Key figures
Virginia advisory
2026, with sources
The R&D credit
Virginia’s research and development expenses credit is for research conducted in Virginia. Under the method available without an end date, the credit is 10% of Virginia qualified research expenses above 50% of the average of the prior three years, or 5% of current expenses if there were none in one of those years, capped at $45,000 a year ($60,000 with a Virginia college or university). The credit is refundable, subject to Virginia Tax’s guidelines. The statute’s other method, 15% of the first $300,000, applied to tax years beginning before 2025.
Applications go to Virginia Tax by September 1 of the year after the expenses were incurred, and the statewide cap of $15.77 million a year means awards are prorated in a busy year. A company with more than $5 million of Virginia research expenses can’t claim both this credit and the major research credit.
What’s changing
Two scheduled changes matter for budgeting. The state minimum wage, $12.77 in 2026, rises to $13.75 on January 1, 2027 and $15.00 on January 1, 2028, then indexes to inflation from 2029. And Virginia’s new Paid Family & Medical Leave program starts collecting payroll contributions on April 1, 2028, with benefits from December 1, 2028; employers may substitute an approved private plan.
An example: a 20-person Virginia startup paying an hourly support team at the minimum wage plans for two raises in two years, and builds PFML withholding and remittance into its payroll setup during 2027 so April 2028 isn’t a scramble.
Where founders go wrong
Virginia’s state taxes are moderate; the surprises are local (BPOL and business personal property tax) and in its older rules, like cost-of-performance sourcing.
- Forgetting the local BPOL license tax on gross receipts.
- Not reporting new independent contractors to the New Hire Reporting Center.
- Charging Virginia sales tax on SaaS, which is exempt.
- Underestimating the SCC fees for a charter with millions of authorized shares.
- Assuming Virginia sources service revenue to the customer, as many states do.
The federal baseline
This page covers what Virginia adds. The federal rules underneath it apply here too.
Common questions
Can a pre-revenue startup get the Virginia R&D credit?
Yes, if it does research in Virginia. The credit is 10% of Virginia qualified research expenses above half the prior three years’ average (5% if there were none), capped at $45,000 a year, or $60,000 with a Virginia college or university, and the excess over tax is refunded. Applications are due to Virginia Tax by September 1 after the year ends, and awards are prorated when the $15.77 million statewide cap is oversubscribed.
Is Virginia adding paid family leave?
Yes, starting in 2028. Virginia has enacted a Paid Family & Medical Leave program run by the VEC: payroll contributions begin April 1, 2028, typically split 50/50 between employer and employee, with small businesses exempt from the employer share, and benefits begin December 1, 2028. The VEC sets the rate each year.
Advisory next door
- DCDistrict of Columbia advisoryDC taxes only its residents’ wages, funds paid family leave entirely from employers, and taxes most SaaS. Those three facts shape most DC planning.
- KYKentucky advisoryKentucky’s state rates are moderate, but local occupational license taxes on wages and profits, a sales tax that reaches SaaS and a $175 minimum LLET catch startups, and 2026 conformity skips Section 174A.
- MDMaryland advisoryMaryland’s R&D credit is 10% over a base and refundable for small businesses. Biotech investors get a refundable credit, and FAMLI adds a payroll cost from January 2027.
- NCNorth Carolina advisoryNorth Carolina’s rates are among the lowest and still falling, but there is no state R&D credit, the 2026 conformity change reaches back to 2025 returns, and E-Verify applies from 25 employees.
- TNTennessee advisoryTennessee has no tax on wages and a lighter franchise tax since 2024, but entities still pay franchise, excise and gross-receipts business tax, and SaaS is subject to sales tax.
- WVWest Virginia advisoryWest Virginia’s income tax keeps falling, its R&D credit requires certification before the work, and its 14-day new-hire rule, covering contractors too, catches out-of-state employers.
Founder guides on this
- R&D taxThe R&D tax credit and Section 174A for startupsEngineering salaries can earn a federal R&D credit against payroll tax, and Section 174A lets you deduct US research again. What qualifies, what to track.
- ComplianceFirst-year compliance calendar for a Delaware C-corpDelaware franchise tax, 1099s, the federal return, payroll filings, state annual reports and sales tax: the deadlines a young C-corp misses most, by month.
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
More of the Virginia guide
- AccountingAccounting and state tax in VirginiaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in VirginiaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in VirginiaPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in VirginiaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in VirginiaRegistering to do business, annual reports, franchise tax and the filing calendar
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.