November 20, 2025
Re: § 58.1-1821 Application: Individual Income Tax
Dear ***** :
This will respond to your letter in which you seek correction of the individual income tax assessment issued to you (the “Taxpayer”) for the taxable year ended December 31, 2021.
FACTS
The Taxpayer was a resident of Virginia for the entire 2021 taxable year. During the first three months of 2021, he was employed by a company based in ***** (“State A”) but worked remotely from his residence in Virginia. The Taxpayer filed a Virginia resident income tax return and a State A nonresident income tax return for the 2021 taxable year. On his Virginia return, the Taxpayer claimed a credit for income tax paid to State A. The Department denied the credit and issued an assessment. The Taxpayer appealed, contending he was permitted to claim a credit for income tax paid to State A.
DETERMINATION
Virginia Code § 58.1-332 A allows Virginia residents a credit on their Virginia return for income taxes paid to another state, provided the income is either earned or business income or gain from the sale of a capital asset. Virginia law does not necessarily allow a taxpayer to claim a credit for the total amount of tax paid to another state. Rather, the credit is limited to the lesser of the amount of tax actually paid to the other state or the amount of Virginia income tax actually imposed on the taxpayer on the income earned or derived in the other state. See Public Document (P.D.) 97-301 (7/7/1997). The credit is also subject to the further limitation that the income upon which the credit may be claimed must be “derived from sources outside the Commonwealth” and otherwise subject to Virginia income tax. See Virginia Code § 58.1-332 A. Thus, Virginia resident taxpayers may not claim credit on their Virginia income tax return for income tax paid to another state on Virginia source income.
Based on the information provided, it appears that the Taxpayer worked remotely from Virginia for an employer based in State A. He reported income attributable to such activities as State A taxable income on his State A nonresident income tax return and claimed credit for tax paid on such income against his Virginia income tax liability. However, working remotely from Virginia, regardless of where the employer is based, would be considered a business, trade, profession, or occupation carried on in Virginia. As such, any income from such activities would be considered Virginia source income. See Virginia Code § 58.1-302 and P.D. 17-50 (4/6/2017). As Virginia source income, any tax paid to another state on such income would not be eligible for the credit under Virginia Code § 58.1-332. See P.D. 20-71 (4/28/2020).
The assessment, therefore, is upheld. The Taxpayer should review State A’s tax laws to determine to what extent that income was subject to tax in State A, and if so, whether he may be entitled to claim a credit on his State A return for income tax paid to Virginia. If such income was not taxable by State A, the Taxpayer should file an appropriate refund claim with State A.
The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. The public documents cited are 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 and Legal Affairs, Tax Adjudication and Resolution Division, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR 5106.Q