Payroll Tax Filing & Compliance in Virginia

According to the IRS, failure-to-deposit penalties can reach as high as 15% of the unpaid tax amount. In Virginia, even if no tax is due, the Department of Taxation still imposes a minimum $10 late filing penalty. For businesses operating with one or more employees, payroll tax filing and compliance in Virginia are not optional; they are a legal obligation that can directly affect cash flow, business reputation, and long-term growth.

For Virginia employers, payroll taxes include federal and state obligations: income tax withholding, Social Security, Medicare, FUTA, and Virginia state income tax withholding. Whether you are a new business owner or an experienced employer processing payroll for dozens of employees, you must calculate and withhold the correct amount from each employee’s wages, deposit payments electronically, and file quarterly reports or more frequent returns based on your filing frequency. Missing deadlines or underpaying can lead to interest charges, penalties, and even personal liability for business owners.

This guide will walk you through every step of staying compliant: registering for a Virginia tax account number and collecting employee forms, filing electronically, meeting federal requirements, and responding to notices. You will also learn how to avoid penalties, set up proper payment schedules, and maintain accurate records for at least the preceding calendar year. By the end, you will have a clear roadmap to keep your business aligned with Virginia law and state regulations, protect cash flow, and avoid costly mistakes that could disrupt operations.

Understanding Payroll Tax Filing and Compliance in Virginia

Before diving into forms and filing schedules, it’s essential to understand the bigger picture of payroll tax filing and compliance in Virginia. Every employer who pays wages in the state is subject to Virginia law and must follow state regulations and federal requirements. Whether you are processing payroll manually or using a software provider, knowing these obligations will help you stay ahead of deadlines and avoid penalties that can strain your business.

Who Must Comply

Virginia requires compliance from a broad range of businesses operating in the state. Employers must withhold state income tax when federal withholding applies, regardless of business size. This includes corporations, small businesses, and sole proprietors with one or more employees. Even household employers who pay wages to domestic workers must register with the Virginia Department of Taxation and set up a Virginia tax account number. 

New employers must take special care to complete registration before paying their first employee. The Department of Taxation provides online business registration services, ensuring you receive your withholding tax filer credentials and are assigned the proper filing frequency.

Why Compliance Matters

Payroll tax compliance is not just a formality; it protects your business from severe consequences. Noncompliance can result in financial penalties, legal action, and damage to your credit rating. Late payment or failure to submit quarterly reports can quickly accumulate interest and additional charges, burdening cash flow. 

By staying current with your payroll taxes, you maintain good standing with state and federal agencies, safeguard your ability to process payroll without disruption, and meet your obligations to employees who depend on accurate withholding from their wages. Compliance with Virginia payroll taxes also ensures you remain eligible for vital state programs such as workers' compensation coverage and unemployment insurance benefits for your staff.

Virginia State Income Tax Withholding Requirements

Once you understand who must comply, the next step is knowing precisely what Virginia requires for state income tax withholding. Employers must withhold state income tax whenever federal income tax is withheld. 

This rule applies even if your business is based in another state but pays wages for work performed in Virginia. The Virginia Department of Taxation guides filing frequency, forms, and electronic submission methods.

When Employers Must Withhold State Income Tax

• Employers must withhold Virginia income tax from employee wages whenever federal withholding is required. This ensures compliance with both state and federal requirements.
  
  
• This rule applies to all businesses paying wages in Virginia, including corporations, partnerships, and household employers with domestic staff.

Filing Frequencies Based on Tax Liability

Your filing frequency is based on your average monthly withholding liability. Using the correct schedule is crucial to avoid penalties and interest charges.

Comparison 1: Virginia Withholding Filing Frequencies

1. Average Monthly Liability: Less than $100

• Filing Frequency:
  • Quarterly
• Forms Required:
  • VA-5 (Withholding Return)
  • VA-6 (Annual Summary)
• Due Dates:
  • Returns are due by the last day of the month following the end of each quarter
  • Example: Q1 return (Jan–Mar) due April 30

2. Average Monthly Liability: $100 – $999

• Filing Frequency:
  • Monthly
• Forms Required:
  • VA-5
  • VA-6
• Due Dates:
  • Returns are due by the 25th of the month following the reporting period
  • Example: January return due February 25

3. Average Monthly Liability: $1,000 or More

• Filing Frequency:
  • Semi-weekly
• Forms Required:
  • VA-15 (Deposit Certificate)
  • VA-16 (Withholding Tax Payment Voucher)
  • VA-6
• Due Dates:
  • Payments are due within three banking days of the federal deposit cutoff date
  • Must align closely with federal deposit rules under the IRS semi-weekly schedule

Required Forms

• VA-5 and VA-6: These forms are required for quarterly and monthly filers. VA-5 reports withholding for the period, and VA-6 provides the employer’s annual summary.
  
