A New Payroll Tax Is Coming for Virginia Workers and Employers

A New Payroll Tax Is Coming for Virginia Workers and Employers Virginians need to understand what is happening. The 2026 General Assembly has created a new state-run Paid Family and Medical Leave Insurance Program through HB1207 / SB2. It is being marketed as "paid leave," but the fiscal paperwork tells the real story: this program is funded through a new payroll tax collected through the Virginia Employment Commission. The Department of Planning and Budget's fiscal impact statement states plainly that the bill creates the Paid Family and Medical Leave Program and the Paid Family and Medical Leave Insurance Trust Fund, and that "the payroll taxes established in the bill are the revenue sources for the Fund." That means this is not free. It is not magic money. It is not simply a "benefit" handed down from Richmond. It is money taken from payroll. It is money taken from employers. It is money taken from employees. It is money taken out of the paychecks of working Virginians. According to the fiscal impact statement, the Virginia Employment Commission projected payroll tax collections of approximately $1.471 billion in FY2029, $1.512 billion in FY2030, and $1.548 billion in FY2031. Let that sink in. This is not a minor administrative fee. This is a billion-dollar payroll tax structure being built into Virginia government. The same fiscal statement estimates that the Virginia Employment Commission would need $77.55 million in FY2027and $39 million in FY2028 just for start-up costs. It also projects $43.67 million in administrative costs in FY2029, $44.5 million in FY2030, and $45.44 million in FY2031. And the bureaucracy grows with it. The fiscal statement projects that the VEC would need 314 full-time employees for the paid family and medical leave program to fully function. The broader position impact, including the Office of the Attorney General, rises to 315 positions. That is how government grows. First, it creates a new promise. Then it creates a new program. Then it creates a new bureaucracy. Then it creates a new tax to pay for it. And finally, working families and small businesses are told to be grateful while Richmond takes more money out of payroll. The fiscal numbers are staggering. The Department of Planning and Budget estimates nongeneral fund expenditures of $1.006 billion in FY2029, $2.04 billion in FY2030, and $2.149 billion in FY2031. That includes projected benefit payments of $963 million in FY2029, $1.998 billion in FY2030, and $2.104 billion in FY2031. And here is the part every Virginian must understand: There is no federal rescue coming to pay for this. Because this is a state-directed program, the fiscal impact statement says: "No federal funds can be used to support any component of this new program." That means this mandate is not being paid for by Washington. It is not being paid for by federal dollars. It is not being absorbed by some outside funding source. It is being paid for by Virginia — by Virginia payroll, Virginia employers, Virginia employees, and Virginia taxpayers. The bill also requires repayment of any general fund support initially used to get the program started by January 1, 2034. In plain language, if state money is fronted to build the program, the payroll-tax-funded trust fund must repay it later. The VEC also estimated that to support the benefit level in the bill, premiums would have to be assessed at 0.72 percent of wages, split between employer and employee. That is the real issue. Richmond is not merely creating a new leave policy. Richmond is creating a new wage-based tax structure. This is not just a labor bill. This is not just an employment bill. This is not just a benefits bill. This is a massive expansion of state government financed through payroll taxation. The program will be administered by the Virginia Employment Commission. According to the VEC, payroll contributions begin April 1, 2028, and benefits begin December 1, 2028. The VEC describes the program as funded by a payroll contribution shared by covered employers and employees. (vec.virginia.gov) Virginians are already dealing with inflation, rising utility costs, higher insurance costs, grocery prices, housing pressure, and economic uncertainty. Now Richmond is adding another mandatory cost on top of payroll. For small businesses, this means higher labor costs. For employees, this means another deduction from wages. For consumers, this means costs may be passed along in higher prices. For the Commonwealth, this means another permanent government system that will almost certainly demand more money in the future. And once government creates a new payroll tax, it rarely disappears. It grows. The rate can be adjusted. The bureaucracy can expand. The program can be broadened. The tax can become a permanent fixture in the lives of Virginia families. The bill's supporters will call this compassion. But true compassion does not ignore the cost imposed on families, churches, nonprofits, small businesses, farms, contractors, and local employers across the Commonwealth. Virginia families deserve honesty. They deserve to know that when politicians announce "paid leave," someone has to pay. And according to the state's own fiscal paperwork, that someone is the employer and the employee. The Commonwealth should be helping Virginians keep more of what they earn — not building billion-dollar tax mechanisms that make work more expensive and paychecks smaller. At a time when Virginia should be strengthening families, protecting small businesses, defending taxpayers, and encouraging economic growth, the General Assembly has chosen another path: more government, more bureaucracy, and more money taken from payroll. We must call this what it is. A new payroll tax. A billion-dollar revenue stream. A state mandate with no federal funding support. A permanent expansion of state power. And another reminder that elections have consequences. Virginians must stay alert. They must read the fine print. They must look past the slogans and examine the fiscal statements. Because the truth is often not found in the press conference — it is found in the budget document. And this document tells the story clearly: Richmond has created a new government program, and working Virginians are going to be forced to pay for it. Stay informed. Stay engaged. Stay ready. The fight for taxpayers, families, small businesses, and constitutional government in Virginia is far from over.