Establishing additional modification reducing federal adjusted gross income relating to taxes on tips and overtime
Summary
Senate Bill 492 would create a new West Virginia personal income tax modification that reduces federal adjusted gross income for certain tip and overtime income. For tax years beginning on or after January 1, 2026, and before January 1, 2029, taxpayers could subtract the amount of qualified tips and qualified overtime compensation deducted on their federal return. Beginning in 2029, the bill replaces that temporary structure with a more specific state deduction for qualified tips and overtime, subject to annual caps and income-based phaseouts.
Under the 2029 provisions, the bill would allow up to $25,000 annually for qualified tips and up to $12,500 annually for qualified overtime compensation, with both deductions phasing out for taxpayers with modified adjusted gross income above $150,000. The bill also states that the deduction is available regardless of filing status and limits nonresident eligibility to income attributable to services performed in West Virginia. The bill’s stated purpose is to reduce state income tax liability on tip and overtime earnings.
Impact
The bill would amend West Virginia’s personal income tax code by adding a new section to Article 21 governing modifications to federal adjusted gross income. It would create a state-level subtraction for tip and overtime income, first as a temporary broad deduction tied to federal deductions for 2026-2028, and then as a capped, phased-out deduction beginning in 2029. The measure would affect individual taxpayers, especially service workers and hourly employees who receive tips or overtime pay, and would also impose sourcing rules for nonresidents earning such income in the state.
Sentiment
The available record shows no committee transcript or recorded votes, so there is no documented debate or formal vote history to indicate support or opposition. Based on the bill text alone, the measure appears designed as tax relief for workers earning tips and overtime, suggesting a generally favorable policy intent toward those taxpayers. However, the inclusion of income thresholds, annual caps, and nonresident limitations indicates an effort to narrow the benefit and control revenue impact.
Contention
The main policy questions raised by the bill are likely to center on revenue loss, fairness, and eligibility design. Supporters would likely emphasize relief for tipped workers and employees working extra hours, while critics may question whether the deduction disproportionately benefits certain occupations or reduces state tax receipts. The phaseout above $150,000, the transition from a temporary broad deduction to capped deductions in 2029, and the restriction for nonresidents to West Virginia-sourced services are the bill’s key limiting features and likely focal points for any future debate.