Bill review: Virginia Standard Deduction Sunset Removal (VA HB12)

[PavelMakarchuk]

Bill Review: Virginia Standard Deduction Sunset Removal (HB12)

Reform ID: va-hb12 | State: VA
Bill text: https://lis.virginia.gov/bill-details/20261/HB12
Description: Removes the sunset provision on Virginia's enhanced standard deduction amounts of $8,750 (single) / $17,500 (married filing jointly). Without this bill, these amounts revert to $3,000 / $6,000 after tax year 2026.

Merging this PR will publish the bill to the dashboard.

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What we model

Provision	Parameter	Current (post-sunset)	Proposed	Bill Reference
Standard Deduction (Single)	gov.states.va.tax.income.deductions.standard.SINGLE	$3,000	$8,750	Amending § 58.1-322.03, subdivision 2
Standard Deduction (Joint)	gov.states.va.tax.income.deductions.standard.JOINT	$6,000	$17,500	Amending § 58.1-322.03, subdivision 2
Standard Deduction (Separate)	gov.states.va.tax.income.deductions.standard.SEPARATE	$3,000	$8,750	Amending § 58.1-322.03, subdivision 2
Standard Deduction (HoH)	gov.states.va.tax.income.deductions.standard.HEAD_OF_HOUSEHOLD	$3,000	$8,750	Amending § 58.1-322.03, subdivision 2
Standard Deduction (Surviving Spouse)	gov.states.va.tax.income.deductions.standard.SURVIVING_SPOUSE	$3,000	$8,750	Amending § 58.1-322.03, subdivision 2

What we don't model

• No other provisions in this bill — it is a sunset removal only

Note: The "Current" column shows what the standard deduction would revert to under the scheduled sunset (after TY 2026), not the current TY 2025-2026 value. The bill does not change any dollar amounts — it prevents the reversion.

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Validation

External estimates

Source	Estimate	Period	Link
VA Dept of Taxation (fiscal impact)	$0 vs Governor's baseline	Annual	Fiscal Impact Statement
Commonwealth Institute	~$800M/yr (2022 increase only, $4,500→$8,000)	Annual	Analysis

Important context on the $0 fiscal note: The Department of Taxation reports no General Fund revenue impact because the Governor's 2026-2028 introduced budget revenue forecast already assumes the enhanced standard deduction will be extended permanently. This is a baseline choice, not a finding that the policy is cost-free. The PE estimate measures the cost relative to the statutory sunset (reversion to $3,000/$6,000), which is the correct comparison for understanding the policy's actual fiscal impact.

Back-of-envelope check

Standard deduction increase vs. sunset: $5,750 (single) / $11,500 (joint)
VA filers: ~4 million returns, ~87% use standard deduction = ~3.48M
Weighted avg deduction increase: ~$8,900 per return
VA top marginal rate: 5.75% (applies to income >$17,000)
Tax savings per return: $8,900 × 5.75% = $512
Total: 3.48M × $512 × 0.85 (adjustment for low-income partial benefit) = **$1.5B/year**
(Upper bound — actual varies due to income distribution and partial benefits)

Commonwealth Institute cross-check

TCI estimated $1.6B/biennium ($800M/yr) for the 2022 increase ($4,500→$8,000 single, $9,000→$16,000 joint)
That was a $3,500/$7,000 per-filer increase
HB12's full gap is $5,750/$11,500 (from $3,000/$6,000 reversion) — 64% larger
Scaling: $800M × 1.64 = ~$1.3B/year
PE's $1.18B falls between TCI's $800M (partial increase) and the scaled $1.3B ✓

PE vs External comparison

Source	Estimate	vs PE	Difference
PE (PolicyEngine)	-$1,176M	—	—
Back-of-envelope	-$1,500M	+27.5%	Upper bound, PE is lower as expected
TCI scaled estimate	~-$1,300M	+10.5%	Acceptable
TCI 2022 increase only	-$800M	-32.0%	Expected — covers smaller deduction gap

Verdict: PE estimate (-$1.18B) is consistent with external data. It falls between the Commonwealth Institute's $800M/year (which covered only the 2022 increase, a smaller deduction gap) and the back-of-envelope upper bound of $1.5B. The TCI-scaled estimate of ~$1.3B is within 10.5% of PE. The official fiscal note's $0 figure reflects a baseline assumption choice (Governor's forecast assumes extension), not a disagreement with PE's estimate.

