Ask the Expert: Withholding Returns and Payment Penalties

Greetings! Welcome to our first installment of “Ask the Expert,” where every month we will be discussing a payroll tax question, scenario, subject, or cautionary tale submitted by our clients. Recently we’ve received many questions about missing state withholding returns and payment penalties. The primary cause of these two issues come from a change in the state withholding tax frequency- for example, a change from annual to monthly, or a change from monthly to semi-weekly.

State withholding returns and payments can be due at different times. This is determined by the company’s past liabilities: the larger the liability, the more frequent payments are required by the state. Tax return requirements can be different too: when we have a different frequency on file than the one issued by the state, this could result in penalties due from incorrectly submitted returns and payments. Since the tax returns can be different forms as well, frequency discrepancies could also result in missing return notices. For example, Virginia withholding tax semi-weekly frequency requires payments on a semi-weekly basis and the Form VA-16 filed on a quarterly basis. If the state has designated a company as a having a monthly frequency, their Virginia withholding payments should be submitted on a monthly basis with an accompanying Form VA-5 return for every month. In this scenario, the client would be charged a $10 penalty for every month a VA-5 was not filed.

The withholding frequency can change on an annual basis and states usually send letters notifying the company of any upcoming frequency changes. If no letter is received, we recommend contacting the state agencies at the end of every year to confirm the withholding frequency for the new year. To avoid headaches, please forward any change notification to Dominion Payroll when you receive them so that we can update the system with the correct state withholding frequency to ensure that payments and returns will be submitted correctly.

Thanks for reading! If there is a tax question you’ve been wondering about and would like to see answered here, drop us a line at asktheexpert@dominionpayroll.com!