Like most states, Virginia has an income tax, therefore requiring employers to withhold both federal and Virginia taxes from their employees’ paychecks. Virginia also requires most employers to pay state unemployment taxes for each employee. However, there are no local income taxes in Virginia to navigate.
Here’s what you need to know as an employer about Virginia tax withholdings and payments.
1. Business Registration
Before you can pay employees or withhold taxes, your business needs to be properly registered with Virginia.
Your first step is securing a Federal Employer Identification Number (FEIN), which identifies your company as a business to both the federal and state governments. Apply for an FEIN via the IRS’s online portal.
Then, file your business with Virginia. As a new business owner in Virginia, you can find helpful resources about registering your business on the State Corporate Commission website. There, you’ll also find the link to file your business online.
Finally, register your business with Virginia Tax, a subset of the Virginia Department of Taxation that houses all digital resources for business taxes. Once you register here, you’ll be eligible to pay appropriate business taxes, like sales tax and corporation income tax, as well as payroll taxes withheld from employees.
Because you plan to hire employees, you’ll register with the Virginia Employment Commission (VEC) at the same time you register your company with Virginia Tax.
2. Payroll Process
Next, decide how you’ll pay employees by answering the following questions:
- How often will you pay them? Your answer directly affects the pay periods your company will have, such as biweekly or semimonthly.
- Will you pay via check, direct deposit, or another form of payment? It’s commonplace to pay via direct deposit, but there are some fees involved with setting it up and maintaining it.
- Will all employees have the same pay frequency, or will some get paid biweekly while others are semimonthly? Some employers pay hourly and salaried employees on different pay schedules, for example.
- How long do you need to process payroll? If you’re handling payroll yourself, you might need a few days to collect time cards and review information before processing payroll. Consider when the cutoff should be for collecting time cards based on how much time you’d reasonably need for processing.
3. New Hire Reporting
The VEC oversees all processes relating to new hire reporting. If you’ve already registered with Virginia Tax, you should have also completed the process to register your business with the VEC to hire employees.
To report new hires, you’ll need to also register with Virginia’s New Hire Reporting Center. Virginia law requires employers to report all new hires within 20 days of their hire date. This includes any re-hires, temporary workers, and independent contractors.
Be sure to record the following required information from employees and contractors to properly register them as new hires:
- Full name
- Address
- Social Security number
- Date of hire
Upon hire, you’ll need to give new employees Virginia’s New Hire Form, an I-9 Form (if an employee), and Form VA-4, which details an employee’s tax withholding information.
All new hires can be reported online via the New Hire Reporting Center, by fax or mail, or via your payroll service.
4. Virginia Payroll Taxes and Withholdings
Virginia’s state income tax is similar to the federal income tax, except the money goes to Virginia rather than the federal government. Virginia has a variable tax rate based on employee income:
- 2% on income up to $3,000
- $60 + 3% on income $3,001-$5,000
- $120 + 5% on income $5,001-$17,000
- $720 + 5.75% on income $17,001 and higher
With the top tax bracket starting at just $17,001, most employees in Virginia get taxed at the 5.75% rate.
Virginia employers must also pay state unemployment tax if they’re required to pay federal unemployment tax. This tax does not get withheld from employee paychecks; employers file and pay it on their own.
Employers must pay the state’s unemployment tax, known as SUTA, based on the first $8,000 income for each employee annually. New employers have a tax rate of 2.5% on the first $8,000 for each employee, while established employers can fall into a range of 0.1% and 6.2%.
Virginia does not allow any cities or municipalities to charge local taxes, so employers do not withhold or pay any taxes based on where their employees live in Virginia.
Learn more about Virginia’s payroll taxes on the Virginia Tax Withholding website.
5. Wage and Tax Calculations
To withhold the correct amount of state and SUTA taxes in Virginia, you’ll need to calculate each employee’s gross pay. This is a basic calculation of the number of hours worked times the employee’s hourly pay:
Example: $40 (hourly pay) x 80 (hours worked in two weeks) = $3,200 in gross pay
If the employee had any overtime, shift differentials, or bonuses, be sure to add them in, too. Piggybacking off the previous example, if the employee had 85 hours, their rate of pay for the extra 5 hours of overtime would be $60:
- $40 x 80 = $3,200
- $60 (overtime rate) x 5 (overtime hours worked) = $300
- $3,200 + $300 = $3,500 in gross pay
For salaried employees, divide their annual pay by the number of pay periods worked each year, like 24 for semimonthly pay or 26 for biweekly pay.
Example: $120,000 (annual salary) / 24 (semimonthly pay periods) = $5,000 in gross pay
Again, add in overtime if the employee is non-exempt, plus commission, bonuses, and any other applicable variable pay.
The employee’s gross pay is what you’ll base your tax withholdings on.
For instance, the salaried employee earning $5,000 paychecks would have $287.50 withheld from each paycheck for state taxes:
$5,000 x .0575 (highest tax bracket rate) = $287.50
There are no local taxes, so you don’t need to withhold anything for that. But you will need to calculate SUTA.
This employee will earn over the wage base of $8,000 in Virginia, but you only need to calculate your payment based on that first $8,000.
Let’s say Virginia assigns you a rate of 3%. You’ll pay $240 in SUTA taxes for this employee.
After withholding taxes, you need to pay them to Virginia. Employers in Virginia file and pay semiweekly, monthly, or quarterly based on their tax liability:
- Semiweekly: Tax liability of $1,000 or more per month; use Form VA-15
- Monthly: Tax liability of less than $1,000 but more than $100 per month; use Form VA-5
- Quarterly: Tax liability less than $100 per month; also use Form VA-5
Again, you can file and pay your taxes electronically via the Virginia Tax website.
6. Year-End Payroll Reporting
Virginia employers are also required to reconcile and report their payroll quarterly for semiweekly filers or annually for monthly or quarterly filers.
Semiweekly filers use Form VA-16, while monthly and quarterly filers use Form VA-6. Form VA-16 is due by the last day of the month following each quarter’s closing date, while Form VA-6 is due by January 31st each year for payroll from the previous year.
The Best Way to Run Payroll in Virginia
Small employers with just one or two employees might want to handle Virginia payroll on their own. But larger employees will want to consider using payroll software to streamline the process.
The best payroll software walks you through the steps of reporting new hires in Virginia, ensuring you have all the necessary forms and register everyone properly. It also automatically calculates the right tax rates, which takes a lot of work and potential mess-ups off your shoulders.
Your payroll software can even keep you on track with taxes, ensuring that you file and pay your taxes on time based on your reporting schedule.
So, although running payroll in Virginia manually might save you some money, it certainly won’t save you time or the headache of potentially making errors in the process. In my opinion, there’s no better investment for your company than payroll software.
