Tax Type
Individual Income Tax
Description
Estimated Income Tax By Individuals
Topic
Taxable Income
Taxpayers
Date Issued
06-18-1988
DEPARTMENT OF TAXATION
ESTIMATED INCOME TAX BY INDIVIDUALS
ESTIMATED INCOME TAX BY INDIVIDUALS
These three emergency regulations were signed by the Governor on December 26, 1987 and became effective on January 1, 1988 in order to advise individual taxpayers of the changes in the estimated income tax law enacted by the 1987 General Assembly as part of the Virginia response to the federal Tax Reform Act of 1986. The changes increased the minimum filing threshold below which the income of an individual is not subject to tax, provided that the Tax Commissioner, by regulation, set the filing threshold for filing a declaration of estimated income tax and increased the percentage of individual income tax that must be remitted by means of estimated and/or withholding payments.
These emergency regulations amend and supersede the corresponding permanent regulations that were published January 1, 1985. They will expire on December 31, 1988.
As part of the process of adopting permanent regulations under the Administrative Process Act, the Department of Taxation will receive, consider and respond to any comments or suggestions to reconsider or revise these emergency regulations.
VR 630-2-490.1 Definitions.
The following words and terms, when used in these regulations, shall have the following meaning unless the context clearly indicates otherwise:
"Commissioner" means the Tax Commissioner.
“Estimated tax" means the amount which an individual reasonably estimates to be the income tax due for the taxable year, less the amount estimated to be the sum of any credits allowable against the tax.
“Taxable income" means an individual's federal adjusted gross income for the taxable year with the additions, subtractions, deductions and other modifications and adjustments set forth in § 58.1-322 of the Code of Virginia and regulations promulgated thereunder.
"Taxable year" means an individual's taxable year for federal income tax purposes.
“Virginia adjusted gross income" means federal adjusted gross income (FAGI) for the taxable year plus the additions set forth in subsection B of § 58.1-322 of the Code of Virginia, and less the subtractions set forth in subsection C of § 58.1-322 of the Code of Virginia and the additional deduction set forth under subdivision 2(b) of sub-section D of § 58.1-322 of the Code of Virginia.
VR 630-2-490.2. Declarations of estimated tax.
§ 1. Requirement of declaration.
A. Every resident and nonresident individual shall make a declaration of his estimated tax for every taxable year, if his estimated tax, as defined in VR 630-2-490.1, is greater than $150. This requirement of declaration is in effect throughout the entire taxable year.
B. A taxpayer is not required to file a declaration if:
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- 1. his estimated tax is $150 or less; or
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- 2. he is single and his expected Virginia adjusted gross income is less than $5,000; or
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- 3. he is married and the combined expected Virginia adjusted gross income of the couple is less than $8,000; or
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- 4. he is not required to file a Virginia inane tax return pursuant to the provisions of § 58.1-342 of the Code of Virginia.
EXAMPLE 1: Taxpayer A is employed to render domestic service in the local chapter of a college fraternity. The wages he receives are not subject to withholding under subsection 2 of § 58.1-460 of the Code of Virginia. His only other income consists of interest and dividend payments. His total Virginia adjusted gross income for the taxable year is expected to be less than $5,000. Because his estimated Virginia adjusted gross income will be less than the minimum amount specified under § 58.1-321 of the Code of Virginia subjecting him to taxation, he is not required to file a declaration.
EXAMPLE 2: Assume that Taxpayer A, in addition to his income above, also works in the local grocery store and taxes are withheld from his wages. His total Virginia adjusted gross income from both jobs exceeds $5,000 for the year. Therefore, he is subject to taxation and required to file a return. If his estimated tax far the year exceeds his withholding and any other credits by more than $150, he must file a declaration.
§ 2. Contents of declaration.
In the declaration required under Section 1 the individual shall state:
A. The amount which he estimates as the amount of individual income tax for which he will be liable for the taxable year;
B. The amount, if any, which he estimates will be withheld from wages for the taxable year under the Withholding Requirements;
C. The excess of the amount estimated under paragraph A of this subsection over the amount estimated under paragraph B of this subsection shall be considered the estimated tax for the tax-able year to be paid by the individual as hereinafter provided; and
D. Such other information as may be required by the Commissioner. Form 760ES is currently in use for this purpose.
§ 3. Joint declaration by husband and wife.
