FISCAL NOTE
Date Requested: January 17, 2023
Time Requested: 03:10 PM |
| Agency: |
Tax & Revenue Department, WV State |
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| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1284 |
Introduced |
HB2466 |
|
|---|
| CBD Subject: |
|
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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 exclude income from West Virginia retirement systems and social security from inclusion in adjusted gross income or resident individuals.
According to our interpretation, this bill increases the decreasing modification for benefits from the Public Employees Retirement System and the West Virginia Teachers Retirement System from $2,000 to the full amount of benefits received for all returns or amended returns filed after December 31, 2023. The bill also eliminates the decreasing modification for federal retirement systems. In addition, the bill removes the income limitation for the decreasing modification for Social Security benefits for taxable years beginning on or after January 1, 2022.
The increase in the modification for benefits from the West Virginia Public Employees Retirement System and the West Virginia Teachers Retirement System would reduce General Revenue Fund collections by $54.2 million in FY2025 for current year returns. The elimination of the decreasing modification for all federal retirement systems would increase General Revenue Fund collections by roughly $2.0 million in FY2025. The revenue loss for the bills as written would be $52.1 million in FY2025. The anticipated retirements of members of the baby-boom generation will result in additional escalation of costs over time. The bill also allows these changes for all amended returns filed after December 31, 2023.
The provisions of this bill would increase tax on federal government retirees by removing the existing $2,000 decreasing modification for this group. However, the United States Supreme Court’s ruling in Davis v. Michigan (1989) would preclude the State from treating federal government retirees unfairly in relation to State government retirees. Therefore, West Virginia will also need to fully exempt federal civil service retiree pensions at additional cost of $30.2 million.
Based on Personal Income Tax rates currently in effect, the removal of the income limitation for the decreasing modification for Social Security benefits would reduce General Revenue Fund collections by as much as $11.0 million in FY2024, by $46.0 million in FY2025 and by increasing amounts in subsequent fiscal years.
Administrative costs incurred by the State Tax Department are estimated to be $61,500 for FY2025 and $45,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2023
Increase/Decrease
(use"-") |
2024
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
0 |
45,000 |
| Personal Services |
0 |
0 |
45,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
-130,500,000 |
Explanation of above estimates (including long-range effect):
According to our interpretation, this bill increases the decreasing modification for benefits from the Public Employees Retirement System and the West Virginia Teachers Retirement System from $2,000 to the full amount of benefits received for all returns or amended returns filed after December 31, 2023. The bill also eliminates the decreasing modification for federal retirement systems. In addition, the bill removes the income limitation for the decreasing modification for Social Security benefits for taxable years beginning on or after January 1, 2022.
The increase in the modification for benefits from the West Virginia Public Employees Retirement System and the West Virginia Teachers Retirement System would reduce General Revenue Fund collections by $54.2 million in FY2025 for current year returns. The elimination of the decreasing modification for all federal retirement systems would increase General Revenue Fund collections by roughly $2.0 million in FY2025. The revenue loss for the bills as written would be $52.1 million in FY2025. The anticipated retirements of members of the baby-boom generation will result in additional escalation of costs over time. The bill also allows these changes for all amended returns filed after December 31, 2023.
The provisions of this bill would increase tax on federal government retirees by removing the existing $2,000 decreasing modification for this group. However, the United States supermen Court’s ruling in Davis v. Michigan (1989) would preclude the State from treating federal government retirees unfairly in relation to State government retirees. Therefore, West Virginia will also need to fully exempt federal civil service retiree pensions at additional cost of $30.2 million.
Based on Personal Income Tax rates currently in effect, the removal of the income limitation for the decreasing modification for Social Security benefits would reduce General Revenue Fund collections by as much as $11.0 million in FY2024, by $46.0 million in FY2025 and by increasing amounts in subsequent fiscal years.
Administrative costs incurred by the State Tax Department are estimated to be $61,500 for FY2025 and $45,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to exclude income from West Virginia retirement systems and social security from inclusion in adjusted gross income or resident individuals.
The bill increases the modification for retirees from the Public Employees Retirement System and the Teachers Retirement System and eliminates the modification for federal retirees. There is concern that preferential treatment for a large group of state and local government retirees relative to federal civil service retirees would conflict with the U.S. Supreme Court ruling in Davis v. Michigan.
Current W. Va. Code §11-21-12(c)(6) provides a reducing modification for payments from various police and firefighter pension systems for tax years after December 31, 1979. The bill deletes the December 31, 1979 date and replaces it with December 31, 2023. The change might create confusion about whether the modification would still be in effect for the 2023 tax year if the bill passes.
Current W. Va. Code §11-21-12(c)(8) provides a reducing modification in the amount of social security benefits. This reducing modification was phased in starting with the 2020 tax year, and the modification currently is at 100 percent. The current code provides that the social security reducing modification is only available to taxpayers with federal adjusted gross income of $50,000 or less, or $100,000 or less for a couple filing jointly. This bill deletes the cap language, which will allow all taxpayers, regardless of federal adjusted gross income, to reduce their state taxable income by the entire amount of social security benefits received. Reference to the cap section was deleted only from the most recent iteration of the phase-in of the modification (W. Va. Code §11-21-12(c)(8)(C)). The subdivisions for the previous phased-in amounts (W. Va. Code §§11-21-12(c)(8)(A) and (B)) retain the reference to the cap.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov