23 Va. Admin. Code § 10-112-43
Current through Register Vol. 41, No. 8, December 2, 2024
Section 23VAC10-112-43 - Failure by individual to pay estimated tax; exceptionA. Notwithstanding the provisions of 23VAC10-112-40, 23VAC10-112-41, and 23VAC10-112-42, the addition to the tax with respect to any underpayment of any installment shall not be imposed if the total amount of all payments of estimated tax made on or before the last date prescribed for the payment of such installment equals or exceeds the amount which would be required to be paid on or before such date if the estimated tax were any of the following:1. The tax shown on the return of the individual for the preceding taxable year, if a return showing a liability for tax was filed by the individual for the preceding taxable year and such preceding year was a taxable year of 12 months, or2. An amount equal to the tax computed, at the rates applicable to the taxable year, on the basis of the taxpayer's status with respect to personal exemptions for the taxable year, but otherwise on the basis of the facts shown on his return for, and the law applicable to, the preceding taxable year, or3. An amount equal to 90% (66-2/3% in the case of self-employed farmers or fishermen referred to in 23VAC10-112-23 B of the tax for the taxable year computed by placing on an annualized basis the taxable income for the months in the taxable year ending before the month in which the installment is required to be paid. For purposes of this subsection the taxable income shall be placed on an annualized basis by: a. Multiplying by 12 (or, in the case of a taxable year of less than 12 months, the number of months in the taxable year) the taxable income (computed without deduction of personal exemptions) for the months in the taxable year ending before the month in which the installment is required to be paid,b. Dividing the resulting amount by the number of months in the taxable year ending before the month in which such installment date falls, andc. Deducting from such amount the deductions for personal exemptions allowable for the taxable year (such personal exemptions being determined as of the last date prescribed for payment of the installment); or4. An amount equal to 90% of the tax computed, at the rates applicable to the taxable year, on the basis of the actual taxable income for the months in the taxable year ending before the month in which the installment is required to be paid. The periods involved, for a calendar year taxpayer, are January 1 to April 30, January 1 to May 31, and January 1 to August 31. Virginia taxable income for the applicable period is computed as follows: there is subtracted from the federal adjusted gross income for the four, five or eight month period, as applicable, (i) the Virginia subtractions specified in § 58.1-322 of the Code of Virginia, (ii) the greater of itemized deductions or standard deduction, (iii) child and dependent care deduction, and (iv) the dollar amount of exemptions claimed on the return; and there is added to federal adjusted gross income the Virginia additions specified in § 58.1-322 of the Code of Virginia. Virginia income tax is calculated on the resulting Virginia taxable income. If the estimated tax installment relating to the period is at least 90% of such tax, no addition to tax is required.
B. Examples. 1. Taxpayer E filed a return for calendar year 1987 showing a tax liability of $4,750. For calendar year 1988 E made timely estimated tax payments which, together with withholding payments, totalled $4,750. E's return for calendar year 1988 revealed a total tax liability of $6,000, which was underpaid by $1,250 or more than 10%. Since the total amount of estimated tax paid by each installment date equalled the amount that would have been required to be paid on or before each of such dates if the estimated tax were the tax shown on the return for the preceding year, the exception in subdivision A 1 of this section applies and no addition to the tax will be imposed.2. Assume the same facts as in Example 1 except that Taxpayer E adopted a daughter and son on January 1, 1988, and made estimated tax payments in calendar year 1988 totalling $4,700. The exception under subdivision A 1 of this section does not apply because the 1988 estimated tax payments are less than the tax shown on his 1987 