Could part-year Virginia residents subtract all of a spouse's 2015 wages when Form W-2 data showed he earned wages after the couple moved into Virginia?

Plain-English summary

A married couple who moved to Virginia in August 2015 could not report zero Virginia taxable income when the husband earned wages after their move.

Part-year residents compute Virginia income, additions, subtractions, deductions, and modifications for the period of Virginia residence. Personal exemptions and, when applicable, the standard deduction are prorated by days of residence.

The couple had subtracted 100% of the husband's wages, but Form W-2 information showed Virginia-period wages. The Department adjusted the return using the best available information and upheld the assessment. The taxpayers received 30 days to file a more accurate 2015 part-year return for possible adjustment.

What this means for you

Allocate wages by when they were earned relative to the move date, not simply by where the employer is located or when the annual W-2 was issued. Also prorate Virginia exemptions and the standard deduction as required.

Common questions

When did the couple move to Virginia? August 2015.

Why was zero taxable income rejected? The husband earned wages during the Virginia-residency period.

Could the estimated amount change? Yes, through a timely accurate part-year return.

Citations and references

• Va. Code § 58.1-303 — part-year resident income and prorated exemptions and deductions.
• Va. Code § 58.1-111 — assessment based on best available information.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-14

Original ruling text

January 21, 2020

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the individual income tax assessment issued to * (the “Taxpayers”) for the taxable year ended December 31, 2015.

FACTS

The Taxpayers, a husband and wife, filed a part-year Virginia individual income tax return for the 2015 taxable year, stating they moved to Virginia in August 2015, but reported no taxable income. Under audit, the Department requested additional information to determine if the Virginia taxable income amount was correct. Based on the information received, the Department adjusted the Taxpayers’ return to reflect Virginia taxable income earned during their period of Virginia residency and issued an assessment for tax and interest. The Taxpayers appeal, disputing the amount of Virginia tax owed.

DETERMINATION

Virginia Code § 58.1-303 provides that a taxpayer who becomes a resident of another state during the taxable year is subject to taxation for the period in which they were a Virginia resident. Accordingly, Virginia taxable income is computed by determining income, deductions, subtractions, additions and modifications attributable to the period of residence in Virginia. In addition, part-year residents may claim a portion of their Virginia personal exemptions, but the exemptions will be prorated based upon the number of days that the taxpayer was a Virginia resident. Further, part-year residents may claim a prorated Virginia standard deduction if they claim the standard deduction for federal income tax purposes.

The Taxpayers do not dispute that they became Virginia residents in August 2015. They correctly filed a part-year return reflecting the date they relocated to Virginia, but subtracted 100% of wages earned by the husband. Form W-2 information obtained by the Department, however, shows he earned wages in Virginia after their move-in date that would have been subject to income taxation in Virginia.

Based on this information, the Department is authorized to adjust the Taxpayers’ return in order to reflect the amount of income attributed to Virginia. In addition, the Department estimated deductions and exemptions as permitted under Virginia Code § 58.1-111. Accordingly, the assessment is upheld.

As indicated above, the assessment for the 2015 taxable year was made based on the best information available pursuant to Virginia Code § 58.1-111. The Taxpayers, however, may have information that better represents their Virginia income tax liability for the taxable year at issue. Therefore, they should file a 2015 Virginia part-year resident income tax return to reflect more accurately their Virginia tax liability.

The return should be submitted within 30 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23161-7203, Attention: *. Upon receipt, the return will be processed and the assessment will be adjusted, as appropriate. If the return is not received within the allotted time, the assessment for the 2015 taxable year will be considered correct as issued and an updated bill will be issued. The Taxpayers should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and possible collections actions.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/2011.A