Under the Dome: House to turn Justice Social Security tax cut into phase-out
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CHARLESTON -- A key part of Gov. Jim Justice's 2024 platform to eliminate the remaining income tax on Social Security recipients is now becoming a three-year phase out in the West Virginia House of Delegates.
House Bill 4880, relating to the personal income tax Social Security exemption, was on first reading in the House Tuesday and set for passage Thursday.
HB 4880, introduced on behalf of the governor at the beginning of the 2024 legislative session, would exclude all Social Security benefits from the state's personal income tax retroactive to Jan. 1.
According to AARP, West Virginia is one of 12 states that still tax Social Security benefits to one degree or another. In 2019, the Legislature passed House Bill 2001, which phased out income tax collections on Social Security benefits for those earning less than $50,000 for single filers and $100,000 for joint filers over a three-year period. Income taxes for those filers have been completely exempt since 2022.
According to the fiscal note from the state Department of Revenue, completely exempting Social Security benefits would return approximately $37 million to taxpayers in fiscal year 2025 beginning in July, $37.7 million in fiscal year 2026, and by increasing amounts in future fiscal years. The elimination of income taxes on Social Security would affect more than 50,000 senior households.
However, the House Finance Committee on Friday recommended a committee substitute for HB 4880 that would phase out the remaining income tax collections on Social Security benefits for single filers earning more than $50,000 and joint filers earning more than $100,000. The phase-out would be retroactive to Jan. 1, reducing taxes by 35% this tax year and 65% in tax year 2025, with the tax phased out completely in tax year 2026.
House Finance Committee Vice Chairman John Hardy, R-Berkeley, said a phase-out is consistent with past fiscal policy regarding tax cuts to ensure that the reduction in tax revenue doesn't outpace natural tax revenue growth.
"It's always been the purview of the House Finance Committee to look at incremental policies to phase things out," Hardy said Tuesday. "We just think a three-year phase-out is the fiscally prudent and fiscally responsible way to do this. The state's economy grows by about $140 million to $150 million per year naturally, so if we can do this on a three-year phase out, that keeps that (cut) to about 10% of our natural growth."
Elimination of the remaining income tax collections on Social Security benefits was the largest part of the proposed tax cuts recommended by Justice at the start of this year's legislative session on Jan. 10.
During his eighth and final State of the State address as governor, Justice also pitched a state child and dependent care tax credit modeled after a similar federal tax credit, and an expansion of the senior citizen homestead property tax credit. According to the Department of Revenue, all three tax cuts would return a combined $49.7 million to taxpayers.
"We've cut taxes in West Virginia 23 times since I walked in the door ... and delivered on the biggest tax cut, the biggest tax cut in state history, hands down," Justice said during his State of the State address. "I would tell you just this, the faster that we can get rid of the taxes on the individuals, the better we'll be."