Before you hire your first employee in the state of Virginia you should understand what is required of you as an employer. Every company that pays employees in the state of Virginia has specific administrative and tax obligations. Not fulfilling these obligations could result in the loss of the Company's charter and hefty fines.
Federal Employer Identification Number (EIN)
If you plan to be an employer in the state of Virginia or any other state, you will need a Federal Employer Identification Number, commonly called an EIN or FEIN. You will need to get an EIN before you hire any employees.
An EIN is like a Social Security Number for a business. It is assigned by the US Internal Revenue Service (IRS). An EIN is used to identify your business both to the IRS and the state of Virginia.
You can pay a business services company to get your EIN or you can do it yourself online at the IRS website.
You should understand the information that the IRS requires for your EIN before you try to get it online. Refer to IRS Form SS-4 for guidance.
Depending on the exact nature of your business you may need to register one or more employer accounts with the state of Virginia. You will need your EIN in order to complete the registration process.
Register as a Virginia Employer
The state of Virginia has a single online registration for both Virginia Tax and the Virginia Employment Commission.
Once registered, a Virginia Employer can file periodic reports as well as pay state Withholding and Unemployment Insurance taxes online.
Income and Payroll Tax Withholding
The state of Virginia has a Personal Income Tax. When you pay wages to your Virginia employees, those employees will have an Income Tax obligation with the Virginia Department of Taxation on the wages that you pay them. The Department of Taxation wants to make sure that they get the taxes due them from your employees.
In order to guarantee that the state gets its taxes, every Company which has employees in the state of Virginia has specific employee Income Tax Withholding requirements. This includes both filing reports and paying the Withholding amounts on a regular basis, usually quarterly. Income Tax is withheld from employees' wages. There are no employer contributions.
Generally, if someone who works for you is considered to be your employee for Federal Income Tax purposes, that person is also considered to be your employee for Virginia Income Tax purposes.
As a Virginia employer you are also required to withhold Federal Payroll and Income taxes from your employees' wages. Payroll taxes include Social Security and Medicare taxes. Employers send the withheld amounts to the federal government.
The US Internal Revenue Service requires that every employee must provide an employer with a signed withholding exemption form, IRS Form W-4, on or before the date of employment. The employer must then submit Form W-4 to the IRS. Employers use Form W-4 to determine how much Income and Payroll Tax to withhold from each employee's wages. Note that independent contractors are not considered to be employees.
The amount withheld for each employee is expected to be the employee's approximate tax obligation to both the state of Virginia and the federal government.
The Virginia Unemployment Insurance program is administered by the Employment Commission.
Virginia Unemployment Insurance is an employer obligation. Payments are not deducted from an employee's wages. The Virginia Unemployment Insurance program is part of a nation-wide program administered by the US Department of Labor. Unemployment Insurance provides temporary payments to individuals who are unemployed through no fault of their own.
Unemployment Insurance is, like other insurance policies, a numbers game. Employer tax liability is based on a percentage of each employee's wages. When a new Virginia employer registers for Unemployment Insurance, the state has no numbers on which to base the percentage. First time Virginia employers are assigned an introductory rate based on the type of business and number of employees among other factors.
After the state has had enough time to compile insurance numbers on your business (total contributions vs. total paid to former employees over time) they will assign an "Experience Rate" to compute the percentage of wages to be paid going forward. The percentagde rate is commonly adjusted on an annual basis.
The base tax rate for new Virginia employers will be 2.5% until the employer becomes eligible for a computed rate. Eligibility for a computed rate occurs when an employer has a taxable payroll for at least a 12-month period ending June 30. Rates are then computed to be effective on the upcoming January 1.
Employment Commission Contact Information
703 E. Main St.
Richmond, VA 23219
Federal Unemployment Tax Act (FUTA) Tax
The Federal Unemployment Tax Act is a federal law that imposes an unemployment tax on employers. The FUTA tax funds the federal government's oversight of each state's unemployment program. Only employers pay FUTA tax; there is no requirement for withholding amounts from employee wages. Employers must deposit the tax quarterly and file an annual form.
