Welch’s “no overtime tax” plan

2007 General Assemby races, Local, Politics, Virginia 1 Minute

I almost laughed out loud when I read the proposal floated by Virginia Beach delegate John Welch in this morning’s Virginian-Pilot.

Welch announced that he wants to stop taxing the overtime Virginians work. Welch, running against Democrat Bobby Mathieson, said the move would be an incentive to work overtime for people at small businesses. It also would let workers keep more money, he added.

Is this like former governor Jim Gilmore’s “no car tax” plan? We saw how well that worked out. In this case, Welch is talking about eliminating state income taxes on overtime wages. A few things came to mind here:

  • Is he talking about all overtime or just the extra compensation? Overtime is paid at the rate of 1 1/2 or 2 times the base wage, depending on certain circumstances. So for a $10 per hour worker, overtime would make the pay $15 or $20. By saying “overtime pay,” does he mean the extra $5 or $10 or the whole $15 or $20?
  • Implementation of this by any business, but especially small businesses, would be a nightmare. Believe it or not, a lot of small businesses still do payroll by hand. And for those who rely on computer software, how long would it take for the software to catch up? Not to mention the cost to the payroll companies to reprogram.
  • Given the changes in the definition of employees who are exempt from overtime pay, expect companies to become even more aggressive on who is eligible versus who is not in order to avoid the extra work.
  • How will this be handled on the W-2 forms? Will there be a special designation of the amount of overtime paid? Where will it be reported?

The Department of Taxation conservatively estimates that this plan will cost $433 million. Now, tell me, when Virginia is facing a $641 million budget deficit, where’s the money going to come from?

This “no overtime plan” is a no go.

Published

37 thoughts on “Welch’s “no overtime tax” plan”

  1. I found the answer to my own question: “Enter total wages (before deductions) paid to each employee during the calendar quarter. Wages include: salaries, commissions, bonuses, tips, and the cash value of other remuneration such as gifts.” http://www.vec.virginia.gov/vecportal/employer/pdf/fc_20_21ins.pdf

    As I said, some wages that are not subject to income tax are subject to unemployment tax. No change to the unemployment tax reporting would be necessary.

  2. I made another error. According to the instruction paper I linked to a moment ago, the unemployment tax is only on the first $8000 per YEAR, not per quarter:

    Example: An individual is employed from January 1st through December 31st, and is paid $2800 in each of the four calendar quarters, for a total of $11,200. For the first and second quarters, all wages are taxable and no excess should be deducted. However, in the third quarter $400 must be entered as excess wages on line 2 of the third quarter report. In the fourth quarter, the entire earnings of $2800 must be entered on line 2 as excess wages.

    The minimum wage is currently $5.85/hr, which is about $11,700 per year. It seems that most overtime pay is already not subject to unemployment tax, although it is reported on the VEC-FC-21.

  3. Go ahead and have the last word, AEM. You still don’t understand the link between the size of the benefits and the wages. The amount of wages subject to the tax has nothing to do with it.

    I’m done trying to explain that difference to you.

  4. I will take the last word, thank you.

    Wages that are not subject to income tax, such as wages that are deducted for health insurance and flexible spending accounts, IS reported on the FC-21. There is no reason that overtime pay could not be treated the same way.

  5. Have you ever thought Anon that the reason that the budget has gone up so much over the last few years is because of neglected necessities that need upgraded. The only way to do that would be to pump more money into the system. Population growth and increased government spending doesn’t necessarily correlate.

  7. Tax on Overtime wages can be tracked, totalled and refunded at tax return time. There’s no need for expensive accounting changes. And let’s remove taxes on tips and year-end bonuses while we are at it. And go Federal with the whole scheme-then we’d have someone the little guy could vote for, instead of twiddle dumb John, twiddle dee Hilary, or twiddle hope -a- dope Barack

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