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Tax Year 2026Updated July 13, 2026

Does Virginia Tax Tips in 2026?

Likely no, but explicit guidance is pending. Virginia's IRC conformity date (December 31, 2025) captures the OBBBA, and Tax Bulletin 26-1 confirms conformity to provisions affecting federal AGI. The tips deduction (IRC §224) is an above-the-line adjustment reducing federal AGI, which suggests it should flow through to Virginia. However, the Department of Taxation has not published guidance specifically addressing the tips deduction. If confirmed, tipped workers would save up to 5.75% on qualified tip income. Note: Virginia does not conform to OBBBA's Pease limitation changes.

How Virginia's Tips Tax Treatment Works

Virginia's treatment of the OBBBA tips deduction hinges on a specific question: does a deduction that reduces federal AGI automatically flow through to Virginia when Virginia's conformity date captures the law?

The conformity date: Virginia's IRC conformity date is December 31, 2025, fixed by the 2026 Appropriation Act. The OBBBA was enacted in July 2025, well within this window. Tax Bulletin 26-1 explicitly states Virginia conforms to the OBBBA for purposes of federal adjusted gross income and federal itemized deductions.

The structural question: The tips deduction (IRC §224) is an above-the-line adjustment reported on Schedule 1-A of the federal return. It reduces federal AGI before state tax calculations begin. Virginia starts its income tax computation from federal adjusted gross income (FAGI), so if the OBBBA tips deduction reduces FAGI, it should carry through to Virginia automatically. This is the expected outcome.

The caveat: Tax Bulletin 26-1 specifically addresses items like the Pease limitation (which Virginia decoupled from) but does not individually address the tips, overtime, or senior bonus deductions. The Department of Taxation may be treating these as automatically adopted through the conformity date, or it may be planning separate guidance. Until explicit confirmation is published, there remains a small degree of uncertainty.

Federal Tips Deduction Quick Reference

DetailValue
IRC Section§224 (OBBBA)
Maximum deduction$25,000 tips
Deduction typeAbove-the-line (Schedule 1-A)
FICA still applies?Yes (Social Security 6.2% + Medicare 1.45%)
MFS eligible?No (MFJ or Single/HoH only)
Effective datesJan 1, 2025 – Dec 31, 2028
Virginia treatmentDoes not conform

Worked Examples Comparing Federal and Virginia Treatment

Example 1: Restaurant server (single filer, $40,000 income, $15,000 in tips)

Federal return:
Qualified tip income: $15,000
Tips deduction claimed: $15,000 (capped at $25,000)
Estimated federal tax savings: $1,800.00

Virginia return:
Virginia's conformity date (December 31, 2025) captures the OBBBA, and Tax Bulletin 26-1 confirms conformity to provisions affecting federal AGI. However, the Virginia Department of Taxation has not published explicit guidance on the tips deduction specifically. If confirmed, the $15,000 deduction would save approximately $862.50 in Virginia tax (at the 5.75% top marginal rate). Until DOR guidance is published, this savings is expected but not guaranteed.

Example 2: Bartender (single filer, $70,000 income, $25,000 in tips - federal cap reached)

Federal return:
Qualified tip income: $25,000
Tips deduction claimed: $25,000 (capped at $25,000)
Estimated federal tax savings: $5,500.00

Virginia return:
If Virginia confirms the OBBBA tips deduction applies, the full $25,000 deduction would save approximately $1,437.50 in Virginia tax at the 5.75% top marginal rate. Virginia has no local income tax, so there is no additional local tax component. Official DOR guidance specific to the tips deduction is still pending as of August 2026.

Virginia's Tax Bulletin 26-1 and Selective Conformity

Tax Bulletin 26-1 is Virginia's primary guidance document on OBBBA conformity. It confirms that Virginia conforms to the OBBBA for purposes of federal adjusted gross income but explicitly decouples from the OBBBA's Pease limitation changes. This selective approach - conforming to some OBBBA provisions while rejecting others - creates ambiguity about provisions not specifically mentioned.

