Tax Type
Employer Income Tax Withholding
Description
Withholding of Severance Pay
Topic
Withholding of Tax
Date Issued
08-30-1999
August 30, 1999
Re: Request for a Ruling: Withholding Tax
Dear ***
This will reply to your letter in which you request a ruling on behalf of ***** (the "Taxpayer') regarding the withholding of severance pay.
FACTS
The Taxpayer is a Virginia employer who withholds income tax from the wages of its employees performing services in Virginia. The Taxpayer intends to terminate some of its employees and compensate these former employees with severance pay. The Taxpayer requests a ruling on whether it is required to withhold Virginia income tax from severance payments to nonresidents.
RULING
The department has previously addressed this issue in Public Document (P.D.) 97-123, (3/10/97), (copy enclosed). In that ruling, the department held that severance paid to nonresidents constitutes wages which are subject to Virginia withholding. Code of Virginia Sec. 58.1-460 provides that "wages' include amounts withheld for federal income tax purposes under Internal Revenue Code ("IRC') Sec.3402. Under the IRC, federal income tax must be withheld from severance pay.
P.D. 97-123 goes on to state the severance pay is considered Virginia source income to a nonresident individual when paid by the Virginia employer. In general then, an employer must withhold Virginia income tax from the severance pay of nonresident individuals.
Code of Virginia Sec. 58.1-342 (B) grants the department the authority to enter into reciprocal agreements with other states to exempt nonresidents from the Virginia income and withholding taxes when they earn salaries and wages from working in Virginia if such other states similarly exempt Virginia residents. Virginia currently has this type of agreement with Maryland, West Virginia and Pennsylvania. Because severance pay is considered wages for Virginia income tax purposes, severance pay for nonresidents residing in states which have a reciprocal agreement with Virginia is exempt from Virginia withholding and income tax provided the individual provides the Taxpayer with a Withholding Tax Exemption Certificate (Form VA-4) claiming this exemption.
I hope that the foregoing answers your questions. Although a meeting has been requested to discuss this matter, the department's position on this matter is well established, making a meeting unnecessary. If you have any other questions regarding this ruling, you may contact ***** at
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/23035B
Re: Request for a Ruling: Withholding Tax
Dear ***
This will reply to your letter in which you request a ruling on behalf of ***** (the "Taxpayer') regarding the withholding of severance pay.
FACTS
The Taxpayer is a Virginia employer who withholds income tax from the wages of its employees performing services in Virginia. The Taxpayer intends to terminate some of its employees and compensate these former employees with severance pay. The Taxpayer requests a ruling on whether it is required to withhold Virginia income tax from severance payments to nonresidents.
RULING
The department has previously addressed this issue in Public Document (P.D.) 97-123, (3/10/97), (copy enclosed). In that ruling, the department held that severance paid to nonresidents constitutes wages which are subject to Virginia withholding. Code of Virginia Sec. 58.1-460 provides that "wages' include amounts withheld for federal income tax purposes under Internal Revenue Code ("IRC') Sec.3402. Under the IRC, federal income tax must be withheld from severance pay.
P.D. 97-123 goes on to state the severance pay is considered Virginia source income to a nonresident individual when paid by the Virginia employer. In general then, an employer must withhold Virginia income tax from the severance pay of nonresident individuals.
Code of Virginia Sec. 58.1-342 (B) grants the department the authority to enter into reciprocal agreements with other states to exempt nonresidents from the Virginia income and withholding taxes when they earn salaries and wages from working in Virginia if such other states similarly exempt Virginia residents. Virginia currently has this type of agreement with Maryland, West Virginia and Pennsylvania. Because severance pay is considered wages for Virginia income tax purposes, severance pay for nonresidents residing in states which have a reciprocal agreement with Virginia is exempt from Virginia withholding and income tax provided the individual provides the Taxpayer with a Withholding Tax Exemption Certificate (Form VA-4) claiming this exemption.
I hope that the foregoing answers your questions. Although a meeting has been requested to discuss this matter, the department's position on this matter is well established, making a meeting unnecessary. If you have any other questions regarding this ruling, you may contact ***** at
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/23035B
Rulings of the Tax Commissioner