Richmond Locks in Tax Cuts as Virginia Budget Heads to Youngkin's Desk

The General Assembly's budget approval represents a significant victory for Youngkin's tax agenda. The plan makes permanent the increased standard deduction—$8,750 for single filers and $17,500 for joint filers—that was scheduled to sunset January 1, 2027, reverting to 2018 levels of $3,000 and $6,000 respectively. Without legislative action, the loss of these deductions would have cost Virginia taxpayers an estimated $600 more annually. The budget also makes permanent the state's expanded Earned Income Tax Credit, which has primarily benefited lower-income workers who would have lost the refundable credit when the provision expired.

The budget incorporates additional tax relief measures aligned with federal changes enacted through the One Big Beautiful Bill Act. Virginia taxpayers can now deduct portions of federal deductions for tips, overtime pay, and car loan interest from their state taxable income, beginning at 25 percent in 2026 and increasing to 50 percent in subsequent years. The Senate also approved a $100-per-person tax rebate for single filers and $200 for couples in October 2026, returning approximately $500 million to taxpayers.

Youngkin framed the budget around tax stability rather than growth. In presenting his final budget proposal in December, the governor stated: "There is no need for any new taxes, and there is no need for tax increases." His tax changes over four years have saved Virginia taxpayers an estimated $6 billion, with an additional $3 billion distributed through tax rebates, according to administration figures. Making his tax policies permanent would save an estimated $7.5 billion over the next four years.

The budget passed without major tax increases from the General Assembly, though the Senate version allows the sales tax exemption for the data center industry to expire at year's end, generating approximately $1 billion over two years earmarked for Northern Virginia public transit. The House-passed version avoided new general taxes beyond approximately $270 million over two years from taxing skill games and digital fantasy gaming. Both chambers rejected broader revenue measures that could have funded additional spending priorities.