December 14, 2016
Re: § 58.1-1821 Application: Withholding Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessment issued to ***** (the “Taxpayer”) for the taxable year ended December 31, 2015.
FACTS
The Taxpayer filed a 2015 Virginia income tax return and reported all of his wages as Virginia source income. Because the Taxpayer had no Virginia withholding payments, the Department issued an assessment for the tax liability due. The Taxpayer filed an appeal, contending he should not be liable for the tax because he submitted several requests to his employer to deduct the proper withholding from his payroll.
DETERMINATION
Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Va. Code § 58.1-322.
Virginia Code § 58.1-341 provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Va. Code § 58.1-321. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia individual income tax return. When a resident does not file a proper Virginia return, IRC § 6103(d) authorizes that Department to obtain information from the IRS that will enable the Department to determine the resident's tax liability.
In John M. and Alice D. Church v. Commissioner of the Internal Revenue Service, 810 F2d 1959, A.F.T.R.2d 87-469 (2nd Cir., 1987), the United States Court of Appeals held 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.” Thus, while an employer may have been required to withhold Virginia income tax from an employee's compensation under Va. Code § 58.1-461 et seq., the employee is responsible for reporting the income and paying the entire tax. See Public Document (P.D.) 95-119 (5/16/1995).
In this case, an assessment was issued because the Taxpayer reported a Virginia tax liability, but reported no corresponding Virginia withholding. The Taxpayer asserts that his employer failed to withhold sufficient taxes. Because the withholding was not deducted from the Taxpayer's wages, and the Taxpayer has an obligation to pay the tax liability, the Department has no basis to grant relief. Accordingly, the assessment is upheld.
While the appeal was under consideration, the Taxpayer paid the assessed tax and a portion of the penalties. As such an updated bill will be issued shortly. Payment of the remaining balance within 30 days from the date of the bill will prevent the accrual of additional interest.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/744.D