FUTA Tax is used to fund the administrative costs of the Virginia Unemployment Insurance program while Unemployment Tax is used solely for the payment of benefits to unemployed Virginia workers.
The current FUTA tax rate is 6%. FUTA tax only applies to the first $7,000 you pay to each employee in a calendar year. You will stop paying FUTA taxes on an employee's wages once you pay the employee more than $7,000. Currently, the largest FUTA amount you will have to pay is $420 per employee ($7,000 x 0.06).
If you have FUTA tax liabilities, you need to make quarterly deposits and file IRS Form 940.
All employers must now deposit FUTA taxes by using electronic funds transfer (EFT). Usually, EFT payments are made using the Electronic Federal Tax Payment System (EFTPS). EFTPS is a free service offered by the U.S. Department of the Treasury that allows you to pay federal taxes online or over the phone. When you request a new EIN and indicate you will have federal tax payments, you are automatically pre-enrolled in EFTPS. The IRS will notify you about the pre-enrollment and how you can activate the account. If you are not pre-enrolled, you can sign up directly on the EFTPS website or by calling the EFTPS at 800-555-4477.
Workers' Compensation Insurance
The Virginia Workers' Compensation Insurance program is administered by the Workers' Compensation Commission. Virginia Workers' Compensation Insurance is an employer obligation. Payments are not deducted from an employee's wages.
Virginia employers are required by law to pay their employees if they are unable to work because of a work-related injury or illness. Most employers pay the premiums for a Workers' Compensation Insurance policy which has been approved by the Workers' Compensation Commission. Some employers opt to self-insure themselves if they are able to qualify with the Workers' Compensation Commission.
All Virginia employers may be required to have Workers' Compensation Insurance even if they have only one employee. While there are exceptions, almost all Virginia employees who are injured on the job are eligible for Workers' Compensation Insurance benefits.
Insurance rates vary depending on the type of business being conducted, the carrier's rate and the employer's annual payroll. On average the current cost of an approved Workers' Compensation Insurance policy in the state of Virginia is approximately $0.77 per $100 in payroll.
Workers' Compensation Commission Contact Information
1000 DMV Drive
Richmond, VA 23220
Disability Insurance pays benefits to employees who are unable to work due to non-job-related accidents or illnesses. The state of Virginia does not require employers to provide Disability Insurance to employees. Virginia employers may provide Disability Insurance but are not required by law to do so.
New Hire Reporting
Both federal and state law requires all Virginia employers, both public and private, to report all contractors and newly hired employees to the state within 20 days of the hire date. Along with new employees, all Virginia employers are also required to report employees who are rehired after a separation of 60 days or more, including individuals who remain on the payroll during the separation. Generally if an employee is required to fill out IRS Form W-4, you must report that employee as a new hire.
State and county agencies use this information to assist in locating parents who are delinquent in their child support obligations.
Federal law requires employers to verify an employee's eligibility to work in the United States. Within three days of hire, employers must complete Form I-9, employment eligibility verification, which requires employers to examine documents to confirm the employee's citizenship or eligibility to work in the U.S. Employers can only request the documentation specified on the I-9 form.
Employers do not need to submit the I-9 form to the federal government but are required to keep them on file for three years after the date of hire or one year after the date of the employee's termination, whichever is later.
Both the federal and Virginia governments require employers to post certain specific information related to wages, hours and working conditions in a location used by employees where they can be easily read during normal work hours. The postings are commonly in a break or lunch room.
Posting requirements vary by type and size of business. All mandatory posters are available free from the federal government or from the state of Virginia.
Posters required by the federal government are available from the US Department of Labor
Provide a Wage and Tax Statement to Each Employee
Virginia employers must provide each employee with an IRS Form W-2, Wage and Tax Statement, each year. Form W-2 includes the total amount of the employee's wages withheld for the past year, as well as the amount of specific deduction categories. Form W-2 must be filed by January 31st each year for the previous tax year.
Virginia employers must also file IRS Form W-3, Transmittal of Wage and Tax Statements. Form W-3 contains a summary of the total employee withholding amounts which a Virginia employer withheld during the year. Form W-3 with all IRS Forms W-2 attached must be filed before the last day of February.