Tax Type
Withholding Taxes
Description
IMPACT OF RECENT CHANGES IN FEDERALWITHHOLDING REQUIREMENTS
Topic
Withholding of Tax
Date Issued
10-01-1990
90-6
IMPACT OF RECENT CHANGES IN FEDERAL
WITHHOLDING REQUIREMENTS
WITHHOLDING REQUIREMENTS
Two recent changes in federal withholding and deposit requirements will impact Virginia employers. Conformity to the federal changes will facilitate the administration of income tax withholding by employers by not requiring a separate set of payroll records for Virginia withholding purposes.
Withholding Virginia Income Tax From Employee Business Expense
Reimbursements After July 1, 1990
Federal Law
Pursuant to Internal Revenue Code § 3401, and Treasury Regulation § 31.3401(a)-2T, the appropriate tax treatment of employee business expense reimbursements received after 1988 depends upon whether the reimbursements were received under an accountable or nonaccountable plan. Reimbursements made under a nonaccountable plan on or after July 1, 1990, for expenses paid or incurred after that day, are included in wages and are subject to withholding taxes when paid.
Employee business expense payments or reimbursements subject to withholding may be combined with the employee's regular wages for a payroll period and the withholding computed on the total amount. Alternatively, the employer may withhold from the reimbursement amount at a flat 20% federal rate, provided the reimbursement is paid by separate check or separately identified on the employee's paycheck.
Virginia Impact
The recent federal change will be adopted for Virginia income tax withholding purposes applicable to employee business expense payments and reimbursements paid or incurred on or after July 1, 1990.
In cases in which the employee business expense payments are combined with the employee's regular wages for federal purposes, Virginia income tax withholding will be computed on the same basis. Virginia withholding will be computed according to the withholding tables on the total amount of regular wages and taxable expense payments and reimbursements. Alternatively, a 4% flat rate of Virginia withholding, without allowance for personal exemptions and without reference to any regular payment of wages, must be used when the 20% federal withholding rate and method is used.
Accelerated Withholding Payments: Withholding Taxes Required to be
Deposited After July 31, 1990
Federal Law
For social security taxes and withheld federal income taxes required to be deposited after July 31, 1990, employers currently subject to eighth-monthly withholding will be required to make deposits of federal income tax withholding and FICA taxes on the first banking day after any day that they have $100,000 or more in federal income tax withholding and FICA taxes to deposit. For 1991, they will have two banking days to make the deposit. For 1992, they will have 3 banking days. For 1993 and 1994, they will have one banking day. After 1994, the time limitations may be set by regulation.
The proposed September 30, 1990 federal Budget Summit Agreement would make the deposit requirements for 1991 and 1992 consistent with all other years by requiring deposits to be made within one banking day of accumulating $100,000 or more in federal withholding and FICA taxes. Regardless of the final outcome of this most recent federal proposal, the Virginia impact will be the same.
Virginia Impact
Certain employers, with an accrued Virginia tax liability of $500 or more, must pay Virginia income tax withholding within three banking days following the close of any period for which the employer is required to deposit federal withholding taxes. Therefore, if such a Virginia employer is required to make an accelerated federal payment of taxes, that employer will be required to make a Virginia payment within three banking days from the day federal accumulated income tax withholding and FICA taxes reach $100,000.
Rulings of the Tax Commissioner