return. However, subdivision A 2 of this section permits E to recalculate his 1987 tax liability using his two additional $700 exemptions. Assuming that E has reached the 5.75% tax bracket, the $1,400 would yield tax savings of $80.50 (5.75% of $1,400). The $80.50 tax savings would reduce his recomputed 1987 tax liability to $4,669.50. Because the total amount of estimated tax paid by each installment date exceeds the amount which would have had to be paid on or before each of such dates if the estimated tax were $4,669.50, no addition to the tax will be imposed.3. Taxpayer F's 1987 return revealed a total tax liability of $311, but she qualified for an age credit in the amount of $311 so that no tax was due for 1987. She had one exemption for both 1987 and 1988, and $200 in withholding and estimated tax payments were made for calendar year 1988. Her 1988 tax liability was $1,000. The exception of subdivision A 1 of this section does not apply because the 1988 payments are less than the $311 tax liability shown on her 1987 return. However, subdivision A 2 of this section provides an exception because the 1988 payments of $200 at least equal the tax (figured using the applicable nonrefundable credits) which would have been due on her 1987 income, using 1988 rates and personal exemptions.4. Taxpayer G, who claims one exemption and itemizes deductions, made four timely installment payments of estimated tax totalling $4,400 for calendar year 1988. His calendar year 1988 tax liability was $5,000 and his receipt of Virginia adjusted gross income accelerated as the year progressed, as the following worksheet illustrates: | 1/1/88 to 4/30/88 | 1/1/88 to 5/31/88 | 1/1/88 to 8/31/88 |
| Virginia adjusted gross income | $15,000 | $27,000 | $64,000 |
| 1. Annualized Va. adjusted gross income for period(s) shown | $46,500 | $64,800 | $96,000 |
| 2. Annualized itemized deductions for period(s) shown or Standard Deduction if not itemized | 6,000 | 12,000 | 9,000 |
| 3. Total dollar amount of exemptions | 800 | 800 | 800 |
| 4. Taxable income lines 2 and 3 from 1 | 39,700 | 52,000 | 86,200 |
| 5. Virginia tax on the amount shown on line 4 | 2,048 | 2,755 | 4,722 |
| 22.5% (or 90% of 25%) of line 5: | 45% (or 90% of 50%) line 5: | 67.5% (or 90% of 75%) of line 5: |
| Installments due through the applicable period | $460.80 | $1,239.75 | $3,187.35 |
| Installments paid through the applicable period | $1,100 | $2,200 | $3,300 |
Because the total of estimated payments through each of the three periods is at least (and, in fact, exceeds) 90% of the tax on the annualized taxable income for the applicable period(s), no addition to tax applies because of the exception in subdivision A 3 of this section.
5. Taxpayer H who is single, claims one exemption and itemizes deductions, had $100,000 of federal adjusted gross income for calendar year 1989 and a tax liability of $5,000. H expected her income to be $70,000 and had paid estimated tax in four $975 installments. Her calendar year 1988 tax liability was $4,000. As the following worksheet illustrates, her estimated tax payment for each of the four, five and eight month periods is at least (and, in fact, exceeds) 90% of the tax liability for the applicable period and no addition to tax applies because of the exception in subdivision A 4 of this section. | 1/1/89 to 4/30/89 | 1/1/89 to 5/31/89 | 1/1/89 to 8/31/89 |
| 1. Federal AGI for period(s) shown | $17,500 | $29,000 | $69,000 |
| 2. a. Add Virginia additions and/or b. Subtract Virginia subtractions for period(s) shown | -2,000 | -2,000 | -3,000 |
| 3. Subtract a. Itemized deductions for period(s) shown, or (if greater b. Standard Deduction on the income shown | -2,000 | -5,000 | -6,000 |
| 4. Subtract Child and Dependent Care Deduction for the period(s) shown | - 0 - | - 0 - | - 0 - |
| 5. Subtract dollar amount of exemptions | -800 | -800 | -800 |
| 6. Virginia taxable income for period(s) shown | 12,700 | 21,200 | 59,200 |
| 7. Virginia tax on amounts shown on line 6 | 505 | 969 | 3,154 |
| 8. 90% of line 7 | 455 | 872 | 2,839 |
| 9. Installments paid through the applicable period | 975 | 1,950 | 2,925 |
23 Va. Admin. Code § 10-112-43
Derived from VR630-2-492 § 4; adopted September 19, 1984, eff. January 1, 1985; amended, eff. February 1, 1989.Statutory Authority
§§ 58.1-203 and 58.1-492 of the Code of Virginia.