HB1965 amends Virginia’s individual income tax deduction statute to add a new subtraction for cash tips reported to an employer under federal reporting rules. Beginning with taxable years on and after January 1, 2026, a taxpayer may deduct the amount of cash tips received during the year that are included on statements furnished to the employer under section 6053(a) of the Internal Revenue Code. The bill is framed as a targeted income tax relief measure for tipped workers and is consistent with the caption’s reference to tips and overtime compensation, although the text provided contains only the tips deduction.
The bill also leaves in place Virginia’s existing menu of individual income tax deductions, including deductions for standard and itemized amounts, personal exemptions, age and blindness exemptions, child care expenses, foster care children, age-based deductions for older taxpayers, bone marrow donor expenses, college savings contributions, school construction fund contributions, teacher continuing education costs, long-term care insurance premiums, energy-efficient home purchases, organ donation expenses, certain health insurance premiums for older low-income taxpayers, disallowed business interest, property taxes, PPP-related amounts, and educator expenses. The new tips deduction would sit within this broader subtraction framework and reduce Virginia taxable income for eligible taxpayers who receive reported cash tips.
The likely fiscal and policy impact is a reduction in state income tax liability for workers in tipped occupations, such as restaurant and hospitality employees, and a corresponding decrease in state revenue. Because the deduction applies only to cash tips that are reported to the employer, it is tied to federal wage-reporting rules and would primarily benefit taxpayers with documented tip income. The bill does not appear to alter corporate tax rules or create a new credit; it modifies the individual income tax subtraction provisions in Title 58.1 of the Code of Virginia.
Based on the materials provided, there is no recorded committee debate or vote history, so the general sentiment cannot be measured from discussion transcripts. The bill’s caption suggests a favorable policy intent toward workers receiving tips, but the absence of committee remarks and votes means there is no documented support or opposition in the supplied record. Any controversy would likely center on revenue loss, administrative verification of tip income, and whether the deduction should be limited to cash tips reported to employers rather than all tip income.
Notable points of contention, if raised, would likely involve fairness between tipped and non-tipped workers, the interaction with federal reporting requirements, and whether the deduction should be paired with a broader overtime-compensation provision referenced in the caption but not reflected in the text provided. The bill’s age- and income-based deductions elsewhere in the statute may also be relevant to broader tax policy discussions, but the only new substantive change in this text is the tip-income subtraction.
HB1965 would amend Virginia Code § 58.1-322.03 to add a new individual income tax deduction for cash tips reported to an employer, effective for taxable years beginning on and after January 1, 2026. This would lower Virginia taxable income for eligible tipped workers and reduce state tax collections, while leaving the rest of the state’s deduction structure intact. The bill does not create a new tax credit or change federal law; it operates solely within Virginia’s income tax subtraction provisions.
No committee transcript or vote record was provided, so there is no documented floor or committee sentiment to summarize. From the bill text and caption, the measure appears intended as tax relief for tipped workers and would likely be viewed favorably by supporters of worker-focused tax cuts. Any opposition would likely come from concerns about revenue impact, complexity, and the narrowness of the benefit to reported cash tips.
The main likely points of contention are the fiscal cost to the Commonwealth, the administrative burden of verifying reported cash tips, and whether the deduction should apply only to cash tips furnished on employer statements rather than broader tip income. Another possible issue is the bill caption’s reference to overtime compensation, which is not reflected in the text provided, suggesting either a broader policy goal or a mismatch between the caption and the substitute text. No specific named opponents or supporters are identified in the supplied materials.