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Key results

Metric	Value
Revenue impact	-$1,176,240,077
Poverty rate	19.88% to 19.54% (-1.72%)
Child poverty rate	18.15% to 17.78% (-2.03%)
Winners	68.7%
No change	28.0%
Losers	3.4%

Decile impact

Decile	Relative Change	Avg Benefit
1	0.43%	$94
2	0.58%	$271
3	0.58%	$367
4	0.53%	$408
5	0.48%	$446
6	0.42%	$458
7	0.38%	$499
8	0.33%	$535
9	0.27%	$577
10	0.06%	$439

District impacts

District	Avg Benefit	Winners	Losers	Poverty Change
VA-1	$375	68%	3%	-0.96%
VA-2	$366	69%	3%	-1.85%
VA-3	$354	71%	2%	-2.31%
VA-4	$407	73%	3%	-1.56%
VA-5	$376	69%	3%	-2.05%
VA-6	$360	68%	3%	-1.55%
VA-7	$396	70%	4%	-0.79%
VA-8	$414	70%	4%	-2.18%
VA-9	$276	65%	2%	-0.89%
VA-10	$410	69%	5%	-2.03%
VA-11	$432	71%	4%	-2.60%

Parameter changes

Parameter	Period	Value	Bill Reference
gov.states.va.tax.income.deductions.standard.SINGLE	2027-01-01+	$8,750	§ 58.1-322.03(2)
gov.states.va.tax.income.deductions.standard.JOINT	2027-01-01+	$17,500	§ 58.1-322.03(2)
gov.states.va.tax.income.deductions.standard.SEPARATE	2027-01-01+	$8,750	§ 58.1-322.03(2)
gov.states.va.tax.income.deductions.standard.HEAD_OF_HOUSEHOLD	2027-01-01+	$8,750	§ 58.1-322.03(2)
gov.states.va.tax.income.deductions.standard.SURVIVING_SPOUSE	2027-01-01+	$8,750	§ 58.1-322.03(2)

Data quality notes

• Uses PolicyEngine's Enhanced CPS microdata for Virginia, projected to tax year 2027
• 68.7% of households benefit — consistent with a large standard deduction increase affecting most filers
• 3.4% of households lose due to the SALT deduction interaction: itemizers see their state tax liability decrease, which reduces their federal SALT deduction, partially offsetting the benefit. 100% of losers are itemizers, concentrated in deciles 6-10.
• The bill does not change dollar amounts — it prevents a reversion. The PE model shows the difference between "sunset takes effect" (baseline) and "enhanced amounts continue" (reform).
• VA-9 (Southwest Virginia) has the lowest average benefit ($276), consistent with lower incomes in that region

Reform parameters JSON

{
  "gov.states.va.tax.income.deductions.standard.SINGLE": {"2027-01-01.2100-12-31": 8750},
  "gov.states.va.tax.income.deductions.standard.JOINT": {"2027-01-01.2100-12-31": 17500},
  "gov.states.va.tax.income.deductions.standard.SEPARATE": {"2027-01-01.2100-12-31": 8750},
  "gov.states.va.tax.income.deductions.standard.HEAD_OF_HOUSEHOLD": {"2027-01-01.2100-12-31": 8750},
  "gov.states.va.tax.income.deductions.standard.SURVIVING_SPOUSE": {"2027-01-01.2100-12-31": 8750}
}

Versions

• PolicyEngine US: 1.499.0
• Dataset: policyengine-us-data v1.17.0
• Computed: 2026-02-17