A husband and wife may file a joint declaration, in which case the liability with respect to the estimated tax shall be joint and several. A joint declaration may not be made: (i) if either the husband or the wife is a nonresident of Virginia unless both are required to file an individual income tax return, (ii) if they are separated user a decree of divorce or of separate maintenance, or (iii) if they have different taxable years. If a joint declaration is made but a joint return is not made far the taxable year, the estimated tax for such year may be treated as the estimated tax of either the husband or the wife, or may be divided between them as they mutually agree.
§ 4. Time for filing declaration.
A declaration of estimated tax of an individual other than a farmer or fisherman shall be filed on or before May 1 of the taxable year, except that if the requirements of section 1 are met for the first time:
A. After April 15 and before June 2 of the taxable year, the declaration shall be filed on or before June 15, or
B. After June 1 and before September 2 of the taxable year, the declaration shall be filed on or before September 15, or
C. After September 1 of the taxable year, the declaration shall be filed on or before January 15 or the succeeding year.
§ 5. Declaration of estimated tax by a farmer or fisherman.
If at least two-thirds of a self-employed individual's total estimated gross income for the taxable year is from farming (including oyster fanning) or fishing, the declaration of estimated tax may be filed at any time on or before January 15 of the succeeding year, instead of the time otherwise prescribed. However, if the income tax return for the taxable year is filed on or before March 1 of the succeeding year and the total tax is paid at that time, the return will be considered a timely declaration and payment of the January 15 installment under the provisions of section 7 below.
A person farming or fishing for a living whose services are legally subject to the will and control of an employer, whether paid by salary or commission, or in cash, fish or produce, is an employee and not a self-employed person. If there is no withholding the employee is subject to the requirements set forth in section 4.
§ 6. Amendments of declaration.
An individual may amend a declaration at any ties throughout the year by increasing or decreasing the amount of installment payment noted on the payment-voucher foam accompanying the payment.
§ 7. Return as declaration or payment.
If on or before March 1 of the succeeding taxable year an individual files his return for the taxable year for which the declaration, is required, and pays the full amount of the tax shown to be due on the return:
A. Such return shall be considered as his declaration if no declaration was required to be filed during the taxable year, but is otherwise required to be filed on or before January 15.
B. Such return and payment shall be considered as the last installment of estimated tax which would otherwise have been payable on or before January 15.
Filing a return on or before March 1 of the succeeding taxable year or filing a declaration or payment of the lest installment on January 15 will not relieve a taxpayer of liability for additions to tax for underpayment of any of the installments of estimated tax that were due an May 1, June 15 or September 15 of the taxable year.
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- Example 1: Taxpayer A discovers on September 15, 1988 that his expected Virginia estimated tax for calendar year 1988 will exceed $150. Taxpayer is required to file his declaration by January 15, 1989, but by filing his 1988 income tax return on or before March 1, 1989 and paying is full his tax liability shown on the return, Taxpayer is deemed to have timely filed the declaration required by VR 630-2-490.2D(3).
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- Example 2: Taxpayer A makes the same discovery but on September 1, 1988. He must file his declaration on or before September 15, 1988 accompanied by the first installment of estimated tax payment. His second installment would be due January 15, 1989. (See VR 630-2-491A.3). However because he files his 1988 return on February 28, 1989 accompanied by payment in full of his 1988 liability, he is deemed to have timely made the filing/payment of his second installment.
§ 8. Fiscal year.
This regulation shall also apply to a taxable year other than a calendar year. In the case of a fiscal year: the 15th day of the 4th month shall be substituted for May 1; the 15th day of the 6th month shall be substituted for June 15th; the 15th day of the 9th month shall be substituted for September 15 and the 15th day of the 1st month of the succeeding taxable year shall be substituted for January 15th.
June 1, 1988
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- Example: Taxpayer F is a fiscal year taxpayer whose taxable year ends on June 30th. His income tax return is due on October 15th (15th day of the 4th month following the close of his taxable year). His estimated payments are due on October 15th, December 15th, March 15th and July 15th.
- Example: Taxpayer F is a fiscal year taxpayer whose taxable year ends on June 30th. His income tax return is due on October 15th (15th day of the 4th month following the close of his taxable year). His estimated payments are due on October 15th, December 15th, March 15th and July 15th.
A separate declaration must be filed where a return is required for a period of less than 12 months, unless the short period is less than four months or the requirements to file are first met after the first day of the last myth in the short taxable year. In the case of a decedent, no declaration need be filed after the date of death.
