Tax Type
Employer Income Tax Withholding
Description
Cash or deferred arrangement
Topic
Withholding of Tax
Date Issued
09-15-1987
October 23, 1987
Re: Ruling Request: Withholding and Individual Income Tax
Dear ****************
This will reply to your letter of August 31, 1987 concerning applicability of Virginia income tax and income tax withholding to amounts contributed by an employer to a plan that qualifies under I.R.C. §401(k).
Both I.R.C. §3401(a)(12) and Va. Code §58.1-460.6 (copy enclosed) exclude from the definition of "wages," and thus from the requirement of withholding, remuneration paid "to, or on behalf of, an employee or his beneficiary from or to a trust described in [I.R.C.] §401(a) which is exempt from tax under [I.R.C.] §501(a) at the time of such payment unless such payment is made to an employee of the trust as remuneration for services rendered as such employee and not as a beneficiary of the trust." The Virginia Income Tax Withholding Regulations, VR 630-6-460 7 (copy enclosed), note that "a qualified cash or deferred arrangement meeting the requirements of I.R.C. §401(k) is deemed to be a trust described in I.R.C. §401(a)."
As you note, generally effective for taxable years beginning after December 31, 1986, the federal tax code sets a $7,000 limit on the nontaxable amount that can be contributed to a 401(k) plan. Virginia is a conformity state and uses federal adjusted gross income as the starting point for computing Virginia taxable income. Any amounts excluded from federal adjusted gross income will be similarly. excluded from Virginia adjusted gross income. Therefore, if the Internal Revenue Code sets a $7,000 limit on the amount that can be excluded from federal adjusted gross income, the same $7,000 limit will apply to the amount that can be excluded from Virginia adjusted gross income. No Virginia income tax withholding will be required from the contributions if, at the time the employer contributions are made, the employer reasonably believes the employee will be allowed to exclude them from federal adjusted gross income.
Sincerely,
W. H. Forst
Tax Commissioner
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