  
• VA-15 and VA-16: Semi-weekly filers must use VA-15 for deposits, VA-16 for quarterly reconciliation, and the VA-6 annual summary.
  
  
• Electronic Filing: Virginia requires filing all withholding tax returns and payments electronically. To facilitate this, the state provides online services, including eForms and Web Upload systems.

Importance of Using Withholding Tables

• Employers must use the current Virginia withholding tables to calculate the correct withholding amount. These tables ensure that the proper amount of state income tax is deducted from employee wages.
  
  
• Using outdated tables or miscalculating withholding can result in underpayment or overpayment, which may require additional adjustments and create administrative burden.

Federal Employment Tax Requirements for Virginia Employers

After meeting Virginia’s withholding obligations, employers must comply with federal employment tax requirements. These federal rules apply to all businesses that pay wages, and failure to follow them can result in IRS penalties that may be even higher than state penalties.

Federal Income Tax, Social Security, and Medicare

• Federal Income Tax: Employers must withhold federal income tax based on each employee’s completed Form W-4. The IRS provides updated withholding tables annually to ensure accuracy.
  
  
• Social Security Tax: Both the employer and employee contribute 6.2% each, up to the annual wage base limit, which for 2025 is $176,100.
  
  
• Medicare Tax: Employers and employees contribute 1.45% with no wage limit. An additional 0.9% must be withheld from wages over $200,000, which applies only to the employee share.
  
  
• Electronic Filing: Federal tax deposits must be made electronically using the Electronic Federal Tax Payment System (EFTPS). Using EFTPS helps ensure timely payments and provides confirmation records.

FUTA Requirements

• Coverage and Rate: Federal Unemployment Tax (FUTA) applies to each employee's first $7,000 of wages annually. The standard FUTA tax rate is 6.0%, though credits may reduce this rate when state unemployment contributions are paid on time.
  
  
• Deposit Requirements: FUTA taxes are deposited quarterly if the cumulative tax due exceeds $500 for the quarter. If less than $500, liability carries over to the next quarter.
  
  
• Annual Filing: Employers must file Form 940, Employer’s Annual Federal Unemployment Tax Return, by January 31. Electronic filing is encouraged by the IRS to avoid processing delays.

IRS Guidance and Federal Requirements

• Employers should review IRS Publication 15 (Employer’s Tax Guide) each year, as federal rates and deposit schedules may change.
  
  
• Following federal requirements is essential to avoid failure-to-deposit penalties, which can quickly escalate from 2% to 15% of the unpaid tax depending on how late the deposit is made.

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Virginia Unemployment Insurance Taxes

In addition to income tax withholding, Virginia employers must comply with unemployment insurance tax requirements. These taxes fund unemployment benefits for workers who lose their jobs through no fault of their own. The Virginia Employment Commission (VEC) oversees this program and sets tax rates based on each employer’s history.

Employer Liability

• Employers become liable for unemployment tax when their quarterly payroll reaches $1,500 or more. Liability also applies if you employ at least one person for 20 or more weeks during a calendar year.
  
  
• Household employers are also subject to these rules and must register if they meet the payroll threshold.

Tax Rates and Experience Rating

Your unemployment tax rate depends on whether you are a new or experienced employer with an established history.

Comparison 2: Virginia Unemployment Insurance Tax Rates

1. If your average monthly liability is less than $100:

• Filing frequency: Quarterly
• Forms required: VA-5 (Withholding Return) and VA-6 (Annual Summary)
• Due dates: Returns are due by the last day of the month following the end of each quarter.
  • Example: The Q1 return (Jan–Mar) is due April 30.

2. If your average monthly liability is between $100 and $999:

• Filing frequency: Monthly
• Forms required: VA-5 and VA-6
• Due dates: Returns are due by the 25th of the month following the reporting period.
  • Example: The January return is due February 25.

3. If your average monthly liability is $1,000 or more:

• Filing frequency: Semi-weekly
• Forms required: VA-15 (Deposit Certificate), VA-16 (Withholding Tax Payment Voucher), and VA-6
• Due dates: Payments are due within three banking days of the federal deposit cutoff date. These must align closely with IRS semi-weekly deposit rules.

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• Experience ratings reward employers with fewer claims by lowering their tax rate, while higher claims may result in a higher rate.
  
