Virginia Tax Form 760PY - Part-Year Resident Individual Income Tax Return Instructions

WHAT’S NEW

Biodiesel Fuels Tax Credit. House Bill 139 passed by the 2008 General Assembly created an individual and corporate income tax credit for producers of biodiesel fuels during the fi rst three years of production. The credit is equal to $0.01 per gallon of biodiesel fuels produced; but the total credit for each taxpayer cannot exceed $5,000 annually and the credit cannot exceed the tax liability of the taxpayer. Any unused amounts may be carried forward for the next three taxable years; and taxpayers are also allowed to transfer unused but otherwise allowable credits for use by other taxpayers on Virginia income tax returns.

Livable Home Credit. 2007 House Bill 2498 and Senate Bill 791 expand the individual income tax credit for retrofi tting residences with accessibility features. The bills also renamed the credit the “Livable Home Tax Credit.” The expanded credit is applicable to those purchases that are designed to improve accessibility or visitability and meet eligibility guidelines established by the Department of Housing and Community Development. The credit may be for newly constructed residences in addition to retrofi tting existing residences. The amount of credits granted for any taxable year may not exceed $1 million with each taxpayer limited to a $500 credit for a taxable year. The Disabled Accessibility Features Tax Credit was previously offered to Virginians who retrofi t an existing residence with certain accessibility features but was not available to Virginians who purchased a new residence with such features.

Advancement of Virginia’s Fixed Date Conformity with the Internal Revenue Service. At the time these instructions went to print, Virginia’s fi xed date of conformity with the Internal Revenue Code was December 31, 2007. If you anticipate being required to make adjustments to your Virginia return as a result of changes made by the United States Congress to the Internal Revenue Code for the 2008 taxable year, you may wish to delay the fi ling of your Virginia tax return until action has been taken by the General Assembly to adjust the date of conformity.

Filing Threshold and Personal Exemption Amounts for Individual Income. 2007 House Bill 3022 and Senate Bill 778 increase the individual income tax fi ling thresholds for single individuals from $7,000 to $11,250 for 2008 and 2009, $11,650 for 2010 and 2011 and $11,950 for 2012 and beyond. The bills increase the fi ling threshold for married couples from $14,000 to $22,500 for 2008 and 2009, $23,300 for 2010 and 2011, and $23,900 for 2012 and beyond.

The bills also increase the personal exemption amount from $900 to $930 effective for taxable year 2008.

Withholding for Domestic Employees. Effective for taxable years beginning on or after January 1, 2009, employers of domestic (household) service employees may elect to file and pay the Virginia income tax withheld from their employees’ salaries on an annual basis at the same time they submit the employees’ Forms W-2 for the year. In order to qualify for the annual fi ling, an employer must have a total payroll in each calendar quarter that does not exceed $5,000, regardless of the number of persons providing the domestic service. The employment must consist exclusively of domestic service in the private home of the employer as defi ned in the Federal Employment Tax Regulations. The fi rst annual payment under the new fi ling status will be due on February 28, 2010. Visit our website at www.tax. virginia.gov for additional information.

GENERAL INFORMATION

ESTIMATED INCOME TAX FILING

If you did not have enough income tax withheld, you may need to pay estimated income tax. Generally, you are required to make payments of estimated income tax if your estimated Virginia tax liability exceeds your Virginia withholding and other tax credits by more than $150.

To make estimated tax payments, file Form 760ES or visit www. tax.virginia.gov.

If you owe a large amount of tax, you may need to increase the amount of tax withheld or make estimated tax payments during the year.

You may be penalized if you underpaid your estimated tax or did not have enough tax withheld.

CIVIL AND CRIMINAL PENALTIES

The civil penalty for filing a false or fraudulent return or for failing or refusing to file any return with intent to evade the tax, is an additional penalty of 100% of the correct tax.

Any individual who willfully fails or refuses to file a return, at the time or times required by law, shall be guilty of a Class 1 misdemeanor. In addition, an individual who makes any false statements on a return, with intent to defraud the Commonwealth, shall be guilty of a Class 6 felony.

AMENDED RETURN FILING

When to File

If you file an amended federal return reflecting a change in your taxable income or any other amount that would affect the Virginia return, you must file an amended Virginia tax return within one year. In addition, if you file an amended return with any other state that results in a change that would affect your Virginia income tax, you must file an amended Virginia tax return within one year.

