Virginia State Estimated Tax Payments: What You Should Know

July, 25 2024 by Steve Banner, EA, MBA

No matter what type or types of income we might receive, we all know that our precious and hard-earned dollars may be subject to both federal and state taxes. Exactly how much tax we are required to pay – and to whom - depends on many factors that are beyond the scope of this article. But we settle all of this up at the end of the year when we prepare our tax returns.

Most of us don’t have to worry too much about paying our taxes throughout the year because our state and federal taxes are taken out of our paycheck before we even receive it. This “pay-as-you-go” withholding process takes place regardless of whether we get paid every week, or every two weeks, or every month. This means that when it comes to the end of the year and we prepare our tax returns, we report our taxable income and figure out our correct tax liability for the year. Then when we compare our tax liability to the total amount that has been withheld by our employers during the year, we find out whether we will receive a refund or whether we owe further amounts to the IRS or state tax agency. In other words, we get a refund if our employer withheld too much for tax, and we get a balance due if the employer withheld too little.

But what would happen if no tax was withheld during the year at all? An enormous tax bill at the end of the year is what would happen! But don’t worry, you are about to see that there is a system in place to prevent this type of thing from happening.

 

Why Would Some People Have to Pay Estimated Taxes?

Tax is not normally withheld from some types of income before you receive it. This includes things like dividend income, rental income, interest income, capital gains, and even income from cryptocurrency. And the same applies to some types of taxpayers such as small business owners, independent contractors, freelancers, and other self-employed taxpayers, because taxes are normally not withheld from the payments these folks receive for their work. There needs to be some organized method for these taxes to be collected, and this is where the “estimated tax” system comes into play. Under this system, the taxpayer makes four tax payments throughout the year, instead of the regular payments that would be made at each pay period by his payroll department if he were an employee.

In effect, it’s as if my local self-employed electrician, Jake, receives a paycheck at the end of every quarter of the year instead of after each job is completed. At the end of each quarter, he estimates the amount of taxes he owes for that quarter and sends a check to the IRS or state tax agency. Just like the rest of us, when Jake completes his tax return at the end of the year, he will find out whether he owes more tax or if he’s due a refund.

Many individual states require the payment of estimated taxes by people like Jake, although the rules tend to differ slightly from one state to the next. Let’s now look at the rules that apply to Jake if he works in Virginia.
 

Virginia Estimated Tax Rules for Residents and Nonresidents

Regardless of whether they are a Virginia resident, taxpayers who are required to file a Virginia tax return and expect to owe more than $150 after taking into consideration any taxes already withheld and allowable credits, must either make estimated tax payments or have additional income tax withheld throughout the year from their wages or other income. Virginia estimated tax installment payments are normally due on the following dates, unless the date falls on a weekend or holiday. In that case, the payment will be due on the next business day:

• May 1st;
• June 15th;
• September 15th; and
• January 15th of the following year.

An exception applies to farmers, fishermen and merchant seamen who receive 2/3 of their estimated Virginia gross income from self-employed farming or fishing. Taxpayers who meet the qualifications of a farmer, fisherman or merchant seaman only need to file one estimated payment for the year – the payment due by January 15th. Alternatively, they are not required to file any estimated tax payments for the year at all if they file their income tax return on or before March 1 of the following year and pay the entire tax due at that time.

You also need to be aware that penalties and interest may be charged to taxpayers who do not meet the exception above and fail to make their required estimated payments. The same applies if payments are underpaid or paid late in any quarter, even if the taxpayer is due to receive a refund when they file their income tax return.

Taxpayers can use the estimated payment worksheet that is available through the Virginia Department of Taxation website to determine their estimated tax liability and how many payments they should make.

Payments may be made electronically through the Virginia Department of Taxation 760ES eForm, or via mail by using Form 760ES. For more information, refer to Virginia Individual Estimated Tax Payments.