The $1,200 late-filing penalty on a return that shows zero tax. A single-shareholder Virginia S corp with no nonresident owners still must file Form 502 (or 502PTET) every year. Owners skip it because "there's no tax due" — and Virginia's penalty structure does not care: if Form 502 is filed more than 6 months after the due date or more than 30 days after the federal extended due date, the penalty is the GREATER of 30% of the tax due or a flat $1,200 late filing penalty. Several skipped years compound into thousands of dollars on a return that would have reported nothing. The close second, for any S corp with an out-of-state shareholder: the 5% nonresident withholding must be PAID by the original April 15 due date — the automatic 6-month extension of time to file Form 502 does not extend the time to pay the withholding, and missing it triggers the 2%/month extension penalty or the 6%/month late payment penalty.
S-corp election in Virginia
In short
No Virginia franchise, net worth, or entity income tax on an S corp, but mandatory 5% withholding on nonresident owners' Virginia-source income (due on the ORIGINAL April 15 due date, not the extended one), an optional 5.75% elective PTET, and an SCC annual registration fee based on authorized shares ($100 for 1–5,000 shares).
Does Virginia recognize the federal S election?
Virginia automatically recognizes the federal S election — no separate Virginia election exists. The Department of Taxation's Form 502 instructions state that "Pass-through entities include S corporations, general partnerships, limited partnerships, limited liability partnerships (LLPs), limited liability companies (LLCs), and business trusts," and that "Every pass-through entity (PTE) that does business in Virginia or receives income from Virginia sources must file an annual Virginia income tax return on Form 502 or Form 502PTET." The real Virginia decision is whether to make the annual PTET election on Form 502PTET, which changes the return you file and the tax you pay.
Tax the entity still owes
(1) NONRESIDENT OWNER WITHHOLDING (mandatory): "Every PTE that does business in the Commonwealth and has taxable income derived from Virginia sources must withhold and pay Virginia income tax on behalf of each of its nonresident owners, unless the entity or the owner meets an exception. The tax is equal to 5% of the share of taxable income from Virginia sources that is allocable to each nonresident owner." Paid on Form 502W. CRITICAL: "Payment of the withholding tax is due by the original due date for filing Form 502 (i.e., April 15 for a calendar year return). The automatic 6-month filing extension for Form 502 does not apply to the withholding tax payment." Safe harbor: the lesser of 90% of the current-year withholding liability or 100% of the prior year's. Exceptions from withholding include owners exempt from federal or Virginia income tax, owners whose out-of-state credit offsets all Virginia tax, individuals on a Form 765 composite return, exempt non-individual non-corporate entities, non-Captive REITs, corporations exempt from Virginia income tax, publicly traded partnerships, and disregarded entities. As a general rule a PTE should NOT withhold on behalf of another PTE. (2) PENALTIES: extension penalty 2% per month up to 12%; late payment penalty 6% per month up to 30%; if Form 502 is filed more than 6 months after the due date or more than 30 days after the federal extended due date, the greater of a 30% late payment penalty or a $1,200 LATE FILING PENALTY applies; interest at IRC § 6621 plus 2%. (3) SCC ANNUAL REGISTRATION FEE (Va. Code § 13.1-775.1), per the Commission's 02/26 fee schedule: stock corporations pay based on authorized shares — 1–5,000 shares = $100; 5,001–10,000 = $130; 10,001–15,000 = $160; 15,001–20,000 = $190; rising in $30 increments per additional 5,000 shares (e.g., 200,001–205,000 = $1,300). Nonstock corporations = $25. The fee is assessed on the number of shares authorized as of the first day of the second month preceding the anniversary month. (4) ANNUAL REPORT to the SCC: no fee, but required. (5) No Virginia corporate income tax on a valid S corp.
Registering for payroll
Two separate agencies. (1) VIRGINIA TAX: register online through Virginia Tax's business registration portal, or by mailing Form R-1 if you cannot register online. On completion you receive your Virginia Tax account number and are automatically enrolled in a Business Online Services account for filing and paying. (2) VIRGINIA EMPLOYMENT COMMISSION: register separately with the VEC for the unemployment insurance tax account — this is NOT part of the Virginia Tax registration. WITHHOLDING FILING FREQUENCY: average liability under $100/month = quarterly filer, Form VA-5 due the last day of the month following quarter end (April 30, July 31, October 31, January 31); $100–$1,000/month = monthly filer, Form VA-5 due the 25th of the following month; $1,000+/month = semi-weekly filer, Form VA-15 filed electronically within 3 banking days when withheld amounts exceed $500 on federal cutoff dates, plus Form VA-16 quarterly reconciliation by the end of the month following quarter close. ANNUAL: Form VA-6 (or VA-6H for household employers) is due January 31 of the following calendar year, or within 30 days after the final payment of wages, together with every federal Form W-2, W-2G, 1099 or 1099-R showing Virginia income tax withheld — all filed electronically.
