A liberal think tank estimates that more than a million Virginia taxpayers won’t receive tax refund checks lawmakers approved as part of a major tax policy change earlier this year.
Most of those will be lower-income Virginians, according to a new analysis by The Commonwealth Institute, a Richmond policy nonprofit.
“Although this group of taxpayers does not owe state income taxes after they apply their deductions and credits, they pay a large share of their income toward other state and local taxes – particularly sales and excise taxes,” the report says. “Households with annual income under $22,000 pay, on average, 9.6% of their income in state and local taxes, while households that have annual incomes of $587,000 and above pay only 7% of their income in state and local taxes.”
The General Assembly agreed on a bipartisan plan earlier this year to deal with federal tax law changes. The debate was over how to handle an expected windfall from taxpayers who would have to file their taxes differently to take advantage of a new higher federal standard deduction while Virginia’s remained unchanged.
Lawmakers agreed to spend some of that money and give some back through refunds that should be mailed to recipients by mid-October. Single filers would get $110 and couples would get $220 back from the state.
But, The Commonwealth Institute noted, “many taxpayers will not receive checks because their state income tax liability is already offset by existing deductions, credits, or other provisions.”
That means because some people can claim certain deductions or credits, like the Earned Income Tax Credit, the amount of state tax they owe decreases. If they owe nothing, they won’t get a check.
“Because it’s based on net state income tax liability, there are a lot of filers who are not ever going to receive the checks even though a lot of lawmakers and other folks talk about how they delivered tax relief to all Virginians,” said Chris Wodicka, a policy analyst at The Commonwealth Institute.
The Institute estimates about two-thirds of the million people getting no refund or a reduced refund check are people who typically claim the Earned Income Tax Credit, but it also applies to any tax credit, which ranges from historic property rehabilitation to farming and environmental credits.
Gov. Ralph Northam wanted to change budget language to allow anyone claiming tax credits to receive a refund, but it failed in the Senate. Northam estimated his proposal would affect 150,000 people.
There are others who may not get checks, The Commonwealth Institute wrote, including people who owe certain state debts, filers who missed the July 1 filing deadline and people who have to file corrected returns.