  
• Rates are recalculated annually based on the preceding calendar year’s payroll and claims activity.

Registration and Filing

• Employers must register with the Virginia Employment Commission promptly once liability is triggered. Registration can be completed online through the VEC website.
  
  
• Quarterly reports must be filed electronically, and tax payments must be made on time to avoid interest and penalties.

Step-by-Step Compliance Process

Once you know your state and federal obligations, the next step is building a reliable payroll compliance process. This step-by-step workflow helps Virginia employers meet all filing requirements, calculate accurate withholdings, and avoid penalties.

Step 1 – Register Your Business

• Register for a Virginia tax account number through the Virginia Department of Taxation’s online services before paying your first employee. This registration assigns your withholding tax filer status and determines your filing frequency.
  
  
• Register with the Virginia Employment Commission to establish your unemployment insurance account if required. This account will be used to file quarterly reports and make unemployment tax payments.

Step 2 – Collect Employee Forms

• Have every employee complete Form VA-4 for state withholding and Form W-4 for federal withholding. These forms are crucial for calculating the correct withholding amount from each employee’s wages.
  
  
• Keep these forms on file as part of your payroll records. Virginia law requires employers to maintain employee documentation for the entire period of their employment.

Step 3 – Calculate and Withhold Taxes

• Use the current Virginia withholding tables to calculate the state income tax that must be withheld. Following the correct tables ensures that you withhold state income tax accurately and avoid penalties later.
  
  
• Calculate federal withholding according to IRS Publication 15. Include Social Security and Medicare taxes at the correct federal rates to meet federal requirements.

Step 4 – Make Deposits and Payments Electronically

• All tax payments must be submitted electronically. Use the Electronic Federal Tax Payment System (EFTPS) for federal deposits and Virginia’s eForms or Web Upload system for state tax deposits.
  
  
• Follow your assigned payment schedule. Semi-weekly filers must deposit within three banking days of the federal cutoff date, while monthly and quarterly filers follow their respective due dates.

Step 5 – File Returns and Submit Annual Summaries

• You must file all required tax returns electronically: VA-5 and VA-6 for quarterly and monthly filers and VA-15 with VA-16 for semi-weekly filers. Your filing status determines which forms are due and when.
  
  
• Submit annual summaries, including VA-6 and federal Forms W-2 and W-3, by January 31. File quarterly reports for unemployment insurance through the Virginia Employment Commission portal to maintain compliance.

Record-Keeping and Best Practices

Accurate record-keeping is a cornerstone of payroll tax filing and compliance in Virginia. The Virginia Department of Taxation and federal agencies may request documentation to verify that income tax withheld and tax payments were reported correctly. Proper record management helps you respond quickly to notices, avoid disputes, and demonstrate compliance with Virginia state income tax rules.

What to Keep

• Employee Records: Maintain each employee’s Form W-4 and Form VA-4 and documentation of the withholding amount for every pay period. These records show compliance with state income tax withholding and confirm that you withheld state income tax correctly.
  
  
• Employer’s Annual Summary: Keep copies of VA-6 and all quarterly or monthly returns. These serve as your final summary of withholding for the year and are essential if the Virginia department conducts an audit.
  
  
• Payroll Registers and Payment Confirmations: Store payroll registers, proof of electronic filing, and ACH credit confirmations. This demonstrates that tax regulations were followed and payments were made on time for Virginia purposes.
  
  
• Correspondence with Tax Agencies: Retain copies of all communication with the Department of Taxation and IRS. This includes notices, responses, and any agreements related to late payment or penalty relief.

How Long to Keep Records

• Retention Period: Virginia requires employers to keep payroll tax records for at least four years after the due date of the return or the date the taxes were paid, whichever is later. Federal law has similar record-keeping requirements.
  
  
• Best Practice: Keep digital and paper copies organized by calendar year. This makes it easy to locate records if you need to verify tax withholding, respond to audits, or resolve future tax regulation issues.

Resolving Payroll Tax Issues and Penalty Relief

Even the most diligent Virginia employers can encounter payroll tax issues. Late payments, incorrect withholding amounts, or missed quarterly returns can lead to penalties and interest charges that accumulate quickly. The Virginia Department and the IRS offer structured solutions to help businesses get back on track, but they require employers to act promptly.

Virginia Options

• Payment Plans: Virginia offers payment plans for businesses that cannot fully pay their tax liability. Interest and penalties will continue to accrue, so requesting a plan as soon as possible is essential.
  
  
• Offer in Compromise: In limited cases, Virginia may accept a reduced payment when full payment would create financial hardship. Detailed documentation is required to support your request.
  