If the change reduces the tax, the Department of Taxation by law may issue a refund only if the amended return is fi led within:

three years from the due date of the original return, including valid fi ling extensions;
one year from the final determination of the amended federal return or federal change, whichever is later, provided that the allowable refund is not more than the decrease in Virginia tax attributable to the federal change or correction;
one year from the final determination of the amended return of any other state or change or correction in the income tax of the taxpayer for any other state, provided that the taxpayer previously claimed a credit for such tax on his Virginia tax return and that the refund does not exceed the amount of the decrease in Virginia tax attributable to such change or correction;
two years from the filing of an amended Virginia return resulting in the payment of additional tax, provided that the current amended return raises issues relating solely to the prior amended return and that the refund does not exceed the amount of the tax payment made as a result of the prior amended return; or
two years from the payment of an assessment, provided the amended return raises issues relating only to the prior assessment and the refund does not exceed the amount of tax paid on the prior assessment.

Form 760PY

To amend Form 760PY, complete a new Form 760PY (for the tax year you are amending) using the corrected figures, as if it were the original return. Check the amended box on the top left of the return. Do not make any adjustments to the amended return to show that you received a refund or paid a balance due as a result of the original return.

Required Attachments

If you filed an amended federal return, attach a copy of your federal Form 1040X or other claim form and supporting material to your amended Virginia return to substantiate the amendment. If amending your Virginia return for other reasons, attach a statement to explain why you are amending your return. Show any computations necessary to verify the adjustments you are making. Staple your check or money order to the bottom left corner of your return if you owe a balance due. Also, staple to your return any additional Forms W-2, 1099 or VK-1 if claiming more income tax withheld than what was claimed on your original return.

Federal Adjustments

If your federal income tax return was adjusted by the Internal Revenue Service during the taxable year and the adjustment was not reported to the Virginia Department of Taxation, an amended Virginia return must be filed with a copy of the federal adjustments attached within one year after the final determination of such federal change, correction or renegotiation. See “When to File” earlier in this section for additional information.

Net Operating Losses

Although there is no express statutory provision for a separate Virginia net operating loss available for carryback or carryover, the amount of federal net operating loss is the starting point in computing the amount of deduction to be allowed on the Virginia return. Check the amended return box located on the front of Form 760PY, indicating that this is an amended return. Also, check the box indicating the return is the result of a net operating loss (NOL) carryback. Be sure to attach a complete copy of your federal amended return, if applicable.

General instructions for computing the NOL can be obtained from our website at www.policylibrary.tax.virginia.gov/OTP/policy. nsf. Go to the Virginia Tax Administrative Code section and select 23VAC10-110-80 and 23VAC10-110-81 located in Chapter 110, Individual Income Tax.

DECEASED TAXPAYERS

Use the following instructions to file properly and ensure the refund is addressed to the surviving spouse or personal representative.

Single filers: You must list the filer’s name and Social Security Number and check the box on Page 2 for Primary Taxpayer Deceased. Include a copy of the federal Form 1310 and/or the appropriate court appointment papers.

Joint filers: If one filer is deceased, names and Social Security Numbers of both filers must be listed. Check the box on Page 2 to indicate the deceased filer. Use the Primary Taxpayer Deceased box if the filer in the Your name and Social Security Number fields is deceased. Use the Spouse Deceased box if the filer in the Spouse name and Social Security Number fi elds is deceased.

If completing a return for joint filers with both fi lers deceased, the name and Social Security Number of each filer must be listed. Check the deceased box on Page 2. Include a copy of the federal Form 1310 and/or the appropriate court appointment papers.

RECORD KEEPING

Keep your tax records for at least three years from the due date of the return or the date the return was filed, whichever is later. If the Internal Revenue Service requires you to keep your federal records for a longer period of time, keep your state records for the same period of time.

FILING REQUIREMENTS

FILING THRESHOLD

Filing requirements are based on your residency status and the amount of your income. Dependents and students are subject to the same filing requirements as anyone else.

Residents of Virginia with income at or above the minimum filing threshold must file.
Nonresidents of Virginia with income at or above the filing threshold must file if any of their income is from Virginia sources.

For information on Virginia residency requirements, please read the next section, “Residency Status.”

If your Virginia Adjusted Gross Income (VAGI) is at or above the threshold amount shown in the following table, you are required to file. VAGI is the Adjusted Gross Income on your federal return plus any Virginia additions, minus any Virginia subtractions. Information on Virginia additions and subtractions is included in the instructions for Lines 33 - 45 of Form 760PY, later in this book.

For a part-year resident, if your income is only from wages, salaries and interest from a savings or checking account, your VAGI is usually the same as the Adjusted Gross Income shown on your federal return less the wages, salaries and interest earned while a nonresident of Virginia. Once you have computed your VAGI, check the chart below to see if you need to file a Virginia income tax return.

