Document Number
95-132
Tax Type
Employer Income Tax Withholding
Individual Income Tax
Description
Wages subject to withholding; Nonresident aliens
Topic
Withholding of Tax
Date Issued
05-24-1995
May 24, 1995



Re: Request for Ruling - Withholding Tax

Dear******************

This is in response to your May 3, 1995, letter in which you request a ruling on behalf of your employer (the "Taxpayer") regarding Virginia's income tax withholding requirements concerning payments made to nonresident aliens.
FACTS

The Taxpayer is a university that makes various payments throughout the year to nonresident aliens. These payments include both wage and non-wage payments. Nonwage payments to nonresident aliens consist of scholarships, fellowships and honorarium payments to scholars. The Taxpayer may also make payments to independent contractors who are nonresident aliens. Internal Revenue Code ("I.R.C.") §1441 imposes added withholding requirements on payments made to nonresident alien individuals. These withholding requirements can be modified by a tax treaty between the U.S. government with a foreign country.
RULING

Virginia law imposes a withholding requirement on wages and certain other payments made to individuals. No specific or special withholding requirements are imposed on nonresident aliens. Rather, nonresident aliens are treated in the same manner as any other individual subject to the Virginia withholding tax.

Code of Virginia §§58.1-461 and 58.1462 require that employers deduct and withhold an amount from wages paid to an employee each pay period based on tables published by the department. Wages are defined in Code of Virginia §58.1-460, which provides in pertinent part;
    • "Wages" means wages as defined under § 3401 (a) of the Internal Revenue Code, as well as any other amounts from which federal income tax is withheld under the provisions of §§ 3402 and 3405 of the Internal Revenue Code ... however, such term shall not include amounts paid pursuant to individual retirement plans and simplified employee pension plans as defined in §§7701 (a) (37) and 408 (c) of the Internal Revenue Code ...

Therefore, Virginia's definition of wages subject to Virginia withholding includes amounts traditionally considered employee wages, and for which a federal form W-2 would be issued, as well as supplemental employment compensation, sick pay, and gambling winnings. In addition, to the extent that a person has voluntarily requested or elected to have federal income tax withheld from annuities, pensions and other forms of deferred compensation (except withdrawals from Individual retirement accounts and simplified employee pension plans), Virginia income tax may be similarly withheld.

Therefore, wages paid to a nonresident alien employee for services performed in Virginia will be subject to Virginia withholding tax unless this income is exempt from federal withholding pursuant I.R.C. §3401 (a)(6) or a tax treaty. The manner prescribed by federal law in which a nonresident alien establishes with an employer a withholding exemption pursuant to a treaty will be sufficient for exemption from Virginia withholding tax.

With respect to nonwage income, such as scholarships and fellowships, payments to independent contractors and honorarium payments, these items of income do not come within the definition of "wages" under Code of Virginia §58.1-460 for Virginia withholding purposes. Virginia law does not contain provisions that parallel or incorporate federal provision for reporting payments on federal form 1099 or for reporting and withholding certain payments to nonresident aliens.

Although exempt from Virginia withholding tax, these individuals may be subject to Virginia income tax as either nonresidents receiving income from Virginia sources, or "actual residents" (i.e., physically present in Virginia for 183 days or more).

I trust this will answer your inquiry; however, please contact**********at******** if you have additional questions or if we may be of any further assistance.
                        • Sincerely,



                          Danny M. Payne
                          Tax Commissioner

OTP/9709L

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46