Virginia lawmakers are considering several tax proposals that would significantly increase taxes on high-income individuals and those with substantial passive or investment income. While these proposals are not yet law, they reflect a clear policy direction and warrant attention now — especially for investors, business owners, and families engaged in long-term wealth planning.

Below is a summary of the proposals most likely to affect high-income Virginians.

1. Proposed Tax on Passive and Investment Income

Virginia is considering a state-level Net Investment Income Tax, modeled after the federal NIIT.

Key features:

• Additional 3.8% tax on investment income
• Applies to capital gains, interest, dividends, rental income, royalties, and other passive income
• Imposed in addition to Virginia’s existing 5.75% income tax

Potential impact:
High-income taxpayers could face combined Virginia tax rates approaching 9.5% on investment income, before any federal tax is applied.

2. New Higher Income Tax Bracket

Another proposal would create a new top Virginia income tax bracket:

• 10% tax rate on income above $1 million
• Applies to earned and unearned income

Why it matters:
This would represent a substantial increase over Virginia’s current top rate and would materially affect executives, professionals, entrepreneurs, and taxpayers anticipating liquidity events.

3. Expansion of the Sales Tax Base

Separate legislation would expand the sales tax to additional services and digital products.

Why it matters:
Even without raising income tax rates, this change would increase overall tax burdens for both individuals and businesses that rely heavily on professional or digital services.

4. Changes to Federal Tax Code Conformity

Virginia may also revise how it conforms to future federal tax law changes.

Why it matters:
Future federal tax reductions may not automatically flow through to Virginia, potentially increasing state taxable income even when federal taxes decline.

Planning Considerations

These proposals highlight the importance of proactive planning for individuals and families with:

• Appreciated assets
• Significant investment portfolios
• Closely held businesses
• Trusts and existing estate plans

Planning opportunities may include:

• Timing of capital gains
• Trust structure and situs planning
• Entity and ownership design
• Coordinating income and estate tax strategies

Bottom Line

Virginia is actively considering measures that would increase taxes on investment income and raise top marginal rates. While the final outcome remains uncertain, the trend is clear.

For taxpayers with meaningful income or accumulated wealth, early planning — before changes take effect — can preserve flexibility and reduce risk.

If you would like to discuss how these proposals may affect your situation, now is an ideal time to review your planning options.