FISCAL NOTE
Date Requested: February 14, 2023
Time Requested: 12:54 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3421 |
Introduced |
HB3530 |
|
|---|
| 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 provide tax reductions and other aid to West Virginians. The bill states a purpose; provides for a child tax credit; provides for a child and dependent care tax credit; authorizes an earned income tax credit; authorizes a student loan interest tax credit; and provides for rulemaking and an effective date.
Based on our interpretation, the bill creates the following personal income tax credits: refundable child tax credit, refundable child and dependent care credit, earned income tax credit, and student loan interest credit. The proposed legislation would be effective for personal income tax years beginning on or after January 1, 2024.
The refundable child tax credit is available to a West Virginia resident or part-year resident individual who is entitled to a child tax credit under the laws of the United States. The credit is $1,000 per qualifying child who is five years of age or younger as of the close of the taxable year. There are two federal child tax credits, the Child Tax Credit (nonrefundable) and the Additional Child Tax Credit (refundable). Since the bill does not specify which federal credit the taxpayer must be entitled to, it is assumed that entitlement to either federal credit will qualify the taxpayer for the West Virginia Child Tax Credit. The tax credit is prorated for part-year residents based on the percentage of their income which was earned while they were a West Virginia resident.
The refundable child and dependent care credit is available to West Virginia residents who qualify for the federal child and dependent care credit. The credit is equal to 72 percent of the federal child and dependent care credit allowed to the taxpayer for the taxable year for child or dependent care services provided in this state.
A West Virginia resident or part-year resident individual who is entitled to the federal earned income tax credit shall be entitled to a credit against West Virginia personal income tax imposed for the taxable year. The West Virginia earned income tax credit is equal to 38 percent of the federal earned income tax credit allowed. Application of the credit is limited to personal income tax imposed for the taxable year; therefore, the credit is not refundable. The tax credit is prorated for part-year residents based on the percentage of their income which was earned while they were a West Virginia resident.
A qualified West Virginia resident taxpayer who incurs interest on a “qualified education loan” for the costs of attendance at an “eligible educational institution” is entitled to a credit against personal income tax imposed for the taxable year. The bill references 26 U.S.C. §221(d) for definitions of “qualified education loan” and “eligible educational institution”; however, no reference to the federal student loan interest deduction is made. The language of the bill does not provide additional direction as to calculation of the credit, so it appears that all interest incurred is eligible. Application of the credit is limited to personal income tax imposed for the taxable year; therefore, the credit is not refundable.
According to our interpretation, the proposed refundable child tax credit will decrease General Revenue Fund collections by up to $60 million in FY2025. It is anticipated that the impact of the child tax credit will decline over time as the relevant population group is forecast to decline.
According to our interpretation, the proposed refundable child and dependent care tax credit will decrease General Revenue Fund collections by roughly $4 million in FY2025 and in subsequent fiscal years.
According to our interpretation, the proposed nonrefundable earned income tax credit will decrease General Revenue Fund collections by roughly $82 million in FY2025 and by increasing amounts in subsequent fiscal years. The West Virginia earned income tax credit is calculated at a percentage of the federal earned income credit allowed. The federal earned income tax credit parameters are adjusted annually for inflation. Therefore, it is anticipated that the impact of the West Virginia earned income tax credit will generally increase over time.
According to our interpretation, the proposed nonrefundable student loan interest credit will decrease General Revenue Fund collections by up to $60 million in FY2025 and in subsequent fiscal years. Without further federal student loan debt forgiveness, it would be anticipated that the impact of the credit would grow slowly over time. However, there is potential for additional federal student loan forgiveness and changes in the future which would reduce student loan balances and therefore reduce the value of this credit.
Additional costs incurred by the State Tax Department would be $184,500 in FY2025 and $135,000 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 |
135,000 |
| Personal Services |
0 |
0 |
135,000 |
| 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 |
-206,000,000 |
Explanation of above estimates (including long-range effect):
Based on our interpretation, the bill creates the following personal income tax credits: refundable child tax credit, refundable child and dependent care credit, earned income tax credit, and student loan interest credit. The proposed legislation would be effective for personal income tax years beginning on or after January 1, 2024.