For the purpose of determining whether a declaration must be filed for a short taxable period which results from a change in annual accounting period, the tax for the short period shall be placed on an annual basis by multiplying the amount thereof by 12 and dividing the result by the number of months is the short period.
§ 10. Declaration far individual under a disability.
The declaration of estimated tax for an individual who is unable to make a declaration by reason of any disability shall be made and filed by his guardian, committee, fiduciary or other person charged with the care of his person or property (other than a receiver in possession of only apart of his property), or by his duly authorized agent.
VR 630-2-492. Failure by individual to pay estimated tax.
§ 1. Additions to the tax.
In the case of any underpayment of estimated tax by an individual, except as provided in section 4, there shall be added to the individual income tax for the taxable year an amount determined at the rate established for interest, under § 58.1-15 of the Code of Virginia upon the amount of the underpayment (determined under section 2), for the period of the underpayment (determined under section 3). The amount of such addition to the tax shall be reported and paid at the time of filing the individual income tax return for the taxable year.
§ 2. Amount of underpayment.
For purposes of section 1, the amount of the underpayment shall be the excess of:
A. The amount of the installment which would be required to be paid if the estimated tax were equal to 90% (66 2/3% in the case of a self-employed farmer or fisherman referred to in VR 630-2-490.2E) of the tax shown on the individual income tax return for the taxable year, or if no return was filed, 90% (66 2/3% in the case of self-employed farmers or fishermen referred to in VR 630-2-490.2E) of the tax for such year, over
B. The amount, if any, of the installment paid on or before the last date prescribed for such payment.
§ 3. Period of underpayment.
The period of the underpayment shall run from the date the installment was required to be paid to the earlier of the following dates:
A. May 1, if a calendar year, or the 15th day of the fourth month following the close of the taxable year, if a fiscal year or;
B. With respect to any portion of the underpayment, the date on which such portion is paid. For purposes of this paragraph, a payment of estimated tax on any installment date shall be considered a payment of any previous underpayment only to the extent such payment exceeds the amount of the installment determined under section 2 (A) for such installment date.
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- Example 1: Taxpayer C filed her return for taxable year 1988 on May 1, 1989 showing a tax liability of $10,000. She had previously paid $1,500 of estimated tax on each of May 1, June 15 and September 15, 1988 and January 15, 1989, and made no other payments before the return was filed. Because each $1,500 payment was less than 90% of $2,500 (one-quarter of the tax shown as due on the return), the addition to the tax applies to each underpayment on each installment date, computed as follows (and assuming an annual interest rate of 12%):
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- Amount of each underpayment installment:
less installment paid $1,500
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$ 750
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- 1st installment-period: 5/1/88 to 5/1/89 $90
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- 2nd installment-period: 6/15/88 to 5/1/89 $78.75
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- (10.5 of $750)
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- (7.5% of $750)
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- 2nd installment-period: 6/15/88 to 5/1/89 $78.75
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- (3.5% of $750 )
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Total addition to tax $251.25
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- Example 2: Taxpayer had a total tax liability of $5,000, 90% (or $4,500) of which would be due in quarterly installments of $1,125 each. He made payments as follows: $200 on May 1, $800 on June 15, $3,000 on September 15 and $0 by January 15. The $1,875 overpayment from September 15 would be applied to the other quarterly underpayments in the following order and amounts: $925 to May 1, $325 to June 15, and $625 to January 15.
§ 4. Exception.
Notwithstanding the provisions of the preceding sections, the addition to the tax with respect to any underpayment of a installment shall. not be imposed if the total amount of all payments of estimated tax made or before the last date prescribed for the payment of such installment equals or exceeds the lesser of the following:
A. The amount which would have been required to be paid on or before such date if estimated tax were whichever of the following is the least:
- 1. The tax shown on the return of the individual for the preceding taxable year, if a return showing a liability for tax was filed by the individual for the preceding taxable year and such preceding year was a taxable year of 12 months, or
- 2. An amount equal to the tax imputed, at the rates applicable to the taxable year, on the basis of the taxpayer's status with respect to personal exemptions for the taxable year, but otherwise on the basis of the facts shown on his return for, and the law applicable to, the preceding taxable year, or
- 3. An amount equal to 90% (66 2/3% is the case of self-employed farmers or fishermen referred to in VR 630-2-490.2E ) of the tax for the taxable year computed by placing on an annualized basis the taxable income for the months in the taxable year ending before the month in which the installment is required to be paid. For purposes of this paragraph the taxable income shall be placed on an annualized basis by:
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- a. Multiplying by 12 (or, in the case of a taxable year of less than 12 months, the number of months in the taxable year) the taxable income (computed without deduction of personal exemptions) for the months in the taxable year ending before the month in which the installment is required to be paid,
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- b. Dividing the resulting amount by the number of months in the taxable year ending before the month in which such installment date falls, and
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- c. Deducting from such amount the deductions for personal exemptions allowable for the taxable year (such personal exemptions being determined as of the last date prescribed for payment of the installment); or
B. An amount equal to 90% of the tax computed, at the rates applicable to the taxable year, cap the basis of the actual taxable income for the myths in the taxable year ending before the month in which the installment is required to be paid. The periods involved, far a calendar year taxpayer, are January 1 to April 30, January 1 to May 31, and January 1 to August 31.
