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The state of Virginia enacted legislation on 15 February 2019, conforming Virginia’s tax law in general to the 2017 federal Tax Cuts and Jobs Act (TCJA). S. B. 1372. The new law will reverse Virginia’s earlier 2018 legislation, generally “decoupling” from most of the federal changes. Consequently, moving expenses are not deductible on 2018 Virginia tax returns, and company reimbursements/payments in 2018 for 2018 moves are not excludable from Virginia income of the employee.
The legislation repeals and supersedes earlier Virginia legislation that advanced the conformity date for Virginia tax law to February 9, 2018, but specifically excluded changes made by the TCJA. The new law conforms Virginia tax law to federal law as of January 1, 2018. As a result, federal changes limiting deductions for state and local taxes, mortgage interest, miscellaneous itemized deductions, and others will be effective for 2018 returns filed by Virginia taxpayers.
For 2019, however, the law decouples from the $10,000 federal limitation on deductions for state and local taxes, and from the repeal of an overall limitation on itemized deductions, and from several corporate tax changes. It also increases for 2019 the state’s standard deduction, which rises to $9,000 for married couples and $4,500 for singles.
With respect to moving expenses, the change will cause some re-examination of gross-ups for Virginia state taxes.
If companies excluded Virginia moving expenses for state purposes, that position is no longer correct. Virginia taxpayers will have to report their entire federal adjusted gross income (Virginia begins its tax computation with federal AGI), which will include moving expense reimbursements/payments, and will not be allowed to claim any state exclusion for such amounts. They will have to pay Virginia tax on these amounts. If companies did not gross up for these amounts, they will now need to consider doing so, because the additional Virginia tax owed could be considerable.
However, since Forms W-2 were correct when issued, no Forms W2c correcting them should be necessary.
Worldwide ERC® members who reimbursed or paid moving expenses in 2018 for Virginia employees should re-examine their Virginia gross-up amounts if those payments were not previously considered taxable for gross-up purposes.
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