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HB 1562

Income tax deduction; tips.

2025 Regular Session Introduced by Chad Green

Virginia bill proposes state income tax deduction for tips to reduce tax burden on service workers earning gratuities as compensation.

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Bill Summary · HB 1562

Legislative bill overview

HB 1562 proposes to allow Virginia taxpayers to deduct tips from their state income tax liability. The bill would create a tax deduction specifically for gratuities earned by service workers and others who receive tips as part of their compensation. This represents a departure from current Virginia tax law, which does not provide a dedicated deduction for tips.

Why is this important

Tips are already subject to federal income tax, and Virginia currently taxes them as regular income without special treatment. This bill could provide modest tax relief to workers in service industries (restaurants, hospitality, transportation) who rely heavily on tips. The real-world impact depends on the deduction's scope and structure—whether it applies to all taxpayers or only certain occupations, and how it interacts with existing federal tax treatment.

Potential points of contention

  • Revenue impact: The bill would reduce state tax revenue, requiring either offsetting cuts elsewhere or higher deficits; the TAX impact statement likely quantifies this concern
  • Equity questions: Deducting tips creates preferential treatment for service workers compared to other wage earners, raising fairness questions about why one income category gets special relief
  • Federal-state tax coordination: Tips are already federally taxable; Virginia's approach could create complexity if the deduction doesn't align with federal treatment, potentially complicating compliance
  • Definition and eligibility: The bill's language (not provided) will determine which workers qualify and whether self-reported tips or all tips are deductible, affecting both revenue loss and implementation challenges

Compiled from official sources — confirm details with the bill’s official record.

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