Independent contractor taxes in Virginia: freelancer tax management guide

Starting your own business in Virginia can give you the flexibility to work with clients on your terms. You will likely find that many of your clients also value the added flexibility of working with a contractor instead of hiring and managing an employee. 

However, starting a business may seem daunting if you're unfamiliar with the legalities and other ins and outs of independent contractor taxes in Virginia. Whether you work with clients in your immediate geographical area or around the globe, you will likely find calculating, estimating, and withholding taxes repetitive and tiresome. The same applies to writing up legal contracts, creating invoices, accepting payments, or managing other of the many administrative tasks that come with freelancing.

But starting and operating your own company in Virginia does not need to be complicated. With this handy guide on managing your independent contractor taxes in Virginia, you will soon know how to understand, manage, and pay taxes as a self-employed individual in the Old Dominion state. 

How do independent contractor taxes work in Virginia?

All independent contractors in Virginia considered self-employed workers must file an individual tax return each year. As an independent contractor, you must pay taxes on your company's net profit, as well as Social Security and Medicare taxes. 

What are the self-employed tax rates in Virginia?

A self-employed individual in Virginia must withhold 15.3% of their net earnings to pay Federal Insurance Contributions Act (FICA) taxes. These include a 2.9% Medicare and a 12.4% Social Security tax. 

In addition, as part of your individual income tax return, you must pay federal and state income taxes on your net earnings depending on your tax bracket. Virginia's state income tax rates range from 2% to 5.75% of your taxable income.

What amount of income is taxable for self-employed workers in Virginia?

Your net earnings as a self-employed individual are considered taxable income in Virginia. You can calculate them by subtracting any necessary business expenses, such as supplies, travel, and overhead costs, from your gross income. 

What are the relevant contractor tax forms in Virginia?

In Virginia, the relevant self-employment tax forms include:

• Form 760 (Resident Income Tax Return)

• 760ES (Estimated Income Tax Payment Vouchers for Individuals)

• 760PY (Part-Year Resident Income Tax Return) or 763 (Nonresident Income Tax Return)

How do independent contractors pay taxes in Virginia?

Anyone who expects to owe Virginia state tax liability of more than $150 must make estimated tax payments throughout the year. 

How much should contractors withhold for taxes in Virginia?

The amount of estimated tax you should withhold depends on your circumstances. Your Virginia Tax individual online services account gives you access to a handy worksheet you can use to determine your total estimated tax liability. This worksheet will allow you to calculate the amount and frequency of your estimated payments.

Note: as an independent contractor in Virginia, you must pay at least 90% of your state tax liability during each calendar year by making estimated tax payments.

Can an employer withhold taxes for an independent contractor in Virginia?

According to the Administrative Code of Virginia, an independent contractor is an individual engaged in a business separate from that of the individual or company who contracts their services. A licensable business, therefore, can't deduct or withhold any payment from its taxable gross receipts to the contractor from which it received services. The independent contractor must withhold their tax amounts and is responsible for making any applicable tax payments. 

Can an employer be indemnified by an employee/independent contractor for taxes?

Because an employer does not have to withhold or deduct taxes on behalf of an independent contractor, the individual does not need to indemnify the employer. 

Do self-employed freelancers in Virginia have to pay quarterly taxes?

If an independent contractor expects their state tax liability to exceed $150 (after subtracting allowable credits and income tax withheld), they must make estimated tax payments on one of two schedules:

• Payment in full by May 1 of the year in which they filed their return

• Equal quarterly instalments on or before May 1, June 15, September 15, and January 15

See the instructions for Form 760ES for more information regarding estimated income tax payments.

Is VAT or sales tax relevant for independent contractors in Virginia?

You must register to collect and pay sales tax in Virginia if you: 

1. Sell, lease, distribute, or rent tangible personal property to customers in the state of Virginia, or if you otherwise meet the definition of a "dealer" as per Va. Code § 58.1-612

2. Have "sufficient activity" in Virginia, as per Va. Code § 58.1-613

Find more information on how to register to collect and pay sales tax, how to file and pay sales tax, and more in the Virginia Department of Taxation website's section about Retail Sales and Use Tax.

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How to file Virginia self-employment taxes: step-by-step guide

Filing your independent contractor taxes in Virginia is a fairly straightforward process:

1. If you must collect and pay sales tax in Virginia, register for sales tax, either online or by mailing in a completed Business Registration Form (Form R1). 

2. Calculate the amount of your net earnings for the calendar year in question by subtracting any necessary business expenses from your gross income for the year.

3. Fill out the appropriate form: Form 760 (Resident Income Tax Return), 760PY (Part-Year Resident Income Tax Return), or 763 (Nonresident Income Tax Return).

4. File your individual income tax return by mail or electronically through the Virginia Department of Taxation's website. 

5. Access your Virginia Tax individual online services account, and use the estimated tax liability worksheet to determine the amount and frequency of your estimated tax payments.

What is an independent contractor according to Virginian law?