  
• Penalty Relief: The Virginia Department of Taxation may consider penalty relief for reasonable cause. However, state law imposes a minimum late filing penalty of $10 even when no tax is due.

Federal Options

• Installment Agreements: The IRS offers short-term and long-term installment agreements, allowing employers to spread tax payments over time.
  
  
• Currently Not Collectible Status: Employers experiencing severe financial hardship can request this status, temporarily stopping collection efforts.
  
  
• First-Time Penalty Abatement: The IRS may waive specific penalties once if your business has a compliance history.

Best Practice: Respond Immediately

Tax regulations require employers to address notices quickly. Delaying your response can result in additional late payment penalties and possible legal action. Seek professional tax advice early if you receive multiple notices or are unsure about the next steps.

When to Seek Professional Help

Handing payroll tax filing and compliance in Virginia alone may no longer be practical. Complex tax situations can expose your business to additional risk if mistakes are made, so seeking professional help can be a wise investment.

Situations That Call for Expertise

• Multi-State Payroll: If your business pays wages to employees in multiple states or has reciprocal agreements with neighboring states, consult a CPA or payroll expert. They can help you manage state income tax withholding and ensure compliance with local tax laws.
  
  
• Workers' Compensation and Audits: Employers dealing with workers' compensation audits or disputes should seek legal or tax advice to avoid costly errors. Professionals can represent your business during state reviews.
  
  
• Significant Penalties or Collections: If you face extensive assessments, liens, or repeated late payment issues, a tax attorney or enrolled agent can negotiate with the IRS or the Virginia Department of Taxation.

Professional guidance can save you time, reduce stress, and help you comply with Virginia law, even as tax regulations change.

Final Compliance Checklist

This checklist will help Virginia employers confirm that every part of payroll tax filing and compliance is handled correctly. Completing each step ensures you avoid penalties, file quarterly reports on time, and stay aligned with Virginia law.

Essential Action Items

1. Register your business for a Virginia tax account number and confirm your filing frequency with the Virginia Department of Taxation. This ensures you are set up as the correct withholding tax filer before paying wages.
   
   
2. Collect Form VA-4 and federal Form W-4 from every employee and verify that the withholding amount is accurate for Virginia purposes.
   
   
3. Calculate payroll taxes using the latest withholding tables, and submit payments electronically according to your assigned payment schedules.
   
   
4. File quarterly reports, monthly returns, or semi-weekly deposits as required. Include the VA-6 employer’s annual summary as your final summary by January 31 each calendar year.
   
   
5. Maintain records of tax returns, ACH credit confirmations, and correspondence with the Virginia department. These documents will protect you in case of an audit or dispute.

By following this checklist, Virginia employers can simplify payroll processing, stay compliant with state regulations, and avoid costly late payment issues.

Frequently Asked Questions 

What is Virginia income tax, and how does it affect my business?

Virginia income tax applies to wages paid to employees working in the state. Employers are responsible for ensuring that the Virginia income tax withheld matches employee earnings and filing schedules. This includes quarterly or monthly returns and, for some businesses, semi-weekly withholding deposits. Meeting these requirements helps your company comply with the Department of Taxation and the federal government.

How do I communicate with the Department of Taxation if I have payroll issues?

You can contact the Virginia Department of Taxation by phone, mail, or online. If you receive a notice about Virginia income tax withheld, respond promptly to avoid penalties. The department can explain your filing frequency, resolve discrepancies, and guide you through payment arrangements. Clear communication is essential, especially if you need to adjust your semi-weekly withholding deposits.

Do local tax laws in Virginia require separate payroll filings?

Virginia does not have county or city payroll taxes, so local tax laws do not create additional filing requirements for most employers. However, you must still ensure that the Virginia income tax withheld is accurate and submitted on time. The federal and state agencies coordinate to verify filings, so missing deadlines can result in interest charges or penalties regardless of local obligations.

Do minimum wage employees need Virginia income tax withheld?

Virginia requires state income tax withholding for all employees, including those earning the minimum wage or slightly above. The amount withheld is based on current withholding tables and the employee’s Form VA-4. Employers must calculate the correct amount even if wages are low to remain compliant and avoid penalties for under-withholding.

Does semi-weekly withholding apply to all Virginia employers?

No, semi-weekly withholding applies only to Virginia employers whose average monthly liability is $1,000 or more. If you qualify, you must deposit within three banking days of the federal cutoff date. This schedule is designed to align state and federal government deposit requirements, making compliance easier for larger businesses with significant payroll.