Virginia’s 2026 legislative session is in full swing, and despite campaign promises from across the aisle to prioritize “affordability,” a series of new bills could fundamentally reshape the state’s tax landscape. Two specific proposals—HB 378 and HB 979—have caught the attention of tax professionals and high-earning residents alike.
If passed, these bills would move Virginia from a middle-of-the-pack tax environment to one of the most expensive states in the nation for investors and top earners.
HB 378: A New 3.8% Tax on Investment Income
Introduced by Delegate Elizabeth Bennett-Parker, HB 378 seeks to mirror the federal Net Investment Income Tax (NIIT). Starting January 1, 2027, this bill would impose a 3.8% tax on dividends, interest, capital gains, and rental income for individuals, trusts, and estates.
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The Threshold: The tax kicks in once a taxpayer’s Federal Modified Adjusted Gross Income (FMAGI) exceeds $500,000.
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The Impact: Combined with the current top rate of 5.75%, Virginia’s marginal rate on investment income would climb to 9.55%.
HB 979: High-Earner Brackets and “Bracket Creep”
While HB 378 targets passive income, HB 979 (sponsored by Delegate Vivian Watts) takes aim at ordinary income. It proposes two brand-new tax brackets for high earners:
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8% on income over $600,000.
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10% on income over $1,000,000.
Currently, Virginia’s top rate is a flat 5.75% for everyone earning over $17,000. Under HB 979, a millionaire’s top marginal rate would nearly double.
| Income Bracket | Current Rate | Proposed Rate (HB 979) |
| Over $17,000 | 5.75% | 5.75% |
| Over $600,000 | 5.75% | 8.00% |
| Over $1,000,000 | 5.75% | 10.00% |
Note on Affordability: To balance these hikes, the bill does propose increasing the standard deduction to $10,000 for singles and $20,000 for married couples, indexed for inflation starting in 2028. However, critics argue these gains are eclipsed by the massive “marriage penalty” and “bracket creep” inherent in the new upper-tier rates.
The “Perfect Storm”: What if Both Bills Pass?
The most concerning scenario for Virginia’s economic competitiveness is the passage of both bills. If HB 979 (the 10% income tax) and HB 378 (the 3.8% investment tax) are enacted, Virginia would reach a staggering 13.8% marginal rate on investment income.
This would give Virginia the highest investment tax rate in the United States, leapfrogging even high-tax stalwarts like California (13.3%) and New York (10.9%).
Regional Risk: The Commuter Exodus
Virginia has long benefitted from its “tax-friendly” status compared to Maryland and Washington, D.C. Currently, over 211,000 Virginians commute to D.C. and nearly 70,000 commute to Maryland.
Because of reciprocity agreements, these workers are taxed only by their home state (Virginia). If Virginia’s rates become comparable to—or higher than—its neighbors, the incentive to live in the Commonwealth disappears. High earners and small business owners (many of whom file as “pass-through” entities) may simply move across the border, taking their tax revenue and economic activity with them.
Final Thoughts
While the revenue from these bills is intended to fund public schools and local infrastructure, the potential for “tax migration” is real. With neighboring states like West Virginia and North Carolina actively cutting or phasing out income taxes, Virginia’s move in the opposite direction could signal a major shift in the state’s economic trajectory.