In Virginia, the law sees any individual who performs work for a business as an employee unless the company proves the worker is an independent contractor based on Internal Revenue Service (IRS) guidelines. As a general rule, a worker who performs services for an employer is an employee if the employer controls both what the worker does and how they do it.

On the other hand, an independent contractor is an individual who performs services for an employer, but the employer does not control how the individual performs the services. An independent contractor has significantly fewer job-related rights and benefits than an employee, but they also have more control over their work and intellectual property.

The IRS has identified 20 factors that can help determine whether an individual is an employee or an independent contractor under Virginia law. 

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The dangers of contractor misclassification in Virginia

Because the Virginia Department of Taxation conducts regular audits into possible worker misclassification, employers must classify employees and independent contractors correctly. If a misclassification audit reveals a violation, the legislation allows the state government to impose a civil penalty on the business as follows:

• First audit: up to $1,000 per misclassified worker

• Second audit: up to $2,500 per misclassified worker

• Third or subsequent audit: up to $5,000 per misclassified worker

Also, if a second audit reveals any new or continued employee misclassifications, the employer will not be permitted to participate in any Virginia state government contracts for a year. For subsequent offenses, the penalty is two years.

On the other hand, contractors misclassified as employees may find themselves losing their working flexibility and freedom. They may also need to retain an attorney to fight for their rights. In addition, contractors will be responsible for paying any pertinent taxes that the employer failed to pay on their behalf. There's also the worry that misclassification may lead to an abrupt end to the relationship with the employer, which may, in some cases, cause contractors to lose access to or ownership of their intellectual property. 

It is always in your best interest to ensure the correct worker classification from the start to protect the longevity of both your business and your income. For more information, check out our guides on:

• Employee and independent contractor misclassification

• The consequences of misclassifying employees as contractors

• When should you convert a contractor to an employee?

How do I ask the company I'm working with to convert me to an employee?

There are many advantages for both the employer and the worker in converting an individual from an independent contractor to an employee. If you are interested in becoming a full-time employee, you should start by approaching the company's management or HR department to find out if this is feasible. 

Some talking points you can use to guide the conversation may include:

• Converting an independent contractor to an employee may protect the employer from misclassification penalties.

• Such a conversion can provide a better experience for the worker, leading to a better working relationship.

• The worker can play a more significant role in a company.

• An employer-employee relationship can make it simpler for both parties to collaborate.

For an independent contractor who wants to work remotely for a company located in another country, Remote offers reliable Employer of Record services and our Reimagine Remote Toolkit. 

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How do I get paid as an independent contractor in Virginia?

There are many factors to consider when determining how to request and accept payment as an independent contractor in Virginia. Some of the more common methods of processing payment include:

• Cash

• Paper checks

• Electronic checks or ACH transactions

• Credit and debit cards

• PayPal

• Other money transfer programs, such as Venmo, Zelle, or Cash App

For a growing company's payroll department, paying an increasing number of contractors adds to the workload. Each additional contract further adds to this. Depending on each contractor's preferred payment method, things may quickly become complicated.

Remote's Contractor Management service resolve these issues and prevent potential bottlenecks for both parties. Our services take the headache out of creating and managing payments and invoices for freelancers. They also simplify onboarding, paying, and managing local and international contractors for employers. 

Remote for Contractors makes receiving payment from your clients simple and painless by allowing you to:

• Send and receive international payments (in your local currency) in over 170 countries worldwide 

• Access localized, compliant in-app contracts and legal advice

• Enjoy invoicing automation

• Access health insurance for contractors

• Manage your independent contractor taxes in Virginia and many other countries with ease

The five-step process of using Remote services couldn't be easier:

1. Onboard as a contractor. When the client sends you an invitation to join them on the Remote platform, you can log in to complete the onboarding process.

2. Sign your contract. You can draw up your own contracts or choose from Remote's localized, compliant agreements.

3. Submit your invoice. Upload and send your requests for payment straight to the client through the Remote platform.

4. Receive client approval. The Remote platform can create a single payment request for all of the client's contractors, making it simple for the client to approve and pay multiple contractors at once.

5. Get paid. You receive your payment in your local currency. 

Becoming an independent contractor in Virginia is easy with Remote

The journey of establishing yourself as an independent contractor in Virginia can be exciting and rewarding. Now that you're familiar with the ins and outs of paying independent contractor taxes in Virginia, you can take control of your finances, maintain legal compliance, and foster productive client relationships.

However, managing everything on your own can be burdensome and time-consuming.

Remote’s Freelancer Hub allows you to manage your clients, contracts, and payments from a single platform, making it much easier for you to grow your business.

Remote equips and empowers you to sign locally compliant contracts, submit invoices for client approval, and receive payment in local currency, all from one powerful yet user-friendly dashboard. We take the guesswork out of handling contractor compliance and taxes, freeing up your time and reducing your workload, so you can focus on what matters most — your services. 

Learn more about how Remote can help your clients make contractor management easy, quick, and efficient. Get started with Remote today and grow your contractor business.

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