YOU DO NOT HAVE TO FILE IF YOU ARE:

Single and your VAGI is less than ...........$11,250

Married filing with your spouse
on the same return and your
combined VAGI is less than ....................$22,500

Married filing separately (on separate
forms) and your VAGI is less than ...........$11,250

If you are not required to file, but you had Virginia income tax withheld, you are entitled to a refund of the amount withheld. You must file a return to get a refund. We periodically review and update our records to make sure that we have correct return information. Sometimes, we have to contact taxpayers to confirm that they did not need to fi le for a given year. As a result, even if you do not need to file a return, you may receive an inquiry at a later date to verify your VAGI.

RESIDENCY STATUS

Residents

Every Virginia resident whose Virginia Adjusted Gross Income is at or above the minimum filing threshold must file. Any “federal area” such as a military or naval reservation, federal agency or federal administration that is inside the geographical boundaries of Virginia is considered a location in Virginia and nonactive duty residents of those areas are subject to Virginia income tax just like residents of any other location in the state. You may be required to file as a resident in two states if you are an actual resident of one state and a domiciliary resident of another state. (See definitions below.) If you are in this situation, you may be able to take a credit on the return filed in the state of your legal domicile. Refer to the instructions for Line 18(f) of Form 760PY for information on credit for tax paid to another state.

Domiciliary Residents

Anyone who maintains a legal domicile (residence) in Virginia, whether living in or out of Virginia, is a domiciliary resident. This includes members of the U.S. armed forces who have Virginia as their home of record. Domiciliary residents have their permanent place of residence in Virginia. Any person who has not abandoned his or her legal domicile in Virginia and established legal domicile in another state remains a domiciliary resident of Virginia, even if residing in another jurisdiction for a number of years. In determining domicile, we consider many factors. Some of the more common indicators of domicile are: voter registration; motor vehicle and personal property registration; business pursuits; expressed intent; conduct; leaseholds and sites of real property owned.

Actual Residents

Anyone, other than a member of the U.S. armed forces or the U.S. Congress, who maintains a place of abode (i.e., home) in Virginia for a total of more than 183 days of the taxable year while having legal domicile (residence) in another state or country is an actual resident of Virginia. This category often includes students who are domiciliary residents of another state while attending college in Virginia or the spouses and dependents of members of the U.S. armed forces stationed in Virginia. Although this residency classification does not apply to members of the U.S. Congress, it does apply to members of their families and staffs.

Part-Year Residents

You may be a part-year resident if your residency in Virginia began or ended during the taxable year. Residents who move into or out of Virginia during the taxable year and do not fall into either category below are generally considered full-year residents.

Virginia residents who move out of Virginia during the taxable year and become domiciliary residents of another state are part- year residents, provided they do not move back to Virginia for at least six months.
Those who move into Virginia during the taxable year and become either domiciliary or actual residents of Virginia are also considered part-year residents.

The distinction between full-year and part-year residents is important in deciding which form to file and what income is taxable in Virginia. To compute VAGI and determine if VAGI meets the minimum filing threshold, part-year residents who file Form 760PY are allowed a subtraction from federal adjusted gross income equal to the amount of income attributable to residence outside Virginia.

If you are a part-year resident and you do not file the correct form, you will not compute the correct amount of tax. See “WHICH FORM TO FILE” on Page 6.

Nonresidents

Nonresidents of Virginia with Virginia Adjusted Gross Income at or above the filing threshold must file if any of their income is from Virginia sources. Income from Virginia sources is income received from labor performed, business done, or property located in Virginia, including gains from sales, exchanges or other dispositions of real estate and intangible personal property having a situs in Virginia. Virginia source income includes income passed through from a partnership, S Corporation or limited liability company that does business in Virginia. It also includes business income and proceeds from real estate transactions passed through by a Virginia trust. It generally does not include personal savings account interest or dividends from an individual’s stock market investments.

Those who maintain legal domicile in another state and live in Virginia less than 183 days of the taxable year (or do not live in Virginia at all) are nonresidents. Also, members of the U.S. armed forces who have another state as their home of record (legal domicile) are generally classified as nonresidents of Virginia, even though they may be stationed in Virginia for years.

Members of the Armed Forces Active duty pay for members of the armed forces is taxable only in the state of legal domicile, regardless of where stationed. You must file as a nonresident if you are in the military, domiciled in another state and have any other income that is from Virginia sources.

The residency status and filing requirements for a spouse or a dependent of an armed forces member are not connected to those of the armed forces member. If you are a spouse or a dependent of an armed forces member who is stationed in Virginia, you must determine your own residency status and fi ling obligations.

