The Virginia underpayment penalty, formally called an addition to tax, applies when your withholding and estimated payments do not cover enough of your Virginia income tax during the year. If your tax liability after withholding and credits is expected to exceed $150, Virginia expects quarterly estimated payments, and falling short triggers a penalty calculated on Form 760C.1Virginia Department of Taxation. Individual Estimated Tax Payments The threshold is low, but the state also provides two straightforward safe harbors that let most people avoid the penalty entirely.
A separate $150 rule applies to the penalty itself. Even if you were required to make estimated payments, no addition to tax is assessed when your total underpayment across all four quarters comes to $150 or less.1Virginia Department of Taxation. Individual Estimated Tax Payments
The Two Safe Harbors That Eliminate the Penalty
Virginia gives you two ways to prove your payments were enough. Meet either one and no penalty applies, no matter what your final balance turns out to be:
- Your total payments cover at least 90% of your current-year Virginia tax.
- Your total payments equal or exceed 100% of the total tax shown on last year’s Virginia return.
The required payment is whichever of these two amounts is smaller.2Virginia Department of Taxation. 2023 Form 760C – Underpayment of Virginia Estimated Tax by Individuals, Estates, and Trusts If your income is climbing, matching last year’s total tax is usually the easier target because you already know the number. If your income has dropped, 90% of the current, smaller liability will be less. You only have to hit the lower of the two.
The prior-year safe harbor is the most reliable option when your income is hard to predict. Pull last year’s Virginia return, find your total tax, divide by four, and pay that amount each quarter. Even if your income doubles by December, you will not owe an underpayment penalty.
Uneven Income and the Annualized Installment Method
If your income arrives in bursts rather than steady paychecks, dividing your annual tax into four equal installments can produce a penalty that does not reflect what you actually earned in each quarter. Someone whose biggest income month is November would look underpaid for the first three installments even though there was little tax to pay yet.
Virginia’s annualized income installment method solves this. Instead of four equal payments, the method calculates the tax on the income you actually earned through each quarterly cutoff. If your payments through each period cover 90% of the annualized tax for that period, no penalty applies to that installment.1Virginia Department of Taxation. Individual Estimated Tax Payments You claim the exception on Form 760C when you file your annual return.
Quarterly Due Dates
Virginia’s estimated payment schedule is not the same as the IRS calendar. The four installment deadlines are:
- May 1
- June 15
- September 15
- January 15 of the following year
If a due date falls on a weekend or legal holiday, it moves to the next business day.1Virginia Department of Taxation. Individual Estimated Tax Payments Payments have to be received by Virginia Tax on or before the deadline; a check postmarked on the due date but arriving later can still count as underpaid for that quarter. The first installment is submitted with your declaration of estimated tax on Form 760ES.3Virginia Code Commission. Virginia Code 58.1-490 – Declarations of Estimated Tax
How the Penalty Is Calculated
When your payments miss both safe harbors, the addition to tax is figured on Form 760C, “Underpayment of Virginia Estimated Tax by Individuals, Estates and Trusts.”4Virginia Department of Taxation. 2024 Instructions for Form 760C – Underpayment of Virginia Estimated Tax by Individuals, Estates and Trusts The form treats each quarter separately, so a penalty for one installment does not automatically mean a penalty for the others.
Form 760C divides your required annual payment by four to set the minimum for each installment, then measures the shortfall between what you paid and what was due for that quarter. The penalty runs on that shortfall from the installment due date until you pay it or the annual return due date arrives, whichever comes first.
The rate changes quarterly and follows federal interest rates. Virginia’s underpayment rate for the second quarter of 2026 is 8%.5Virginia Department of Taxation. Virginia Interest Rates Change for the 2nd Quarter of 2026 Because rates can shift every three months, the penalty on a May shortfall may accrue at a different rate than one from September. You attach the completed Form 760C to your Form 760, and the penalty is added to the balance owed.4Virginia Department of Taxation. 2024 Instructions for Form 760C – Underpayment of Virginia Estimated Tax by Individuals, Estates and Trusts
Requesting a Waiver
Virginia can waive the addition to tax under specific circumstances. For penalties of $2,000 or less, the Department of Taxation may forgive the amount when extenuating circumstances kept you from paying on time. Examples include a fire, a flood or natural disaster, or a serious illness requiring hospitalization near the due date.6Virginia Department of Taxation. Penalties and Interest for Individuals Ordinary oversight generally does not qualify.
A separate waiver tracks the federal approach for taxpayers who retired after reaching age 62 or became disabled during the tax year or the year before. If either applies and the underpayment resulted from reasonable cause rather than willful neglect, the penalty can be forgiven. Attach documentation of your retirement date and age, or the date of your disability, to your return.
To request a waiver, send a written explanation with supporting documents to Virginia Tax at P.O. Box 1115, Richmond, VA 23218-1115.6Virginia Department of Taxation. Penalties and Interest for Individuals For penalties above $2,000, the standard waiver is not available; the route in that case is an offer in compromise, which is a more involved process.
Disputing a Penalty You Received
Sometimes Virginia Tax runs the calculation itself and sends a notice of proposed assessment instead of waiting for a self-reported Form 760C. If the amount looks wrong, you have 30 days from the notice date to challenge it.7Virginia Department of Taxation. Pay a Bill (Notice of Assessment)
A phone call to Customer Service is often enough to clear up simple errors. If it isn’t, send a written dispute with your reasoning and supporting records, including your own Form 760C, tax returns, and proof of payments, to Customer Service, Contact Center, P.O. Box 1115, Richmond, VA 23218-1115, or to the address on the notice.7Virginia Department of Taxation. Pay a Bill (Notice of Assessment) Contacting the department within the 30-day window pauses collection while your dispute is reviewed.
Different Rules for Farmers, Fishermen, and Merchant Seamen
If at least two-thirds of your gross income comes from farming (including oyster farming), fishing, or work as a merchant seaman, a separate set of rules applies.3Virginia Code Commission. Virginia Code 58.1-490 – Declarations of Estimated Tax You can file a single declaration and pay the entire estimated tax by January 15 of the following year, and the current-year safe harbor drops from 90% to 66⅔%. If you file your annual return and pay the full tax by March 1, no addition to tax applies regardless of what you paid during the year.8Virginia Tax. 2025 Form 760F – Underpayment of Virginia Estimated Tax These filers use Form 760F rather than Form 760C.
Corporations
The rules above are for individuals, estates, and trusts. A corporation must file a declaration of estimated tax when its Virginia income tax liability after credits is expected to exceed $1,000 for the year, and corporate payments must be made electronically through the 500ES eForm or the online business account.9Virginia Department of Taxation. Corporation Income Tax