Annual filings
Form 502, Virginia Pass-Through Entity Return of Income and Return of Nonresident Withholding Tax — "The PTE return must be submitted on or before the 15th day of the 4th month after the close of the entity's taxable year" (April 15 for calendar-year filers), with an automatic 6-month extension to October 15. All PTEs must file withholding payments, extension payments, annual returns and final payments ELECTRONICALLY. OR Form 502PTET if the elective PTET is chosen — also due the 15th day of the 4th month, filed and paid electronically only. Form 502W — nonresident withholding payment, due by the ORIGINAL Form 502 due date (April 15) regardless of extension. Schedule 502ADJ for Virginia modifications. Schedule VK-1 to each owner. Form 765, Unified Nonresident Individual Income Tax Return (composite) — optional, and unavailable to an electing PTE. Quarterly PTET estimated payments. SCC Annual Report — due by the last day of the month in which the corporation was incorporated or authorized to transact business (no fee). SCC Annual Registration Fee — due the same day; late penalty 10% of the fee, minimum $10; the Commission mails an Annual Assessment Packet to the registered agent roughly 75 days before the due date. Withholding: VA-5 or VA-15, VA-16 (semi-weekly filers), VA-6/VA-6H with W-2s by January 31. VEC quarterly wage and tax reports.
Pass-through entity tax
YES — and the sunset has just been REMOVED, which is the single most important 2026 update for Virginia. Form 502PTET; rate 5.75% at the entity level, imposed on the pro rata or distributive share of income, gain, loss or deduction attributable to "eligible owners" (a direct owner who is a natural person subject to Va. Code § 58.1-320 et seq., or an estate or trust subject to § 58.1-360 et seq.). Eligible owners claim a corresponding REFUNDABLE credit reported on Schedule VK-1. Beginning with tax year 2023 the requirement that a PTE be 100% owned by natural persons or persons eligible to be S corporation shareholders was REMOVED — all PTEs can make the election, but only eligible owners can claim the credit. The election is annual and "must be made on or before the due date for filing Form 502PTET, including any automatic extensions allowed." Form 502PTET must be filed and paid ELECTRONICALLY — there is no waiver from the electronic filing requirement. Estimated payments are required beginning with tax year 2023, typically quarterly. An electing PTE may NOT file Form 765 (Unified Nonresident Individual Income Tax Return / composite return). SUNSET STATUS: the TY2025 Form 502PTET instructions still describe the election as available "for taxable years beginning on and after January 1, 2021, but before January 1, 2027," with the credit for taxable years 2021 through 2026. That sunset has been repealed. Per Virginia Tax's own 2026 legislative summary item 26-82, the thirteenth enactment clause of the 2026 Amendments to the 2025 Appropriation Act (House Bill 29, Chapter 7), effective February 20, 2026, "permanently extends the election for pass-through entities ('PTEs') to pay tax at the entity level, and the associated PTET credits." Prior law would have expired the election and most credits on January 1, 2027 and the out-of-state PTET credit on January 1, 2026; those sunsets were removed entirely, amending Va. Code §§ 58.1-332 and 58.1-390.3. The PTET, including the out-of-state credit, is now PERMANENT and fully available for tax year 2026.
The mistake owners make most often in Virginia
Filing your federal Form 2553
Businesses operating in Virginia send Form 2553 to the IRS Kansas City service center — fax 855-887-7734. Full address and filing checklist for Virginia.
Frequently asked questions
Does Virginia require a separate S-corporation election?
No. Virginia does not require a separate state election. Virginia automatically recognizes the federal S election — no separate Virginia election exists. The Department of Taxation's Form 502 instructions state that "Pass-through entities include S corporations, general partnerships, limited partnerships, limited liability…
What tax does an S corporation pay in Virginia?
No Virginia franchise, net worth, or entity income tax on an S corp, but mandatory 5% withholding on nonresident owners' Virginia-source income (due on the ORIGINAL April 15 due date, not the extended one), an optional 5.75% elective PTET, and an SCC annual registration fee based on authorized shares ($100 for 1–5,000 shares).
Where do I file Form 2553 from Virginia?
With the IRS Kansas City service center. Fax 855-887-7734, or mail to Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999.
What is the most common S-corp mistake in Virginia?
The $1,200 late-filing penalty on a return that shows zero tax. A single-shareholder Virginia S corp with no nonresident owners still must file Form 502 (or 502PTET) every year. Owners skip it because "there's no tax due" — and Virginia's penalty structure does not care: if Form 502 is filed more than 6 months after the due date or more than 30 days after the federal extended due date, the penalty is the GREATER of 30% of the tax due or a flat $1,200 late filing penalty. Several skipped years compound into thousands of dollars on a return that would have reported nothing. The close second, for any S corp with an out-of-state shareholder: the 5% nonresident withholding must be PAID by the original April 15 due date — the automatic 6-month extension of time to file Form 502 does not extend the time to pay the withholding, and missing it triggers the 2%/month extension penalty or the 6%/month late payment penalty.
Compare with other states: Washington, West Virginia, Wisconsin, Wyoming, Alabama, Alaska.
Sources
- https://www.tax.virginia.gov/sites/default/files/vatax-pdf/2025-502-instructions.pdf
- https://www.tax.virginia.gov/sites/default/files/taxforms/corporation-and-pass-through-entity-tax/2025/502ptet-instruction-package-2025.pdf
- https://www.tax.virginia.gov/laws-rules-decisions/legislative-summaries/26-82
- https://www.tax.virginia.gov/pass-through-entities
- https://www.tax.virginia.gov/news/virginia-elective-pass-through-entity-tax
- https://www.scc.virginia.gov/media/sccvirginiagov-home/business-home/business-faqs/annual-registration-fees/an_fee.pdf
File your Form 2553 correctly
Scorply completes your federal election and includes a Virginia guide in your packet, so you know exactly what else you owe here.
Start my Form 2553Researched from official Virginia sources and verified July 30, 2026. State tax rules change. This is general information, not tax advice — confirm with the state or a CPA before you rely on it.