Tax Type
Employer Income Tax Withholding
Individual Income Tax
Description
Qualified salary reduction contributions to a "cafeteria plan"
Topic
Taxable Income
Withholding of Tax
Date Issued
12-10-1987
December 10, 1987
Re: Ruling Request: Withholding and Individual Income Tax
Dear ****************
This is in reply to your letter of October 26, 1987, in which you request information concerning Virginia's treatment, for income tax withholding purposes, of qualified salary reduction contributions to a "cafeteria plan" (IRC §125).
Federal adjusted gross income is the starting point for determining an individual's Virginia adjusted gross income and Virginia taxable income. Accordingly, those salary reduction benefits that are excluded from federal adjusted gross income are similarly excluded from Virginia adjusted gross income. Conversely, salary reduction benefits included in federal adjusted gross income would be included in Virginia adjusted gross income.
The Code of Virginia is silent on whether salary reduction benefits are subject to withholding tax. However, because Virginia is a conformity state, if at the time the salary reduction benefits are received the employer reasonably believes the employee will be allowed to exclude them from federal adjusted gross income, no withholding of Virginia income tax will be required.
As you note, generally effective for taxable years beginning after December 31, 1986, the federal tax code sets various limits on the nontaxable amount that can be contributed to the qualified benefits under a cafeteria plan. Since 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 limits on the amounts that can be excluded from federal adjusted income, the same limits will apply to the amounts that can be excluded from Virginia adjusted gross income.
If you have any further questions, please do not hesitate to contact me.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner