23VAC10-110-220. Credit for income taxes paid to another state; generally

A credit for income tax paid to another state may be allowed to residents and nonresidents who are liable for Virginia income tax, subject to certain limitations and restrictions set forth below. The credit provided by this section is applicable only to income tax paid to another state and does not apply to taxes paid to any foreign country. This credit is further inapplicable to taxes imposed by any city, county, regional or other local taxing jurisdiction regardless of the fact that such local tax may be collected by a state. 1. Taxable year. The credit for residents and nonresidents is allowable only with respect to income tax liability to another state incurred within the same taxable year as the liability is incurred to Virginia. For example, some states tax employee contributions to certain retirement plans at the time of contribution despite the fact that such amounts are not includible in federal adjusted gross income until withdrawn. Therefore an individual who is a nonresident of Virginia at the time he makes a contribution may be required to pay tax to his state of residence on such contribution. If the individual is a Virginia resident at the time the contributions are withdrawn and includible in FAGI, he will be liable to Virginia for tax on the amount withdrawn during the taxable year of withdrawal. In this instance, no credit may be claimed for tax paid to the former state of residence unless such tax liability was incurred within the same taxable year as the liability to Virginia. 2. Nonrefundable credit. The credit allowed to residents and nonresidents may not exceed the individual's Virginia tax liability, i.e., the credit is nonrefundable, and no excess may be carried forward or back to other taxable years.