December 14, 2020

Virginia Dept. of Taxation Announces Interest Waiver for Certain Income and Sales Tax Payments

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On April 27, 2020, the Virginia Department of Taxation (DOT) released a bulletin announcing that it “will waive the accrual of interest for certain Virginia income and sales tax payments that are paid on extension in response to the coronavirus disease 2019 (COVID-19) crisis.”¹

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Automatic Waiver

According to DOT, so long as payment in full is made before June 1, 2020, certain income tax payments which were originally due during the period from April 1, 2020 through June 1, 2020 may be submitted to DOT without any accrual of interest.

DOT clarifies that taxpayers filing on extension will only benefit from this interest waiver if at least 90% of the total tax liability is paid on or before June 1, 2020. However, according to DOT, if the interest waiver applies to a taxpayer filing on extension, then only the amount of tax paid on or before June 1, 2020, will be interest-free; thereafter, interest will accrue from the original due date until the date of payment on the unpaid amount of tax remaining after June 1, 2020.

Furthermore, DOT indicates that the interest waiver is automatic (i.e., no paperwork is required) and is applicable to:

any payment required to be made with a Taxable Year 2019 individual, corporate, or fiduciary income tax return, as well as any such payment required to be made with respect to an election to file on extension.  In addition, this waiver of interest applies to any individual, corporate, or fiduciary estimated income tax payments that are required to be paid during the period from April 1, 2020 to June 1, 2020. The waiver also applies to payments associated with composite returns.”

Virginia’s Automatic Filing Extension

The bulletin also reminds taxpayers that no action has been taken to provide a new filing extension. Rather, DOT explains that Virginia law provides all taxpayers an automatic extension of up to 6 months (or 7 months for some corporations).  DOT notes that:

[t]herefore, taxpayers eligible for an automatic interest waiver under this bulletin may file a return and fully pay any associated taxes due by June 1, 2020 without incurring interest or penalties.”

Those taxpayers that choose to file on extension after June 1, 2020, must pay at least 90% of their total tax liability by that date. Furthermore, such taxpayers must pay the remaining tax liability on or before the date their return is actually filed. DOT stated that failure to comply with either of those requirements could result in interest and penalties.

Additionally, DOT encourages taxpayers to consult its website regarding Virginia’s automatic filing extension where taxpayers can find the different extended due dates applicable to fiscal year and corporate income taxpayers as compared to the November 2, 2020 date for individual and fiduciary income taxpayers filing on a calendar year basis.

Pass-Through Entities Paying Non-resident Withholding Tax

DOT emphasizes that although the interest waiver and previously announced payment extension² apply to the amount of income tax paid with a composite return, such relief does not apply to nonresident withholding tax. Thus, according to DOT:

interest and penalties will generally be imposed if they have not paid by the original due date for filing a Pass-Through Entity Return of Income and Return of Nonresident Withholding Tax. Automatic six-month filing extensions are available for pass-through entities.  No application or paperwork is required to qualify, but an extension payment must be made by the original due date to avoid payment-related penalties.”

Employer Withholding

Similarly, according to DOT, neither the interest waiver nor the payment extension forms of relief apply to employer withholding of income tax.

Waiver Interest Available to Dealers

Finally, DOT clarifies that dealers that were previously “granted an extension of the due date for the February 2020 sales tax return and payment due in March” will also receive a waiver of the interest—applicable only to such payments submitted to DOT no later than April 20, 2020.³

If you have questions or concerns about interest waivers, contact us at (410) 862-2890 or fill out our online form.

Footnotes

  1. https://www.tax.virginia.gov/sites/default/files/inline-files/tb-20-5-covid-19-interest-waiver.pdf.
  2. https://www.tax.virginia.gov/sites/default/files/inline-files/tb-20-4-covid-19-income-tax-bulletin.pdf.
  3. https://www.tax.virginia.gov/sites/default/files/inline-files/covid-19-sales-tax-bulletin.pdf.
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