Tax Type
Employer Income Tax Withholding
Description
Annuity contracts; Withholding requirements
Topic
Withholding of Tax
Date Issued
09-10-1992
September 10, 1992
Re: Request for Ruling: Individual Withholding Tax
Dear***********
This will reply to your letter of September 24, 1991 in which you request a ruling on behalf of*****************(the "Company") regarding the applicability of the withholding requirements to individual annuity contracts (the "Annuity Contracts") sold by the Company.
FACTS
The Company wants to determine if it must withhold Virginia Income taxes on Annuity Contract payments to payees located in Virginia and requests information on other related matters.
RULING
Virginia has recently amended its withholding requirements to conform with the federal withholding requirements. Va. Code §58.1-461 requires that each employer making payment of wages to deduct and withhold with respect to the wages of each employee for each payroll period a certain amount.
Virginia's definition of wages is based upon the federal definition of wages included in §3401(a) of the Internal Revenue Code (the "Code"), as well as any other amounts from which federal income tax is withheld under the provisions of §§3402 and 3405 of the Code. However, Virginia law excludes from its definition of wages amounts paid pursuant to individual retirement plans and simplified employee pension plans, as defined in §§7701(a)(37) and 408(c) of the Code.
§7701(a)(37) of the Code defines an individual retirement plan to be an individual retirement account described in §408(a) of the Code or an in individual retirement annuity described in 408(b) of the Code.
Pursuant to §408(b) of the Code, an individual retirement annuity is an annuity contract issued by an insurance company that meets certain enumerated requirements.
Although your ruling request did not provide a sufficient amount of detail into the characteristics of the Annuity Contracts for us to definitively determine whether the Company must withhold taxes, to the extent that the Annuity Contracts meet the definition under §408(b) of the Code, the Company will not have to withhold Virginia taxes on the Annuity Contract payments. Under Virginia law such Annuity Contract payments would qualify as amounts paid pursuant to an individual retirement plan; thus, would not be considered "wages." To the extent that the Annuity Contracts do not meet the above state requirements, the Company will be obligated to withhold Virginia income taxes.
While under the new law withholding is no longer mandatory, there is nothing that would prohibit voluntary withholding at the request of the recipient. Pursuant Va. Code §58.1-466 an employer and an employee may agree to have additional amounts withheld. If such additional amounts are withheld they will be considered tax required to be withheld.
An employer may determine the amount of tax to withhold using the withholding tables. Alternatively, with my expressed consent an employer may use another method of withholding tax provided that such method will result in substantially the same amount of tax being withheld as would have been had the employee used the withholding tables.
An employer will be required to file monthly or quarterly returns and remit the payment therewith depending on the amount of withholding collected during a given period. I enclose a copy of the withholding sections of the Virginia Code and the related regulations. Included therein is Va. Code 5 58.1-472 which details employers' reporting requirements. Additionally, I enclose the current withholding tables and the appropriate tax forms.
Please do not hesitate to contact the department if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/5643O
Rulings of the Tax Commissioner