Recently passed Virginia tax bills will help lower some Virginia taxpayers’ tax liability in upcoming tax seasons.
On Feb. 23, 2022, Governor Glenn Younkin signed HB 971, which advances Virginia’s date of conformity with the Internal Revenue Code (IRC) to Dec. 31, 2022. The legislation also includes retroactive tax benefits related to the Restaurant Revitalization Fund, Paycheck Protection Program, and Economic Injury Disaster Loans (EIDL) for tax years beginning Jan. 1, 2021. HB 1121 and SB 692 also passed. The bills enable the ability to pay entity-level taxes for qualifying pass-through entities (PTE), also known as the SALT cap workaround.
HB 971 is expected to save Virginia taxpayers more than $200 million and provide relief to small businesses. Fiscal year filers will be able to take advantage of a $100,000 deduction for Rebuild Virginia grants received in 2020, but there is no deductibility for Rebuild Virginia grants in 2021. Deductibility for PPP loans is based on when expenses were incurred and not when the loan was forgiven.
HB 971 covers several areas:
- Income deferral
- Suspension of overall limitation on itemized deductions
- Depreciation allowance for certain property
- Federal adjusted gross income and medical care calculation expenses
- CARES Act provisions related to carry-backs and net operating loss limitations
- Carry-back of certain net operating losses for five years
- Original discount on applicable high yield discount obligations
- Provisions related to deductions, tax attributes, and basis increases for business financial assistance or certain loan forgiveness
HB 112/ SB 692 permits qualifying PTE to pay elective income tax at 5.75% by annual elections in taxable years 2022 through 2025. The bills also address the out-of-state credit (OSC) disallowance by allowing individuals to claim a credit for similar taxes paid to other states in taxable years 2021 through 2026.
Now that the Virginia tax code is more consistent with the federal government, individual and business taxpayers can expect to receive more relief and save more money.