personal income tax. This bill would allow for state residents who are retired from full-time employment to reduce their federal adjusted gross income by the amount of income up to $50,000, in the form of payments, annuities, retirement allowances, returns of contributions, and any other benefit received by the individual in that tax year. The exemption is to be applied per individual and, if a married couple files a joint return, one exemption of up to $50,000 shall be applied for each retired spouse with a total exemption of up to $100,000 allowed if both spouses are retired. Absent an effective date in the bill, this credit would be available for tax years beginning on or after January 1, 2023. According to the most recent tax return data, this exemption would result in a revenue loss of roughly $251.0 million per year beginning in FY2023. In the American Rescue Plan Act of 2021, Congress added a maintenance of effort (MOE) requirement for State source revenues for purposes of using State Fiscal Recovery Fund allocations to replace lost revenues. The MOE generally provides for minimum State-source revenue growth of 4.1% per year in comparison with Fiscal Year 2019 baseline revenues. For measurement purposes, actual baseline Fiscal Year 2019 revenue is subject to annual compounded growth of 4.1% to arrive at minimum revenue requirements in future years. If actual revenue growth falls below the MOE required revenue growth, then there is a risk of a claw back of federal funds to the extent such funds were used for revenue replacement, but only if a State enacted a tax reduction after March 3, 2021, of some significance. Any such claw back risk only increases with the size of the actual enacted tax reduction. U.S. Treasury has not yet supplied complete reporting requirements for States regarding this MOE requirement. Additional administrative costs to the State Tax Department would be $34,000 in FY2023 and $22,500 in subsequent fiscal years.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2022 Increase/Decrease (use"-")	2023 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	34,000	22,500
Personal Services	0	22,500	22,500
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	-251,000,000	-251,000,000

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

This bill would allow for state residents who are retired from full-time employment to reduce their federal adjusted gross income by the amount of income up to $50,000, in the form of payments, annuities, retirement allowances, returns of contributions, and any other benefit received by the individual in that tax year. The exemption is to be applied per individual and, if a married couple files a joint return, one exemption of up to $50,000 shall be applied for each retired spouse with a total exemption of up to $100,000 allowed if both spouses are retired. Absent an effective date in the bill, this credit would be available for tax years beginning on or after January 1, 2023. According to the most recent tax return data, this exemption would result in a revenue loss of roughly $251.0 million per year beginning in FY2023. In the American Rescue Plan Act of 2021, Congress added a maintenance of effort (MOE) requirement for State source revenues for purposes of using State Fiscal Recovery Fund allocations to replace lost revenues. The MOE generally provides for minimum State-source revenue growth of 4.1% per year in comparison with Fiscal Year 2019 baseline revenues. For measurement purposes, actual baseline Fiscal Year 2019 revenue is subject to annual compounded growth of 4.1% to arrive at minimum revenue requirements in future years. If actual revenue growth falls below the MOE required revenue growth, then there is a risk of a claw back of federal funds to the extent such funds were used for revenue replacement, but only if a State enacted a tax reduction after March 3, 2021, of some significance. Any such claw back risk only increases with the size of the actual enacted tax reduction. U.S. Treasury has not yet supplied complete reporting requirements for States regarding this MOE requirement. Additional administrative costs to the State Tax Department would be $34,000 in FY2023 and $22,500 in subsequent fiscal years.

Memorandum

The stated purpose of this bill is to exempt the first $50,000 of retirement income from personal income tax. This bill uses the term “exempting,” including in the title, although this would be a decreasing modification. Also in the title, the phrase “nonadditive exemption” is used. The requirement that the taxpayer must have retired from “full-time” employment is vague. In addition, this exemption is limited to resident taxpayers. This exemption, “shall not be added to, but instead shall include, any other exemption provided under this article of, or for, any form of retirement payment or benefit.” This limitation addresses how this proposed modification works with other decreasing modifications from retirement income, such as those set forth regarding retirement or senior income in §§11-21-12(c)(5) for state retirements, (6) for police retirements, (7) for military retirements, (8) for social security, (9) for the over 65 $8,000 modification, (10) for the surviving spouse exemption, and 11-21-12d for termination employer retirement.

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