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.

he 2026 Virginia General Assembly session has concluded, leaving a transformed tax landscape for businesses. The most seismic shift is the formal end of Virginia’s decades-long policy of “rolling conformity” to the Internal Revenue Code. With the enactment of the 2026 Amendments to the 2025 Appropriation Act (House Bill 29), Virginia has transitioned to a fixed-date conformity of December 31, 2025 . This creates a “tax wall”: any federal tax changes signed into law after December 31, 2025, will not automatically apply to Virginia returns. For businesses, this means maintaining two separate sets of books for several high-impact areas where Virginia has deliberately “deconformed” from recent federal incentives. The most critical deconformities for the 2025-2026 biennium directly affect cash flow and capital planning. First, while the federal government increased Section 179 expensing limits, Virginia has decoupled from these higher limits, forcing taxpayers to calculate depreciation as if the federal changes never happened . Second, Virginia remains one of the few states that strictly deconforms from federal bonus depreciation provisions under IRC Section 168(k) . Third, and most significantly for Northern Virginia’s tech corridor, the Commonwealth has rejected federal moves toward immediate expensing for domestic Research & Experimental (R&E) expenditures. Under HB 29, Virginia still requires these costs to be amortized over five years, severely impacting the cash flow of technology and innovation-driven companies . Navigating these complex, permanent “Virginia-only” adjustments requires expert guidance. At Nova Tax & Accounting Services, our Expert Tax Solutions team is dedicated to helping businesses reconcile federal and state depreciation schedules and optimize their tax positions under the new conformity rules.