Virginia taxable income for the applicable period is computed as follows: there is subtracted from the federal adjusted gross income for the four, five or eight month period, as applicable, (i) the Virginia subtractions specified in § 58.1-322 of the Code of Virginia, (ii) the greater of itemized deductions or standard deduction, (iii) child and dept care deduction, and (iv) the dollar amount of exemptions claimed on the return; and there is added to federal adjusted gross inane the Virginia additions specified in § 58.1-322 of the Code of Virginia. Virginia income tax is calculated on the resulting Virginia taxable inane. If the estimated tax installment relating to the period is at least 90% of such tax, no addition to tax is required.
C. Examples.
1. Taxpayer E filed a return for calendar year 1987 showing a tax liability of $4,750. For calendar year 1988 E made timely estimated tax payments which, together with withholding payments, totaled $4,750. E's return for calendar year 1988 revealed a total tax liability of $6,000, which was underpaid by $1,250 or more than 10%. However, because E's withholding and timely estimated tax payments for calendar year 1988 at least equaled the tax shown on his 1987 return, the exception in VR 630-2-492D.1.a applies and no addition to the tax will be imposed.
2. Assume the same facts as in Example 1 except that Taxpayer E adopted a daughter and son on January 1, 1988 and made estimated tax payments in calendar year 1988 totaling $4,700. The exception of VR 630-2-492D.1.a. does not apply because the 1988 estimated tax payments are less than the tax shown on his 1987 return. However, VR 630-2-492D.1.b. permits E to recalculate his 1987 tax liability using his two additional. $700 exemptions. Assuming that E has reached the 5.75 tax bracket, the $1,400 would yield tax savings of $80.50 (5.75 of $1,400). The $80.50 tax savings would reduce his recomputed 1987 tax liability to $4,669.50. Because the total amount of estimated tax paid by each installment date exceeds the amount which would have had to be paid on or before each of such dates if the estimated tax were $4,669.50, no addition to the tax will be imposed.
3. Taxpayer F's 1987 return revealed a total tax liability of $311, but she qualified for an age credit in the amount of $311 so that no tax was due for 1987. She had one exemption for both 1987 and 1988, and $200 in withholding aril estimated tax payments were made for calendar year 1988. Her 1988 tax liability was $1,000. The exception of VR 630-2-492D.1.a does not apply because the 1988 payments are less than the $311 tax liability shown con her 1987 return. However, VR 630-2-492D.1.b provides an exception because the 1988 payments of $200 at least equal the tax (figured using the applicable non-refundable credits) which would have been due on her 1987 income, using 1988 rates and personal exemptions.
4. Taxpayer G. who claims one exemption and itemizes deductions, made four timely installment payments of estimated tax totaling $4,400 for calendar year 1988. His calendar year 1988 tax liability was $5,000 and his receipt of Virginia adjusted gross income accelerated as the year progressed, as the following worksheet illustrates:
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- 1/1/88 to 1/1/88 to 1/1/88 to
4/30/88 5/31/88 8/31/88
- 1/1/88 to 1/1/88 to 1/1/88 to
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Virginia adjusted gross income $15,000 $27,000 $64,000
1. Annualized Va. adjusted gross
income for period(s) shown $46,500 $64,800 $96,000
2. Annualized itemized
deductions for period(s)
shown or Standard
Deduction if not itemized 6,000 12,000 9,000
3. Total dollar amount of
exemptions 800 800 800
4. Taxable income
lines 2 and 3 from 1 39,700 52,000 86,200
5. Virginia tax on the amount
shown on line 4 2,048 2,755 4,722
22.5% (or 45% (or 67.5% (or
90% of 90% of 90% of
25%) of 50% of 75% of
Installments due through line 5: line 5: line 5:
the applicable period $460.80 $1,239.75 $3,187.35
Installments paid through
the applicable period $1,100 $2,200 $3,300
Because the total of estimated payments through each of the three periods is at least (and, in fact, exceeds) 90% of the tax on the annualized taxable income for the applicable period(s), no addition to tax applies because of the exception in VR 630-2-492D.l.c.
