Tax Type
Individual Income Tax
Description
"Cafeteria plan" qualified benefits
Topic
Computation of Income
Date Issued
05-02-1988
May 4, 1988
Re: Request for Ruling/Individual Income Tax
Dear*****************
This is in reply to your letter of March 12, 1988 in which you request clarification on the definition of taxable wages for Virginia income tax purposes and the tax implications of qualified benefits derived from a cafeteria plan under §125 of the Internal Revenue Code.
The Virginia income tax law was changed in 1972 to substantially conform to the federal income tax law and uses federal adjusted gross income as the starting point in computing Virginia taxable income. Virginia taxable income is an individual's federal adjusted gross income with the modifications set forth in §58.1-322 of the Code of Virginia. A copy of §58.1-322 is enclosed for your perusal.
Absent a specific statutory provision to the contrary, any amounts excluded from federal adjusted gross income will be similarly excluded from Virginia taxable income. Therefore, to the extent qualified benefits from a cafeteria plan are excluded from federal adjusted gross income, they will be excluded when computing Virginia taxable income.
Additionally, no Virginia income tax withholding will be required for salary reduction benefits an employer reasonably believes will be excluded from an employee's federal adjusted gross income. Also enclosed is a recent ruling, which addresses in greater detail the application of the Virginia individual income tax and withholding to cafeteria plan benefits.
I hope this information is helpful. Please do not hesitate to contact the department if you have additional questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner