This article was reprinted with permission from Virginia Mercury.
Gov. Glenn Youngkin served more than pancakes and coffee at McLean’s Restaurant in Richmond Monday morning. He also unveiled another key part of his budget proposal: eliminating state taxes on tipped employees.
Describing the measure as a “foundational piece” of his budget, which he is expected to present before a joint meeting of the legislature’s money committees on Wednesday, Youngkin emphasized the need to ease financial pressures, stating “It is time for us to reduce tax burdens on hard working Virginians.”
An estimated 250,000 people working in food service and hospitality could see tax relief under the plan, according to the Virginia Department of Taxation and the Virginia Employment Commission. Tipped workers would be able to claim a deduction on their state tax returns, with compliance ensured through IRS data and employer-reported W-2 information.
The proposal must still get approval from the General Assembly as lawmakers and the governor work toward an amended biennial state budget during the upcoming legislative session, which begins in January.
Lt. Gov. Winsome Earle-Sears, who is running for governor in 2025 and joined Youngkin at the announcement, expressed optimism about the policy, suggesting that Virginia could be the first state to implement such a measure if approved.
“I think this should be bipartisan,” Youngkin said.
Sen. Louise Lucas, D-Portsmouth, the leading Democrat in the state Senate who chairs the finance committee, did not have a comment at the time of this publication.
Youngkin’s push to eliminate state taxes on tips mirrors discussions at the federal level, where the idea gained traction during the fall campaign season. Both President-elect Donald Trump and Vice President Kamala Harris floated similar proposals, and related bills have been introduced in Congress.
While eliminating taxes on tips might seem like a clear win for workers, the policy’s broader impact remains uncertain. Economists have raised concerns that some employers could exploit the measure by shifting more of a worker’s compensation to tips rather than wages, a possibility also noted as similar national legislation has been filed.
Asked about this concern, Youngkin acknowledged variations across the food service industry. “It depends, of course, on the establishment,” he said. “But, we see a substantial portion of our waiters and waitresses earnings in the form of tips, and this is a great way for us to say that ‘You keep that money.’”
In the preview of his upcoming budget presentation on Wednesday, Youngkin also announced plans to cut funding to localities that limit or refuse compliance with U.S. Customs and Immigration Enforcement (ICE).
The proposal aligns with a broader GOP-led national movement to counter “sanctuary city” policies. These policies vary but often involve local governments opting not to ask about an individual’s immigration status or refusing to fully cooperate with ICE. However, with Virginia’s legislature under Democratic control, the proposal is likely to face significant resistance during the upcoming budget negotiations.
