S Corporations, Partnerships, and Limited Liability Companies
General Filing Information
Every pass-through entity (PTE) that does business in Virginia or receives income from Virginia sources must file an income tax return on Form 502.
The term "pass-through entity" includes S corporations, general partnerships, limited partnerships, limited liability partnerships (LLPs), limited liability companies (LLCs), electing large partnerships, and business trusts. A pass-through entity is any entity other than an individual estate or trust that is recognized as a separate entity for federal income tax purposes and the owners of which report their distributive or pro rata shares of the entity's income, gains, losses, deductions, and credits on their own returns.
For purposes of the filing requirement, the definition of "pass-through entity" does not include single-member limited liabilities or investment pass-through entities. For further information, review Tax Bulletin 05-6.
When to File
PTE income tax returns must be filed by the 15th day of the 4th month following the close of the entity's taxable year. So, for calendar-year filers, that means April 15.
Note: If the filing deadline falls on a Saturday, Sunday, or holiday, you have until the next business day to file your return.
Electronic Filing Requirement
Beginning Jan. 1, 2015, all pass-through entities are required to file their annual returns and make all payments electronically. This is effective beginning with taxable year 2014 returns, return payments, and withholding payments. Virginia Tax offers several options for electronically filing PTE returns and payments:
- All PTEs can use approved electronic filing software to file both the federal and state returns together. If taxes are due, you can make a payment through the software.
- A free 502EZ eForm is available for filing the annual return and making a tax due payment if you meet certain eligibility requirements (below).
- Withholding payments: A free 502W eForm is available for making withholding payments directly from your PTE's checking account.
- ACH credit is available for tax due payments or withholding payments if paying separately from filing the return. You'll need to set this up with your PTE's bank. Detailed instructions about initiating ACH credit transactions are available in our electronic payment guide.
Form 502EZ eligibility:
The PTE must meet all of the criteria below:
- 100 % of the PTE’s business is in Virginia
- 100 % of the PTE’s income is from Virginia sources
- The PTE’s commercial domicile is in Virginia
- The PTE isn’t required to file a Virginia corporation income tax return (Form 500)
- The PTE doesn’t have more than 10 owners
- The PTE passes no Schedule CR credits to its owners for the year
- The PTE has no Fixed Date Conformity modifications or adjustments to pass to its owners
- The total income of the PTE may not exceed $40,000 for the taxable year
- The total income of the PTE must be greater than or equal to $0 for the taxable year of the form
- The total additions to taxable income are less than $1,000
- The total subtractions from taxable income are less than $1,000
If electronic filing causes undue hardship, and you're unable to file and pay electronically, you can request a hardship waiver.
An automatic 6-month filing extension is allowed for pass-through entities filing on Form 502. No application for extension is required. To avoid late-filing penalties, you must file Form 502 no later than 6 months from the original due date of the return. For example, a calendar year Form 502 is due on April 15; therefore, the return must be filed no later than October 15 for the 6-month extension provision to apply.
The automatic extension of time to file does not extend the payment due date for withholding tax. The withholding tax payment is due on the due date of the pass-through entity's return regardless of whether the extension to file the income return (Form 502) is used. Use Form 502W to make the withholding tax payment by the due date.
Penalties for late filing and late payment
An extension penalty may apply if the entity does not pay at least 90% of the required withholding tax by the original due date for filing Form 502. The penalty is assessed at the rate of 2% per month or part of a month, from the original due date for filing Form 502 through the date that the Form 502 is filed. The maximum extension penalty is 12%.
Late payment penalty
In addition, if the tax is not paid in full when the return is filed, a late payment penalty will be assessed on the amount of tax due at the rate of 6% per month or part of a month from the date the return is filed through the date the tax is paid, to a maximum of 30%.
Note: If the return is filed during the extension period, but the tax due is not paid when the return is filed, both the extension penalty and the late payment penalty may apply. The extension penalty will apply from the due date of the return through the date the return is filed, and the late payment penalty (6% of the amount due) will apply from the date the return is filed through the date of payment.
To avoid paying the late payment penalty during the extension period, you must pay the tax owed when the return is filed.
Late filing penalty
If Form 502 is filed after the extended due date (6 months from the original due date), the extension provisions no longer apply and the PTE will be subject to the maximum late filing penalty of $1200.
For any month, or part of a month, that the PTE was subject to the late payment penalty and the late filing penalty, the greater of the 2 penalties will apply.
Unified (Composite) Filing
A business pass-through entity (S corporation, partnership, or limited liability company) that transacts business in Virginia and has two or more qualified nonresident owners may file a composite, nonresident individual income tax return on behalf of its qualified owners. For taxable years beginning prior to Jan. 1, 2015, a pass-through entity was required to obtain the consent of each nonresident owner in order to file a composite return. Effective for taxable years beginning on or after Jan. 1, 2015, a pass-through entity may file a composite return for only a portion of its qualified nonresident owners, provided that the pass-through entity pays the pass-through entity withholding tax for any qualified nonresident owners who are not included in the composite return.
A qualified owner is a natural person who is a direct owner of the entity filing the composite return, and a nonresident of Virginia with Virginia source income from that entity for the taxable year. If the qualified owner has other income from Virginia sources that is not derived from a pass-through entity, the owner must file file a Virginia Nonresident Income Tax Return (Form 763) to account for that income. Income reported in the unified filing on Form 765 should be deducted on Form 763. An individual who is a qualified nonresident owner in more than one pass-through entity may participate in multiple unified returns.
To file a composite return, a pass-through entity must meet the following requirements:
- The pass-through entity must provide a completed copy of Schedule VK-1 to each qualified nonresident owner included in the composite return.
- The Virginia income tax on the composite return must be computed using the highest rate specified under Va. Code § 58.1-320 on the partnership's income attributable to the qualified nonresident owners included on the composite return without the benefit of itemized deductions, standard deductions, personal exemptions, credits for income taxes paid to states of residence, any tax credit carryover amounts, or any other tax credits that are not attributable to the pass-through entity.
- The pass-through entity must obtain a signed consent form from each participating qualified nonresident owner indicating the owner’s consent to inclusion in the composite return.
- The composite return must be signed by an owner, officer, or employee of the pass-through entity who is authorized to act on behalf of the pass-through entity in tax matters. By signing the composite return, the signer is declaring that he or she is an authorized representative of the pass-through entity and that each participant has signed a consent form authorizing the pass-through entity to act on the participant’s behalf in the matter of composite returns and acknowledging the participant’s understanding and acceptance of all of the terms and conditions of participation in a composite return.
- The pass-through entity must make estimated payments on behalf of the qualified nonresident owners included on a composite return.
A pass-through entity that files a composite return on behalf of its nonresident owners is not required to withhold Virginia income tax from distributions made to those owners. Instead, the entity should make estimated tax payments on a composite basis under its own federal employer identification number, using Form 760ES.
For complete instructions on unified filing, see Form 765 and Form 765 instructions, and Schedule L, and the Guidelines for Pass-Through Entity Withholding. This filing does not replace the filing of Form 502 for the entity itself. For complete information on unified filing, refer to the instructions for Form 765.