What’s New for Tax Credits
The 2011 General Assembly enacted six new tax credits. All of these credits, except the Telework Expenses tax credit, are effective for taxable year 2011. Additionally, the Motion Picture Production tax credit, which was enacted by the 2010 General Assembly, is effective for taxable year 2011. Thus, with the exception of the Telework Expenses Tax Credit, taxpayers may apply for and, if approved, claim these new credits on their 2011 income tax returns.
The new tax credits administered by the Virginia Department of Taxation (the Department) are as follows:
• The Barge and Rail Usage tax credit
• The Farm Wineries and Vineyards tax credit
• The International Trade Facility tax credit
• The Research and Development tax credit
• The Telework Expenses tax credit
The other two new credits are the Port Volume Increase Tax Credit and the Motion Picture Production Tax Credit. The Port Volume Increase tax credit is administered by the Virginia Port Authority. The Motion Picture Production tax credit is administered by the Virginia Film Office.
In addition to the new credits above, there are changes to existing credits:
• Livable Home
• Neighborhood Assistance Credit
• Agricultural Best Management Practices
For more information on Tax Credits, click this link.
Long Term Capital Gain Subtraction
Effective for taxable years beginning on or after January 1, 2011, any income taxed as a long-term capital gain for federal income tax purposes, or any income taxed as investment services partnership income (otherwise known as investment partnership carried interest income) for federal tax purposes is allowed as a subtraction on the Virginia return. This subtraction is allowed if the income is attributable to an investment in a “qualified business” as defined in Va. Code § 58.1-339.4 or in any other technology business approved by the Secretary of Technology and the business has its principal office or facility in the Commonwealth and less than $3 million in annual revenues for the fiscal year preceding the investment. The investment must be made between the dates of April 1, 2010, and June 30, 2013.
Beginning in tax year 2010, the filing thresholds will increase as follows:
2010 & 2011
2012 & Beyond
Single or Married, filing separately
Married, filing jointly
Claiming Credit for Taxes Paid to Another State
Were you required to pay income tax to a state other than Virginia for the 2011 tax year? If so, the Virginia Department of Taxation has some reminders on claiming credit for taxes paid to another state on your 2011 Virginia income tax return.
- The credit computation is based on the qualifying taxable income and the qualifying tax liability reported to the other state. Where no tax is paid to the other state, a taxpayer is ineligible to claim an out-of-state credit on their Virginia return.
- Taxpayers receiving full refunds of tax withheld under Virginia’s reciprocal agreements with Maryland, the District of Columbia, Kentucky, Pennsylvania or West Virginia, may not claim a credit for the amount withheld. In addition, a credit may not be claimed for taxes paid to any other state solely on the basis of a Form W-2 showing income tax withheld.
- The total allowable credit for taxes paid to another state or states is limited to the net tax liability on your Virginia return (for residents, Form 760, line 17).
- If you are entitled to claim credit for taxes paid to more than one other state, you must provide a separate computation for each state. In addition, you must provide a complete copy of the return for each state for which a credit is claimed. Failure to provide required documentation may result in disallowance of the credit.
- Part-year residents filing form 760PY may not claim a credit for taxes paid to another state on income they received during their period of residence outside Virginia.
- Generally, Virginia residents may not claim a credit for taxes paid to Arizona, California, Oregon, or the District of Columbia. Nonresidents filing Virginia Form 763 may only claim credit for taxes paid to those states.
For more details on this topic, visit the Credit for Tax Paid to Other States page of our website, or check the forms and instructions for filing Virginia returns. Forms and instructions are located online at our Individual Tax Forms page.
Retirees – Pensions and Estimated Payments
Did you retire during the 2011 or 2012 tax years? If so, please be advised that Virginia does tax pensions and most other retirement income.
Retirement income types taxed by Virginia may be different from other states. For example, some states do not tax military pension income, but Virginia will. Also, Virginia will not tax Social Security income, regardless of whether another state does. As a general rule, taxpayers should presume any type of income included in their Federal Adjusted Gross Income is taxable unless Virginia instructions specifically state it should be subtracted from tax consideration.
Virginia applies the same tax rates to all types of income. If you have recently retired or anticipate retiring soon, Virginia recommends you check to ensure that enough Virginia income tax is withheld from your retirement income. If no tax is withheld on income Virginia deems taxable, you may need to make estimated tax payments to cover the tax owed.
For more information on estimating Virginia taxes and making payments of estimated tax, see our Estimated Payment Information page. To review a more complete list of income Virginia does not tax, review the instructions on Subtractions from Income for your specific form type. Individual tax forms and instructions are available at our Individual Forms page online.
Military Spouses Residency Relief Act
The Military Spouses Residency Relief Act (S.475), which amended the Servicemember Civil Relief Act, was signed into law on Nov. 11, 2009. (You can find the Tax Bulletin that the Department published on the subject here.) It affects Virginia income tax filing requirements for spouses of military service members. Under this law, spouses of military service members do not automatically become liable for income and personal property taxes as Virginia residents when they are present in Virginia solely because their spouse is a member of the military serving in Virginia. To be exempt, however, the spouse must meet certain criteria. For details, visit our website.