The New “Super-Bracket” Progressive Income Tax Shifts in the Commonwealth

For decades, Virginia has prided itself on a relatively flat income tax structure, taxing most income above a modest threshold at a single rate of 5.75%. However, the 2026 legislative session has introduced two major proposals that could shatter this tradition and reshape the Commonwealth’s tax competitiveness. The first is a suite of bills (including HB 188 and HB 979) proposing to create new top marginal rates for high earners, with some versions suggesting an 8% bracket for income over $600,000 and a 10% “millionaire’s tax” on income over $1 million . The second, equally transformative proposal is HB 378, which would layer a state-level Net Investment Income Tax (NIIT) of 3.8% on dividends, interest, capital gains, and rental income for individuals and estates with modified adjusted gross incomes exceeding $500,000 .

Together, these proposals could push Virginia’s effective top rate on investment income close to 9.6%, significantly raising the burden on affluent households with substantial passive income . Supporters argue these measures are necessary to fund public schools, child care subsidies, and affordable housing, promoting tax fairness by aligning the treatment of investment income with wages . Critics, however, warn of significant risks, including making Virginia less competitive with neighboring states, discouraging business investment, and accelerating “tax flight” among high-income residents who have the flexibility to relocate . While these bills remain under legislative review, proactive planning is essential. For individuals and business owners potentially affected by these changes, our team at Nova Tax & Accounting Services can provide strategic Tax Planning to model different scenarios and explore income-shifting or realization strategies to mitigate potential exposure before any new brackets take effect.