Did an employer's failure to issue a W-2 or withhold enough Virginia tax excuse the employee from filing and paying 2011 income tax?

Subject

Employer withholding failure did not excuse employee's return

Plain-English summary

The employer's alleged failure did not remove the employee's own filing and payment duties. The taxpayer said he filed a substitute W-2 because the employer refused to provide one.

Virginia held that even when an employer should have withheld tax, the employee still had to report the income, file the required return, and pay the full tax. The taxpayer supplied no documentation showing that he was exempt from filing.

Result: the 2011 assessment was upheld. It had already been paid, so no further action was required.

What this means for you

• Employer withholding obligations do not replace employee filing obligations.
• Use available wage records or substitute forms when a W-2 is missing.
• Pay the full liability even if withholding was insufficient.
• Keep proof supporting residence, income, and any claimed filing exemption.

Common questions

Q: Did the missing W-2 cancel the income tax?

A: No.

Q: Was more money due after the ruling?

A: No. The taxpayer had already satisfied the upheld assessment.

Citations and references

• Va. Code §§ 58.1-301, 58.1-321, 58.1-341, and 58.1-461 et seq.; IRC § 6103(d).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-188

Original ruling text

September 29, 2015

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 "Taxpayer") for the taxable year ended December 31, 2011. I apologize for the delay in responding to your appeal.

FACTS

The Department received information from the Internal Revenue Service (IRS) indicating that the Taxpayer may be required to file a Virginia individual income tax return for the 2011 taxable year. The Department requested information to verify whether the Taxpayer was subject to Virginia income tax. When a response was not received, the Department issued an assessment based on available information. The Taxpayer filed an appeal, contending that the information provided to the IRS was from a Substitute Form W-2 he filed with the IRS when his employer refused to issue a W-2 for the 2011 taxable year.

DETERMINATION

Virginia Code § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia "conforms" to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Va. Code § 58.1-322.

Virginia Code § 58.1-341 provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Va. Code § 58.1-321. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia individual income tax return. When a resident does not file a proper Virginia return, IRC § 6103(d) authorizes that Department to obtain information from the IRS that will enable the Department to determine the resident's tax liability.

In John M. and Alice D. Church v. Commissioner of the Internal Revenue Service , 810 F2d 1959, A.F.T.R.2d 87-469 (2nd Cir., 1987), the United States Court of Appeals held that "the failure of the employer to withhold taxes, as it should have, did not lessen the taxpayers' obligation to report and pay taxes on income that they in fact received." Thus, while an employer may have been required to withhold Virginia income tax from an employee's compensation under Va. Code § 58.1-461 et seq. , the employee is responsible for reporting the income and paying the entire tax. See Public Document (P.D.) 95-119 (5/16/1995).

In this case, an assessment was issued because the Taxpayer failed to file a Virginia individual income tax return and the Taxpayer did not provide any documentation indicating he was not required to file one. In addition, even if his employer failed to withhold sufficient taxes, the Taxpayer was still required to file a return to report his income and pay the balance of taxes due. Accordingly, the assessment is upheld. Because the Taxpayer satisfied the assessment prior to filing the appeal, no additional action is required.

The Code of Virginia sections, and public documents 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/1-5874203984.D