Taxpayers in the Commonwealth of Virginia generally file their personal income tax returns using the Federal Adjusted Gross Income as a starting point. This method provides for clarity and ease of administration for both taxpayers and the Virginia Department of Taxation. This method of computing Virginia income tax is known as conforming to the Federal AGI and is often referred to as Tax Conformity.
All of the above sounds simple enough - with one exception. The Virginia tax code maintains a static conformity - in other words, the Virginia tax code states that it conforms with the Federal tax code as of a certain date. Accordingly, the Virginia General Assembly must review the tax conformity issues each year to determine if the Commonwealth will continue to conform as of the most recent date or if exceptions will be required.
With the large changes initiated by the 2017 Federal Tax Cuts and Jobs Act, the General Assembly had a great deal to consider in evaluating Tax Conformity for 2018. With great relief, we are pleased to report that the General Assembly finally passed the required legislation this morning and it is awaiting the Governor's signature. We will be able to begin filing Virginia income tax returns for individuals very soon.
Unfortunately, the current tax conformity will result in a tax increase for certain taxpayers - particularly low to middle income taxpayers that have traditionally itemized their deductions but now find that they will use the higher standard deduction that is now allowed on their Federal returns. As the moving landscape of tax legislation develops, we will continue to watch this area.