5. Taxpayer H who claims one exemption and itemizes deductions, had $100,000 of federal adjusted gross income for calendar year 1983 and a tax liability of $5,000. H expected her income to be $70,000 and had paid estimated tax in four $975 installments. Her calendar 1982 tax liability was $4,000. As the following worksheet illustrates, her estimated tax payment for each of the four, five and eight month periods is at least (and, in fact, exceeds) 90% of the tax liability for the applicable period and no addition to tax applies because of the exception in VR 630-2-492D.2.
1/1/83 to 1/1/83 to 1/1/83 to
4/30/83 5/31/83 8/31/83
1. Federal AGI for period(s)
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- shown $17,500 $29,000 $69,000
- shown $17,500 $29,000 $69,000
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- and/or
subtractions for
period(s) shown -2,000 - 2,000 - 3,000
3. Subtract
a. Itemized deductions for
- period(s) shown, or (if greater
income shown
4. Subtract Child and Dependent
Care Deduction for the
period(s) shown -0- -0- -0-
5. Subtract dollar amount of
exemptions -600 -600 -600
6. Virginia taxable income for
period(s) shown 12,900 21,400 59,400
7. Virginia tax on amounts shown
on line 6 522 1,010 3,196
8. 90% of line 7 470 909 2,876
9. Installments paid through
- The applicable period 975 1,950 2,925
§ 5. Application of section in case of tax withheld on wages.
For purposes of applying this section:
A. The estimated tax shall be computed without any reduction for the amount which the individual estimates as his credit under § 58.1-480 of the Code of Virginia and its regulations (relating to tax withheld at source on wages), and
B. The amount of the credit allowed under § 58.1-480 of the Code of Virginia and its regulations (dealing with withheld amounts credited to individual taxpayer) for the taxable year shall be deemed a payment of estimated tax, and an equal part of such amount shall be deemed paid on each installment date (determined under § 58.1-491 of the Code of Virginia and its regulations) for such taxable year, unless the taxpayer establishes the dates on which case the amounts so withheld shall be deemed payments of estimated tax on the dates on which such amounts were actually withheld.
§ 6. Short taxable year.
A. In any case in which the taxable year for which an underpayment of estimated tax exists is a short taxable year due to a change in annual accounting periods, in determining the tax (i) shown on the return for the preceding taxable year (for purposes of subdivision 1(a) of subsection D of § 58.1-492 of the Code of Virginia), (ii) based the personal exemptions and rates for the current taxable year but otherwise on the basis of the facts shown the return for the preceding taxable year and the law applicable to such year (for purposes of subdivision 1(b) of subsection D of § 58.1-492 of the Code of Virginia), the tax will be reduced by multiplying it by the number of months in the short taxable year and dividing the resulting amount by 12.
B. If the taxable year for which an underpayment of estimated tax exists is a short taxable year due to a change in annual accounting periods, in annualizing the income for the months in the taxable year preceding an installment date, for purposes of subdivision 1(c) of subsection D of § 58.1-492 of the Code of Virginia, the personal exemptions allowed as deductions shall be prorated by multiplying such deduction by the ratio of months in the short taxable year to 12 months.
C. If "the preceding taxable year" referred to in subdivision 1(b) of subsection D of § 58.1-492 of the Code of Virginia was a short taxable year, for purposes of determining the applicability of the exception described in subdivision 1(b) of subsection D of § 58.1-492 of the Code of Virginia, the tax, computed on the basis of the facts shown on the return for the preceding year, shall be the tax computed in the manner described in VR 630-2-340. If the tax rates or the taxpayer's status with respect to personal exemptions for the taxable year in which the underpayment occurs differs from such rates or status applicable to the preceding taxable year, the tax determined in accordance with this subparagraph shall be recomputed to reflect the rates and status applicable to the year in which the underpayment occurs.
Rulings of the Tax Commissioner