Virginia Withholding laws & compensation compliance analysis

Virginia Withholding: What you need to know

Virginia law requires withholding of state income taxes from the wages of residents and nonresidents.
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Nonresident employees who commute on a daily basis from Maryland, the District of Columbia, or Kentucky are not subject to taxation. Additionally, residents of West Virginia or Pennsylvania who are employed in Virginia but are taxed in their home states are not subject to Virginia taxes. Both exempt groups must file Form VA-3 (Certificate of Nonresidence).
Taxes must be withheld on “wages,” which include all cash and noncash payments for services performed by an employee. Virginia withholding law generally parallels federal law. The state tax code conforms to the Internal Revenue Code.
Exclusions. Payments for some services, including the following, are exempt from withholding:
• Domestic service
• Agricultural service for a farmer-employer performed on the farm
• Service not in the course of the employer's trade or business as long as payment for the service is less than $50
• Religious service performed by ministers or members of religious orders
Registration. Employers must register with the Department of Taxation by filing Form R-1, Commonwealth of Virginia Combined Registration Application, before the first withholding payment is due.
Employee exemptions. Employers must obtain a Form VA-4 from each employee showing the number of exemptions the employee is claiming. Employees eligible for out-of-state tax credits on their Virginia income tax should file Form VA-4b (Employee's Withholding Income Tax Credit for Income Taxes Paid to Another State) each year. Employees who had no tax liability in the preceding year and expect none in the current year may file part II of form VA-4 each ...

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