Virginia LLC Taxes
By default, Virginia LLCs are taxed as pass-through entities, which is a type of business entity that does not pay federal taxes directly. Instead, the LLC’s revenue passes through to the LLC’s owners/members. It is up to these members to report this revenue on their personal tax return and pay the 15.3% federal self employment tax rate (12.4% for social security and 2.9% for Medicare). At 6%, Virginia’s corporate income tax rate is one of the lowest in the country. Here's what you need to know about Virginia LLC taxes.
In this article, we’ll cover:
How Are Virginia LLCs Taxed?
The way your Virginia LLC will be taxed depends on which tax status you elect for your business. If you choose to keep your LLC’s default tax status as a pass-through entity, your single-member LLC (SMLLC) will be taxed as a sole proprietorship. If your LLC is a multi-member LLC, it will be taxed as a partnership. If you decide to keep your LLCs default status, you’ll need to file the following relevant tax form:
- Single-member LLC—Form 1040 (usually Schedule C, but some SMLLCsfile C-EZ, E, or F)
- Multi-member LLC—Form 1065
There are other tax options, though. A Virginia LLC can also choose to be taxed as an S-corp or C-corp. We’ll explain how electing a different tax status affects your business taxes.
Virginia LLCs taxed as S-corp
Your Virginia LLC may benefit from electing S-corp tax status. Just like an LLC who chooses to elect default tax status, an S-corp is also acts the same way as a pass-through entity. This means the LLC won’t have to pay corporate income tax, but it can make distributions to their members. These distributions are not subject to the federal self-employment tax.
If you’re considering electing S-corp status for your LLC, we recommend checking out the IRS requirements for S-corps. You may also want to consider hiring a CPA and getting their advice on whether or not electing S-corp status is a good move. S-corp taxes are more complicated than default taxes, and electing S-corp status is not a guaranteed way for your LLC to save money.
S-corps report their income to the IRS by filing Form 1120-S.
LLCs taxed as C-corp
You also have the option of electing C-corp status for your LLC. This is the default tax status for corporations. This choice is not as common as electing S-corp status, but choosing C-corp status for your LLC can be a good way to bring in investors. A C-corp may be eligible for larger tax deductions than an LLC, but you will be required to pay both the federal corporate income tax (21%) and the Virginia state corporate income tax (6%).
Again, we recommend consulting with a CPA before making the choice to change your LLC’s tax status.
C-corps file Form 1120 with the IRS.
Virginia State Income Tax
The state of Virginia’s tax rates on personal income vary depending on how much taxable income you earn each year. For example, if you earn between $5,001 – $17,000, you’ll pay $120 plus 5% of anything over $5,000. If you earn $17,001 or more, you’ll pay $720 plus 5.75% of anything over $17,000.
If you choose to be taxed as a C-corp, you’ll also be responsible for paying the Virginia Corporation Income Tax. The rate for the Virginia Corporation Income Tax is 6% of all taxable Virginia income. However, your due date will vary depending on when your LLC’s fiscal year ends. For most LLCs, this will be April 15th.
Sales and Use Tax
Virginia’s sales tax rate is 5.3%. Some counties and municipalities have added an additional local sales tax rate of up to 1.7%. A list of tax rates per county is available on the Virginia Department of Taxation’s website.
Local Virginia Taxes
It’s important to follow all local tax laws where your Virginia LLC is based and anywhere else your business may be operating. Make sure you check in with your local county/municipality to make sure you’ve covered your bases.
All Virginia businesses are subject to a Business, Professional, and Occupational License (BPOL) tax. This is a form of gross receipt tax and your BPOL tax rate will vary depending on your business’s activities and where it is located. For example, Fairfax county charges $0.05 per $100 for Builder and Developer services, but Loudoun county’s rate for developers is $0.13 per $100.
In addition to both sales tax and BPOL tax, some municipalities charge a local tax on certain goods and services, like livestock, produce, tobacco, and alcohol.
Other Taxes in Virginia
Here are some other taxes imposed by the state of Virginia.
Virginia State Employer Taxes
If you decide to hire employees, you’ll need to pay unemployment insurance and workers’ compensation taxes:
- Virginia State Unemployment Insurance (SUI) Tax—As of 2022, the Virginia wage base is $8,000. If you’re a new employer in Virginia, the tax rate for your unemployment insurance is a flat 2.73%. However, more experienced companies SUI rates range from 0.33% to 6.43%, depending on the industry.
- Workers’ Compensation—If your LLC employs more than 2 part-time or full-time employees, the state of Virginia requires your business to purchase workers’ compensation insurance. Workers’ compensation insurance rates vary. They can vary from as low as $0.07 per $100 of payroll for clerical-office employees to up to $30 per $100 of payroll for Religious Organization (Church/Temple) employees.
To learn more about Virginia employer taxes, visit the Virginia Employment Commission website.
The Virginia Department of Taxation also imposes taxes on certain industries. Here’s a list of industry-specific taxes in Virginia:
- Bank Franchise Taxation
- Cigarette and Tobacco Products Tax
- Insurance Premiums License Tax
- Litter Tax
- Apple Excise Tax
- Cattle Assessment Tax
- Corn Assessment Tax
- Cotton Assessment Tax
- Egg Excise Tax
- Forest Products Tax
- Motor Vehicle Wholesale Fuel Sales Tax
- Peanut Excise Tax
- Rolling Stock Tax on Railroads and Freight Car Companies
- Sheep Assessment Tax
- Small Grains Assessment Tax
- Soft Drink Excise Tax
- Soybean Assessment Tax
Do foreign LLCs in Virginia need to pay Virginia taxes?
Yes. If you’re operating a Virginia foreign LLC (an LLC that was formed somewhere other than Virginia, but does business in the state) you will still need to pay taxes in every municipality where you’re doing business. It is very important to look into what taxes are charged by the local government office where you will be operating to see which taxes you will be obligated to pay.