Key figures
Virginia payables
2026, with sources
Contractors are presumed employees
Under Virginia’s 2020 misclassification law, an individual paid for services is an employee for tax, labor, unemployment and workers’ compensation purposes unless the individual or the company shows they are an independent contractor, and Virginia Tax decides by applying IRS guidelines. It is not an ABC test, but it puts the burden on the company, and misclassification can lead to back taxes and penalties.
Virginia also requires new independent contractors to be reported to the Virginia New Hire Reporting Center within 20 days of the start of the contract, using the same information as for an employee (a W-9 copy is acceptable). Few states ask for this, so it is often missed.
1099s
Virginia asks for W-2s and 1099s only when they show Virginia income tax withheld. When they do, they are filed electronically with the annual summary, Form VA-6, by January 31. A startup paying contractors without Virginia withholding files no 1099s with Virginia.
An example: a Richmond startup engages a Virginia freelance developer in March 2026. It reports the contractor to the New Hire Reporting Center by early April, documents why the arrangement passes the IRS factors, files a 1099-NEC with the IRS in January 2027, and files nothing with Virginia Tax because nothing was withheld.
Use tax
Software and data delivered electronically over the Internet aren’t taxable in Virginia, so SaaS invoices don’t create use tax. Tangible goods bought from out-of-state sellers who don’t charge Virginia tax do, at the rate for the locality where they are used, and are reported on the company’s Virginia return.
The federal baseline
This page covers what Virginia adds. The federal rules underneath it apply here too.
Common questions
Do we report contractors to Virginia?
Yes, within 20 days of the start of the contract, to the Virginia New Hire Reporting Center. Virginia requires employers to report new independent contractors as well as new employees; a contractor counts as new if it hasn’t had a contract with the company before, or hasn’t been paid for at least 60 days.
Do we owe Virginia use tax on SaaS?
No. Virginia exempts services that provide access to or use of the Internet, including software, data, content and other information services delivered electronically via the Internet, so there’s no sales or use tax on SaaS bought by a Virginia company.
Payables next door
- DCDistrict of Columbia payablesDC wants 1099s only for DC residents paid $600 or more, by January 31. Because DC taxes software and data services, use tax on untaxed SaaS purchases is a real payables item.
- KYKentucky payablesKentucky asks for 1099s only when Kentucky tax was withheld; on the payables side, the issue is a flat 6% use tax that reaches SaaS subscriptions bought from vendors that do not collect.
- MDMaryland payablesMaryland wants 1099s only when Maryland tax was withheld, classifies workers for unemployment with the ABC test, and since July 2025 taxes the software and IT services a company buys.
- NCNorth Carolina payablesNorth Carolina requires 4% withholding on some nonresident contractor payments, mostly speakers and performers over $1,500, and state 1099 filing only where tax was withheld.
- TNTennessee payablesTennessee has no state 1099 filing and no contractor withholding; the payables issue is use tax, which reaches the SaaS tools a startup buys because remotely accessed software is taxable here.
- WVWest Virginia payablesWest Virginia treats contractors paid $2,500 or more as reportable new hires, due within 14 days. Its sales tax reaches many services and prewritten software, so use tax on purchases needs a process.
Founder guides on this
- 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.
- 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.
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
- 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
- AdvisoryAdvisory: credits and decisions in VirginiaCredits, incentives and the decisions that are cheaper to get right the first time
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.