My spouse works as a law clerk in the Commonwealth's Attorney's office -- can we claim Virginia's $15,000 state-employee salary subtraction on our joint return?

Plain-English summary

A husband and wife filed a joint 2022 Virginia resident income tax return claiming a subtraction for the wife's salary, on the theory that she was a "state employee." The Department disallowed the subtraction and assessed tax; the couple sought correction, arguing the wife qualified because she worked in the office of an attorney for the Commonwealth (Virginia's term for the locally elected chief prosecutor).

The subtraction. Va. Code § 58.1-322.02 16 lets a taxpayer subtract "the first $15,000 of salary for each federal and state employee whose total annual salary from all employment for the taxable year is $15,000 or less." Read structurally: the statute first grants the subtraction to "each federal and state employee," then narrows it with the income-limit clause. So the threshold question is whether the wife was a "state employee" at all.

No statutory definition, so the Department borrowed one -- at the taxpayers' own suggestion. The subtraction statute doesn't define "state employee." The taxpayers argued that, absent a definition, the Department should use the one in Va. Code § 51.1-124.3, which defines terms for the Virginia Retirement System (VRS). That section defines "state employee" as, in part, a person "regularly employed full time on a salaried basis, whose tenure is not restricted as to temporary or provisional appointment," paid by the Commonwealth or one of its departments, institutions, or agencies.

The exclusion that decided the case. Even assuming the wife met the full-time, salaried, non-temporary requirements, § 51.1-124.3's "state employee" definition expressly excludes "local officers" -- and "local officer" is itself a defined term there that specifically includes an attorney for the Commonwealth and any deputy or employee thereof. Because she worked in that office, the wife fell into the exclusion rather than the definition, regardless of how her day-to-day duties looked.

Corroborating statutes. The Department pointed to two more places where Virginia law treats Commonwealth's Attorneys and their staff as local rather than state: Va. Code § 51.1-700 (which separately classifies state and local employees for certain federal Social Security benefit provisions) and Va. Code §§ 2.2-2818 / 2.2-1204 (separate health-plan statutes for state vs. local employees, with § 2.2-1204 expressly defining attorneys for the Commonwealth and their employees as local officers).

Strict construction, and a direct precedent. Deductions and subtractions are legislative grants of favor and are strictly construed against the taxpayer and in favor of the taxing authority (citing Howell's Motor Freight, Inc., et al. v. Virginia Dep't of Taxation, Cir. Ct. City of Roanoke, Law No. 82-0846 (10/27/1983)). The Department also noted it had already reached the same conclusion for a different kind of local employee -- a local school board member wasn't a "state employee" for this same subtraction either (P.D. 17-58 (4/26/2017)). Putting it together, the Department found that law clerks and other employees of an attorney for the Commonwealth are not state employees for purposes of the subtraction, and upheld the disallowance.

What this means for you

Anyone who works for a locally elected Virginia constitutional officer (Commonwealth's Attorney, sheriff, clerk of court, etc.)

Don't assume your paycheck qualifies for the $15,000 state-employee salary subtraction just because your office does government work or is "part of the justice system." Virginia law treats several locally elected offices -- starting with the Commonwealth's Attorney here -- as local, not state, employers for this purpose.

Anyone relying on the Virginia Retirement System's "state employee" definition for a different tax provision

That definition (§ 51.1-124.3) has a built-in carve-out for "local officers," which is broader than it might first appear -- it doesn't just cover elected officials themselves but their deputies and employees too. Check the exclusion, not just the general definition, before assuming a job title qualifies.

Married couples claiming subtractions on a joint return

Only the spouse who actually meets the definition qualifies -- and here, the Department evaluated the wife's specific employer (not her job duties or salary level) to decide the threshold question.

Common questions

Q: My spouse works in a prosecutor's office (Commonwealth's Attorney) -- do they count as a Virginia state employee for the $15,000 salary subtraction?
A: No. Virginia law defines an attorney for the Commonwealth, and that office's employees, as "local officers" -- expressly excluded from the "state employee" definition the Department applies here.

Q: Where does the "state employee" definition even come from, since the subtraction statute doesn't define it?
A: The Department borrowed the definition used for the Virginia Retirement System (Va. Code § 51.1-124.3) -- notably, at the taxpayers' own suggestion in this case.

Q: Has the Department applied this same local-vs-state distinction to any other kind of employee?
A: Yes -- a prior ruling, P.D. 17-58, held that a local school board member also isn't a "state employee" for this same subtraction.

