If your small business has employees working in Virginia, you'll need to withhold and pay Virginia income tax on their salaries. This is in addition to having to withhold federal income tax for those same employees. Here are the basic rules on Virginia state income tax withholding for employees.
With rare exceptions, if your small business has employees working in the United States, you'll need a federal employer identification number (EIN). You should obtain your EIN as soon as possible and, in any case, before hiring your first employee. EINs are issued by the IRS and you'll need one first and foremost for federal taxes. In addition, some states use the federal EIN for state withholding tax purposes. Other states (like Virginia) issue separate state tax ID numbers. You'll need an EIN to register with the state (see below). You can apply for an EIN at the IRS website. Generally, if you apply online, you will receive your EIN immediately.
Apart from your EIN, you also need to establish a Virginia withholding tax account with the Virginia Department of Taxation (DOT). You set up your account by registering your business with the DOT either online or on paper. To register online, use VATAX Online Services. If you register online you should have an account assigned immediately. To register on paper, use Form R-1, Business Registration Form. You can submit Form R-1 by regular mail or by fax. If you register by mail you should have an account assigned in 5-7 business days. There is no fee to register your business with the DOT.
All new employees for your business must complete a federal Form W-4 and also should complete the related Virginia Form VA-4, Employee's Virginia Income Tax Withholding Exemption Certificate. If an employee does not provide a Form VA-4, the employer is required to withhold Virginia income tax as if the employee had no exemptions. You can download blank Forms VA-4 from the withholding tax forms section of the DOT website. You should keep the completed forms on file at your business and update them as necessary.
In Virginia, there are three main payment schedules for withholding taxes: semi-weekly, monthly, or quarterly. There is also an annual payment schedule that applies only for household employers and is not covered here. Your payment schedule ultimately will depend on the average amount you withhhold from employee wages over time. The more you withhold, the more frequently you'll need to make withholding tax payments. Some small employers assigned the semi-weekly payment schedule may request a waiver from filing on this schedule.
The exact threshold dollar amounts for the different payment schedules, as well as other rules, may change over time so you should check with the DOT at least once a year for the latest information.
Due dates for payments are:
If the payment is due on a Saturday, Sunday, or holiday, the due date is extended to the next business day.
In general, all employers are required to file payments and associated returns electronically. The DOT has three different options for electronic filings: eForms, Business iFile, or Web Upload. Each of these online services is free. Businesses can also request a waiver from the DOT if filing online will cause undue hardship. To request a waiver, use Form WH, Employer Withholding Electronic Filing Waiver Request.
The paper forms associated with payments vary depending on the payment schedule:
You can download blank versions of these forms from the withholding tax forms section of the DOT website. Returns must be filed for every pay period even if no tax is due.
Semi-weekly payers also must file Form VA-16, Employer's Payments Quarterly Reconciliation and Return of Virginia Income Tax Withheld, for each quarter. Form VA-16 must be filed electronically and is due by the end of the month following the close of the quarter:
As with tax payments, if the due date falls on a Saturday, Sunday, or holiday, it is adjusted to the next business day.
For help calculating the amount of tax to withhold, check the DOT's online Employer Withholding Calculator.
After the end of the year, you must file an annual reconciliation with the DOT that summarizes the employee taxes you've withheld during the year. The annual reconciliation is in addition to providing each of your employees with a federal Form W-2 summarizing the employee's withholding for the year. You must file copies of the federal W-2s sent to all of your employees working in Virginia along with the annual reconciliation. Unless you request and receive a waiver from the DOT, the annual reconciliation and the related W-2s must be filed electronically. You can file electronically using one of the three free services mentioned above. The paper version of the annual reconciliation is Form VA-6, Employer's Annual Summary of Virginia Income Tax Withheld, which you can download from the withholding tax forms section of the DOT website. The annual reconciliation and W-2s are due by January 31. The annual reconciliation must be filed even if no tax is due.
Independent Contractors are Not Employees
This article is only concerned with employees, not independent contractors. In general, different tax rules apply to independent contractors.
You may decide that it's easiest to hand over responsibility for payroll, including withholding taxes, to an outside payroll service. If so, keep in mind that your business, or even you personally, may still be held directly responsible for mistakes made by an outside payroll company.
This article touches on only the most basic elements of Virginia employee withholding taxes. Under Virginia law, any officer or employee of a corporation, or member, manager, or employee of a partnership or limited liability company, whose duty is to collect, account for, and pay assessed taxes, can be held personal liable for failing to withhold or pay those taxes, if they were knew about and had authority to prevent the failure. Avoid possible penalties for making mistakes by checking both the IRS and DOT websites for the latest information. You also can get more information about small business tax issues in other articles here on Nolo.com.