The tips deduction falls in a gray area: it reduces federal AGI (which Virginia generally conforms to), but it is not individually addressed in the bulletin. The most likely interpretation is that it flows through automatically, but tax professionals may want confirmation before advising clients.

Virginia's Narrow Brackets Mean Tips Hit the Top Rate Quickly

Virginia's rate structure has four brackets: 2% on the first $3,000, 3% on $3,000-$5,000, 5% on $5,000-$17,000, and 5.75% on everything above $17,000. These thresholds are the same for all filing statuses and have not been adjusted for inflation in decades. Because the brackets are narrow and the top rate kicks in at just $17,000 of taxable income, virtually all tip income for any meaningful earner falls in the 5.75% bracket.

If the tips deduction is confirmed, the savings would be straightforward: 5.75% of the deducted amount, up to a maximum of $1,437.50 on the full $25,000 cap.

No Local Income Tax in Virginia

Unlike Maryland (which has mandatory county income taxes) or Indiana (which has county taxes in all 92 counties), Virginia does not impose any local income tax. This means the state income tax at up to 5.75% is the only income tax burden on tip income in Virginia. The question of conformity is simpler than in states with local tax layers that might also need to adopt the deduction.

Conformity Recheck Date - September 1, 2026

Our records indicate that Virginia's OBBBA conformity status for tips, overtime, and senior bonus deductions should be rechecked on or after September 1, 2026. The Department of Taxation may issue additional Tax Bulletins or updated Form 760 instructions. This page will be updated when official guidance is published.

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Frequently Asked Questions

Does Virginia conform to the federal 'no tax on tips' deduction under the OBBBA?
The answer is pending explicit guidance. Virginia's IRC conformity date (December 31, 2025, fixed by the 2026 Appropriation Act) captures the OBBBA. Tax Bulletin 26-1 confirms Virginia conforms to OBBBA provisions affecting federal adjusted gross income. The tips deduction (IRC §224) is an above-the-line adjustment that reduces federal AGI, which suggests it should flow through to Virginia. However, the Department of Taxation has not published guidance specifically addressing the tips deduction.
What does Tax Bulletin 26-1 say about OBBBA conformity?
Tax Bulletin 26-1 confirms that Virginia's conformity date captures the OBBBA (2025 HR 1, P.L. 119-21) and that Virginia conforms to OBBBA provisions affecting federal adjusted gross income and itemized deductions. Notably, it states Virginia does NOT conform to OBBBA's Pease limitation changes. The bulletin does not specifically address the tips, overtime, or senior bonus deductions individually.
What Virginia income tax rate would apply to my tip income?
Virginia uses a graduated rate schedule with four brackets: 2% on the first $3,000, 3% on $3,000 - $5,000, 5% on $5,000 - $17,000, and 5.75% on everything above $17,000 (same for all filing statuses). Because the lower brackets are narrow, most tipped workers' tip income falls entirely in the 5.75% top bracket. Virginia has no local income tax.
Does Virginia have local income taxes that would also apply to tips?
No. Virginia does not impose local income taxes. Local taxes in Virginia are primarily through property taxes and sales taxes. This means the state income tax is the only income tax burden on tip income in Virginia.
Virginia doesn't conform to OBBBA Pease limitation changes - does that affect the tips deduction?
Not directly. The Pease limitation is a separate provision that reduces certain itemized deductions for high-income taxpayers. Virginia's non-conformity to the Pease changes means Virginia continues to apply its own version of that limitation. The tips deduction is an above-the-line (Schedule 1-A) adjustment, not an itemized deduction, so the Pease non-conformity does not directly affect whether the tips deduction applies.
When will Virginia issue guidance on the tips deduction?
Virginia's Department of Taxation has not announced a timeline. Our records suggest a recheck date of September 1, 2026. Workers and tax preparers should monitor tax.virginia.gov for additional Tax Bulletins or guidance specific to the OBBBA tips, overtime, and senior bonus deductions.