Virginia Gov. Glenn Youngkin has announced a budget proposal to exempt service tips from Virginia’s state income tax.
On Monday, Youngkin said that his proposal will return about $70 million to Virginians every year.
“We have delivered over $5 billion in tax relief to date, and we remain committed to lowering the cost of living for hardworking Virginians. It’s their money, not the government’s,” the governor wrote in a statement.
“By removing tips from taxable income, it will directly increase the take-home pay of hundreds of thousands of Virginians and give them more buying power, which in turn will improve financial stability, stimulate local economies, and honor the value of their hard work.”
The governor cited the Virginia Department of Taxation and the Virginia Employment Commission, which says that more than 250,000 Virginians within the food service, beauty, and hospitality industries could benefit from the proposed tax relief.
President-elect Donald Trump on the campaign trail vowed to end tax on tips, saying that he initially got the idea from a waitress at his Las Vegas hotel.
“To those hotel workers and people who get tips, you are going to be very happy, because when I get to office we are going to not charge taxes on tips, people making tips,” Trump told supporters in June in Nevada, the state with the highest concentration of tipped workers in the nation.
Trump has not yet specified whether tips would be exempt from just income taxes or from payroll tax as well.
Sen. Ted Cruz (R-Texas) and Rep. Byron Donalds (R-Fla.) introduced a bill that would apply the exemption to only income taxes. Meanwhile, Reps. Thomas Massie (R-Ky.) and Matt Gaetz (R-Fla.) earlier this year introduced a separate bill that would apply it to payroll taxes as well.
Under Youngkin’s proposal, workers who earn tips can claim a deduction on their state tax return if the income is included in their federal adjusted gross income.
Exempting tips from taxation would help workers who receive a large share of their income from tips. The Tax Foundation says some tip income earners already do not pay personal income taxes because most of them work part-time and earn less than the standard deduction. Other tip-income workers already benefit from the earned income tax credit or the child tax credit to the extent that any federal income tax liability is wiped out, the Tax Foundation states.
According to a survey by consumer financial services company Bankrate, two-thirds of Americans hold a negative view of tipping and the number of people who always leave a tip has declined in the last two years.