Could Virginia Become the Highest-Taxed State?
Virginia Lawmakers Introduce Sweeping Income Tax Changes
Two bills recently introduced in the Virginia General Assembly may be of particular interest to Virginia residents—especially high-income taxpayers, investors, and business owners.
Potential Combined Impact
If both HB 979 and HB 378 are enacted, Virginia’s maximum marginal income tax rate could rise to 13.8% in 2027, which would represent the highest state-level income tax rate in the United States.
Proposed Changes to Virginia’s Income Tax Brackets
House Bill 979 (HB 979) proposes adding two new higher-income tax brackets to Virginia’s current progressive income tax structure. Under existing law, Virginia’s top marginal income tax rate is 5.75% on taxable income in excess of $17,000.
HB 979 would introduce:
An 8% tax rate on taxable income between $600,000 and $1 million
A 10% tax rate on taxable income above $1 million
If enacted, this bill would significantly increase the state income tax burden for higher-income Virginians. If the bill passes, the increase would be effective January 1, 2027.
New Net Investment Income Tax Proposal
House Bill 378 (HB 378) proposes a new 3.8% Virginia net investment income (NII) tax, generally modeled after the federal NII tax but with notable differences.
The bill would incorporate the federal net investment income calculation by reference (i.e., with the tax generally equal to 3.8% of the lesser of (i) net investment income for the year or (ii) federal modified adjusted gross income over a threshold), with several key exceptions. Most notably, the proposal would include:
Section 1202 qualified small business stock gains, which are currently excluded from federal income tax
Section 1400Z (Opportunity Zone) rollover gains
Certain income related to property transfers to incomplete gift non-grantor trusts
The proposed Virginia net investment income tax would apply to taxpayers with income exceeding $500,000 beginning January 1, 2027.
Why This Matters
These proposals could materially affect Virginia taxpayers who are:
High-income individuals and families
Business owners planning liquidity events or exits
Investors with significant capital gains
Trust and estate planning strategies involving incomplete gifts to non-grantor trusts
At this time, it is uncertain whether either bill will pass, or whether the proposals may be amended during the legislative process. However, their introduction signals a potential shift in Virginia’s approach to taxing high-income earners and investment income.
We will continue to monitor these developments and provide updates as more information becomes available.