Tax Type
Employer Income Tax Withholding
Individual Income Tax
Description
Missing Form W-2; 1099
Topic
Returns/Payments/Records
Withholding of Tax
Date Issued
05-16-1995
May 16, 1995
Re: §58.1-1821 Application: Individual Income Tax
Dear****************
This will reply to your letters of September 26, 1994, and November 1, 1994, concerning the 1990 through 1993 Virginia individual income tax assessments for your clients, ***********(the "Taxpayers").
FACTS
During the taxable years 1990 through 1993, the Taxpayer's employer issued Form 1099 to the Taxpayers instead of a Form W-2 to report compensation. Amended returns were filed showing the Form 1099 income increased by employment taxes, and the Virginia withholding tax was claimed as a credit. Form W-2s showing Virginia withholding tax were not filed with the returns, therefore, the department issued assessments for additional tax. The 1990 and 1991 assessments were paid.
The Taxpayers contend that legislation enacted by the 1991 General Assembly required Virginia withholding to conform to federal withholding requirements. Further, since federal requirements allow a credit of uncollected withholding, Virginia should conform. They also contend that Code of Virginia §§58.1-474 and 58.1-484 holds the employer personally liable for taxes that they fail to withhold. The Taxpayers request that the withholding claimed on the Virginia returns be allowed.
DETERMINATION
Code of Virginia §58.1-460, as amended by the 1991 General Assembly, merely conforms the Virginia definition of "wages" (income subject to withholdings) with the federal definition under § 3401 of the Internal Revenue Code, as well as other types of income subject to withholding under §§ 3402 and 3405 of the Internal Revenue Code. The 1991 legislation did not conform the Virginia and federal withholding status in their entirety; rather, the purpose of this amendment was to require Virginia withholding on the same classes of income as provided for federal purposes. Therefore, Virginia payors were relieved from the burden of applying different federal and Virginia withholding requirements.
Employers are liable for withholding and paying taxes on the wages of their employees as provided in Code of Virginia §58.1-474 and 58.1-484. However, Code of Virginia §58.1467 also provides that when an employer fails to withhold tax, the department shall not collect the tax from the employer if the tax has been paid by the employee. The employer may still be liable for penalties and interest. Further, regardless that the employer failed to withhold tax, the employee is responsible for reporting the income and paying the entire tax. This position was held in the case of John M. and Alice D. Church v. Commissioner of the Internal Revenue Service, 810 F2d 19 (2nd Cir., 1987) in which the U.S. Court of Appeals affirmed an unreported Tax Court decision that "the failure of the employer to withhold taxes, as it should have, did not lessen the taxpayers' obligation to report and pay taxes on income that they in fact received." As a result, the taxpayer was responsible for paying the income tax even when the employer did not withhold the tax.
As stated in my letter of September 14, 1994, the employer paid the Taxpayer the full amount of compensation without any reduction for Virginia tax withheld; therefore, the Taxpayers had use of all compensation during the year. Further, as the employer has consistently not withheld tax, the Taxpayer should have declared and paid sufficient quarterly estimated tax payments, as provided in Code of Virginia §58.1490 et seq., to cover the anticipated tax liability.
Thank you for bringing this matter to the department's attention. We will be in contact with the Department of Health, and help them to distribute information to their independent contractors which explains the status of an independent contractor, and the responsibilities for estimated tax payments. This will help avoid similar problems in future periods.
Regrettably, the department has no alternative but to uphold the assessment made to the Taxpayer's for 1990 through 1993. The balance due per the attached schedule,*************can be paid within 30 days to avoid the imposition of additional interest. The payment should be remitted to********** Office of Tax Policy, Department of Taxation, P.O. Box 1880, Richmond, Virginia 23282.
If you have further questions, please contact****************.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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Rulings of the Tax Commissioner