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How To Calculate Virginia State Withholding Tax
Calculate VA State Income Tax Withholding
I Thought Income Tax Withholding Was Difficult?
Calculating your Virginia state tax withholding on your paychecks can be confusing and seeing what exemptions you take might seem like something best left up to your payroll department. I'll show you how to calculate your state tax withholding so that you can do this yourself with a calculator. This is helpful so that if you make any changes to your personal and dependent or age and blindness exemptions you will know how it affects the amount of tax taken per check and what that means for how much tax you get taken out for the year as a whole.
How Is Virginia State Income Tax Calculated?
First, let's take a look at how Virginia determines how much state income tax is assessed. Per the Virginia state tax page for how withholding tax is calculated for an individual, there are essentially four tiers or groups for where an individual's income can fall and each one has its own method of calculating the amount of tax to be withheld. The way this is done is by actually taking an individual's given gross pay (minus any 401k contributions) for a single pay period and assumes that this is the same amount that that employee will earn the same amount all year long for each pay period. After the estimated annual income is adjusted by any exemptions being taken, it falls into one of the four tax tiers and the annual estimated tax is calculated per that tier's requirements. Then the annual withholding is divided back up by the number of pay period's in that individual's work year to give the amount of tax to be withheld from that particular paycheck.
The tiers are very simple to read once you know how. If an individual's annualized income is less than $3,000, the tax rate is 2% of the annualized gross income. If an individual's annualized income is over $3,000 but not over $5,000, then the tax rate is 3% of everything over $3,000 plus a flat $60. If over $5,000 but not over $17,000, then the tax rate is 5% of everything over $5,000 plus a flat $120. If over $17,000 then the tax rate is 5.75% on everything after the first $17,000 plus a flat $720. Refer to the chart below to see these tiers in an easier to reference format.
Virginia Income Tax Tier Calculations
Annualized Income (T)
T less than or equal to $3,000
2% of Annualized Income
T greater than $3,000 but less than or equal to $5,000
$60 + 3% of (T - $3,000)
T greater than $5,000 but less than or equal to $17,000
$120 + 5% of (T - $5,000)
T greater than $17,000
$720 + 5.75% of (T - $17,000)
VA State Income Tax Withholding Equation
G x P - ($3000+ (E1 x 930) + (E2 x 800)) = T
The equation itself for calculating the adjusted annual gross pay can be a bit confusing. G is your gross pay for any particular period (minus any 401k contributions), P is the number of pay periods in a year, E1 is your number of personal and dependent exemptions, such as yourself, a spouse and children, E2 is your number of exemptions for yourself and or your spouse being 65 years of age or older or being legally blind. Essentially, every exemption you claim reduces the amount of tax taken per paycheck although you can reach a point where you owe taxes for having too little taken out of every paycheck. Claiming no exemptions ensures you owe as little as possible or, if you are eligible to get a tax refund, can result in getting a larger refund at tax prep time but with more money out of every paycheck. T is the annualized tax to be withheld.
Examples of Calculating VA State Income Tax Withholding
Ok, let's try that equation out! For this example, let's use a fictitious individual. We have Roxanne who grosses $1,500 per pay period after 401k contributions and she gets paid bi-weekly (every two weeks). She also has 2 children and a husband who is blind. Let's set up the equation for her annualized tax.
$1,500 x 26 pay periods - ( $3,000 + (4 personal & dependent exemptions x $930) + (1 age/blindness exemption x $800)) = T
$39,000 - ($3,000 + $3,720 + $800) = T
$39,000 - $7,520 = T
$31,480 = T
Ok, so Roxanne's adjusted annual gross pay works out to $31,480 so she falls into the $17,000 and over tier where only the income above $17,000 is taxed at a 5.75% rate with a flat $720 added to that.
(($31,480 - $17,000) x 0.0575) + $720 = W
$832.60 + $720 = W
$1,552.60 = W
So Roxanne's annualized tax works out to be $1,552.60. But what about on a per paycheck basis? Since Roxanne gets paid 26 times per year, let's take that annualized tax and divide it by 26 to see how much Virginia state tax is withheld from each paycheck.
$1,552.60 / 26 = WH
$59.72 = WH
Ok, so with Roxanne's current gross pay and the exemptions that she put on her VA-4 form for payroll, she ends up with $59.72 withheld from each paycheck.
Now, what about if she doesn't claim any of those exemptions?
$1,500 x 26 - ($3,000 + ($0 x $930) + ($0 x $800)) = T
$39,000 - $3,000 = T
$36,000 = T
Since her annualized gross taxable income is $36,000 Roxanne still falls into the highest tax tier so we subtract off the first $17,000, calculate a tax of 5.75% on the rest and add a flat $720.
(($36,000 - $17,000) x 0.0575) + $720 = W
($19,000 x 0.0575) + $720 = W
$1,092.50 + $720 = W
$1,812.50 = W
$1,812.50 / 26 = WH
$69.71 = WH
In this scenario, Roxanne's annualized tax to be withheld works out to be $1,812.50. Dividing this by 26 pay periods will yield that her state tax withheld per paycheck is $69.71.
In the examples above, we looked at a fixed known income. If you are an hourly or part-time employee or work overtime paid at time and a half, Virginia state income tax withholding will vary paycheck by paycheck unless you are a salary employee who is not paid extra time. In short, state tax withholding is calculated by the gross pay (minus 401k contributions) on each paycheck and assumes that the gross on that one check will be what is made on each check for a whole year, so any days off, holiday time, sick days unpaid or overtime can increase or decrease the amount of tax depending on how it affected your gross pay as a whole on that one check.
The equations used above were sourced from the Virginia Department of Taxation's webpage. This information is current as of August 2014 and the withholding formula and tables were made effective January 1st, 2008. This is not intended to be a guide for determining the amount of refund you could receive when filing tax returns.