The refundable child tax credit is available to a West Virginia resident or part-year resident individual who is entitled to a child tax credit under the laws of the United States. The credit is $1,000 per qualifying child who is five years of age or younger as of the close of the taxable year. There are two federal child tax credits, the Child Tax Credit (nonrefundable) and the Additional Child Tax Credit (refundable). Since the bill does not specify which federal credit the taxpayer must be entitled to, it is assumed that entitlement to either federal credit will qualify the taxpayer for the West Virginia Child Tax Credit. The tax credit is prorated for part-year residents based on the percentage of their income which was earned while they were a West Virginia resident.
The refundable child and dependent care credit is available to West Virginia residents who qualify for the federal child and dependent care credit. The credit is equal to 72 percent of the federal child and dependent care credit allowed to the taxpayer for the taxable year for child or dependent care services provided in this state.
A West Virginia resident or part-year resident individual who is entitled to the federal earned income tax credit shall be entitled to a credit against West Virginia personal income tax imposed for the taxable year. The West Virginia earned income tax credit is equal to 38 percent of the federal earned income tax credit allowed. Application of the credit is limited to personal income tax imposed for the taxable year; therefore, the credit is not refundable. The tax credit is prorated for part-year residents based on the percentage of their income which was earned while they were a West Virginia resident.
A qualified West Virginia resident taxpayer who incurs interest on a “qualified education loan” for the costs of attendance at an “eligible educational institution” is entitled to a credit against personal income tax imposed for the taxable year. The bill references 26 U.S.C. §221(d) for definitions of “qualified education loan” and “eligible educational institution”; however, no reference to the federal student loan interest deduction is made. The language of the bill does not provide additional direction as to calculation of the credit, so it appears that all interest incurred is eligible. Application of the credit is limited to personal income tax imposed for the taxable year; therefore, the credit is not refundable.
According to our interpretation, the proposed refundable child tax credit will decrease General Revenue Fund collections by up to $60 million in FY2025. It is anticipated that the impact of the child tax credit will decline over time as the relevant population group is forecast to decline.
According to our interpretation, the proposed refundable child and dependent care tax credit will decrease General Revenue Fund collections by roughly $4 million in FY2025 and in subsequent fiscal years.
According to our interpretation, the proposed nonrefundable earned income tax credit will decrease General Revenue Fund collections by roughly $82 million in FY2025 and by increasing amounts in subsequent fiscal years. The West Virginia earned income tax credit is calculated at a percentage of the federal earned income credit allowed. The federal earned income tax credit parameters are adjusted annually for inflation. Therefore, it is anticipated that the impact of the West Virginia earned income tax credit will generally increase over time.
According to our interpretation, the proposed nonrefundable student loan interest credit will decrease General Revenue Fund collections by up to $60 million in FY2025 and in subsequent fiscal years. Without further federal student loan debt forgiveness, it would be anticipated that the impact of the credit would grow slowly over time. However, there is potential for additional federal student loan forgiveness and changes in the future which would reduce student loan balances and therefore reduce the value of this credit.
Additional costs incurred by the State Tax Department would be $184,500 in FY2025 and $135,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to provide tax reductions and other aid to West Virginians. The bill states a purpose; provides for a child tax credit; provides for a child and dependent care tax credit; authorizes an earned income tax credit; authorizes a student loan interest tax credit; and provides for rulemaking and an effective date.
Beginning on and after January 1, 2024, four personal income tax credits are created. These credits are for residents or part-year residents; however, pursuant to §11-21-20(a)(1) non-residents are entitled to claim the same credits as residents.
Though the credits are based, or appear to be based, on existing federal credits, there is no credit specific citation to federal law. Further, the student loan interest credit does not identify a specific amount of credit.
Person submitting Fiscal Note: Mark Muchow
Email Address: kerri.r.petry@wv.gov