Citations and references

Statutes:

• Va. Code § 58.1-322.02 16 -- subtraction for the first $15,000 of salary for each state or federal employee whose total annual salary from all employment is $15,000 or less
• Va. Code § 51.1-124.3 -- Virginia Retirement System definitions of "state employee" and "local officer"; local officer expressly includes an attorney for the Commonwealth and that office's employees
• Va. Code § 51.1-700 -- distinguishes state and local employees for certain federal Social Security benefit provisions
• Va. Code §§ 2.2-2818 and 2.2-1204 -- separate state/local employee health-plan statutes; § 2.2-1204 defines attorneys for the Commonwealth and their employees as local officers

Case law: Howell's Motor Freight, Inc., et al. v. Virginia Dep't of Taxation, Circuit Court of the City of Roanoke, Law No. 82-0846 (10/27/1983) (deduction and subtraction statutes are strictly construed against the taxpayer).

Authorities the Department relied on (described here, not linked): P.D. 17-58 (4/26/2017) (a local school board member is likewise not a "state employee" for this subtraction).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-119

Original ruling text

November 14, 2024

Re: § 58.1-1821 Appeal: Individual Income Tax

Dear *:

This will respond to your letter in which you seek correction of the individual income tax assessment issued to * (the “Taxpayers”) for the taxable year ended December 31, 2022.

FACTS

The Taxpayers, a husband and a wife, filed a joint Virginia resident individual income tax return for the 2022 taxable year, claiming a subtraction for salaries of federal and state employees under $15,000. The Department denied the subtraction and issued an assessment. The Taxpayers applied for correction, contending that the wife qualified for the subtraction as a state employee because she worked in the office of an attorney for the Commonwealth.

DETERMINATION

Virginia Code § 58.1-322.02 16 allows a subtraction for “[t]he first $15,000 of salary for each federal and state employee whose total annual salary from all employment for the taxable year is $15,000 or less.”

By reason of their character as legislative grants, statutes relating to deductions and subtractions allowable in computing income and credits allowed against a tax liability must be strictly construed against the taxpayer and in favor of the taxing authority. See Howell’s Motor Freight, Inc., et al. v. Virginia Dep’t of Taxation , Circuit Court of the City of Roanoke, Law No. 82-0846 (10/27/1983).

The statutory language first grants a subtraction (“the first $15,000 of salary for each federal and state employee”), then imposes a restriction (“whose total annual salary from all employment for the taxable year is $15,000 or less”). If the wife was a “federal or state employee,” then she is granted the subtraction, subject to the limiting condition imposed by the last clause.

The term “state employee” is undefined for the purposes of this subtraction. The Taxpayers argue that in the absence of an applicable definition, the definition of “state employee” under Virginia Code § 51.1-124.3 should control. This section defines terms used in Chapter 1 of Title 51.1 of the Code of Virginia pertaining to the Virginia Retirement System (VRS). In part, “state employee” is defined there as:

any person who is regularly employed full time on a salaried basis, whose tenure is not restricted as to temporary or provisional appointment, in the service of, and whose compensation is payable, no more often than biweekly, in whole or in part, by the Commonwealth or any department, institution, or agency thereof.

The Taxpayers assert that the wife qualified for the subtraction as a salaried law clerk working for an institution or agency of the Commonwealth. Even if she met the requirement for full-time, salaried employment whose tenure was not restricted as to temporary or provisional appointment, the definition of state employee cited by the Taxpayers expressly excludes local officers and certain other categories of employees after the quoted text. “Local officer” is itself a defined term in Virginia Code § 51.1-124.3 and includes, among other local officials, an attorney for the Commonwealth and any deputy or employee thereof. As an employee working in the office of an attorney for the Commonwealth, the wife was not a state employee as defined in Virginia Code § 51.1-124.3.

In addition, under Virginia Code § 51.1-700, state and local employees are distinguished for purposes of certain state law provisions pertaining to federal social security benefits for such employees. Under this provision, attorneys for the Commonwealth, along with their employees, are defined as local employees separate and distinct from state employees. Another example where state and local employees are distinguished is in the context of health plans for such employees, which are governed by separate statutory provisions. See Virginia Code §§ 2.2-2818 and 2.2-1204, respectively. Attorneys for the Commonwealth and their employees are specifically defined as local officers under Virginia Code § 2.2-1204.

In the Department’s opinion, law clerks or other employees of an attorney for the Commonwealth are not state employees for purposes of the subtraction. This conclusion is consistent with a prior determination of the Department which held that a local school board member was not a state employee for purposes of the subtraction either. See Public Document (P.D.) 17-58 (4/26/2017). Accordingly, the Department finds that the subtraction claimed by the Taxpayers for salaries of state and federal employees was properly disallowed.

The Code of Virginia sections cited are available online at law.lis.virginia.gov. The public document cited is available at tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at or **.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/4701.Y

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17-58