Exceptions for Certain Nonresidents

If you are a nonresident of Virginia who commutes daily to work in Virginia from Kentucky or the District of Colum bia, you do not have to fi le if:

You have no actual place of abode in Virginia at any time during the year;
Salaries and wages are your only Virginia source income; and
Your salaries and wages are subject to income taxation by Kentucky or the District of Columbia.

If you are a nonresident of Virginia who is a resident of Maryland, Pennsylvania or West Virginia and you earn salaries and wages in Virginia, you are exempt from filing a Virginia income tax return and paying Virginia income tax if:

Your only income from sources in Virginia is from salaries and wages; and
Your salaries and wages are subject to income taxation by Maryland, Pennsylvania or West Virginia.

If you are a domiciliary resident of Kentucky, Mary land, Pennsylvania, West Virginia or the District of Co lumbia and have income from Virginia sources other than wages and salaries, (such as business income or gain from the sale of a residence), you must file a Virginia Nonresident Individual Income Tax Return, Form 763, and pay tax on income not specifically exempted above.

WHICH FORM TO FILE

Residents File Form 760

File Form 760 if you are a part-year resident and all of your income came from Virginia sources or was received while you were a Virginia resident. This will allow you to claim the full exemption and standard or itemized deduction instead of computing partial amounts as required for part-year residents filing Form 760PY.

Part-Year Residents File Form 760PY

As a general rule, part-year residents file Form 760PY. If one spouse is a full-year resident and the other is a part-year resident, the couple may file together on Form 760PY. The part-year resident spouse will compute a prorated exemption amount. The full-year resident spouse will claim the full exemption amount.

If you are a part-year resident who received Virginia source income, as well as other income, during the portion of the year you lived in another state, you need to file two Virginia returns for the taxable year. File Form 760PY to report the income attributable to your period of Virginia residency. File Form 763, the nonresident return, to report the Virginia source income received as a nonresident.

Nonresidents File Form 763

Generally, nonresidents with income from Virginia sources must file a Virginia return if their income is at or above the fi ling threshold. Nonresidents who earn salaries and wages in Virginia and pay tax on those salaries and wages to the District of Columbia, Kentucky, Maryland, Pennsylvania or West Virginia are not required to file if they meet the criteria described in the previous section under “Exceptions for Certain Nonresidents.” Residents of states other than those in “Exceptions for Certain Nonresidents” do not qualify for a fi ling exception.

Usually, when one spouse is a resident and the other spouse is a nonresident, each spouse whose income is at or above the filing threshold must file separately. The resident must file on Form 760. The nonresident spouse must file Form 763. There are only two circumstances in which such a couple can file jointly on the same return. If both spouses have income and all of the nonresident’s income is Virginia source income, a joint resident return (Form 760) may be filed. Also, if the nonresident spouse has no income at all, a joint resident return may be filed.

Members of the Armed Forces

Use Form 763 if you are in the military, domiciled in another state and have any other income that is from Virginia sources. The filing requirements for a spouse or a dependent are not connected to those of the armed forces member. Examples follow.

If a married couple lives in Virginia the entire year, but is domiciled in Alabama, and has nonmilitary income from Virginia sources that is attributable to both spouses, the spouse on active duty will file Form 763, using Filing Status 4, while the nonmilitary spouse will file Form 760 using Filing Status 3. Generally, the state of domicile will allow credit for tax paid to Virginia on the earned income that is taxed in both states. If the nonmilitary spouse lived in Virginia less than 183 days of the taxable year, the couple will fi le Form 763 using Filing Status 2.

If the nonmilitary spouse’s domicile changed to Virginia during the year, Form 760PY will be filed, using Filing Status 3, to pay tax on income earned after becoming a Virginia resident. Any income received from Virginia sources before becoming a Virginia resident will be reported on Form 763.

Other Frequently Used Virginia Forms

To order, see Page 3.

Schedule NPY - Required for:

age deduction
deductions from Virginia Adjusted Gross Income
credit for low income individuals or Virginia Earned Income Credit
credit for tax paid to another state
addition to tax, penalty and interest
contributions and consumer’s use tax 6

Schedule CR Required to claim most tax credits. For some Schedule CR credits other forms are required.

Form 760C Required to compute the Addition to Tax for individuals, estates and trusts

Form 760F Required to compute the Addition to Tax for farmers, fishermen and merchant seamen

Form 760IP Extension Payment

Form CU-7 Consumer’s Use Tax Return

Form 760ES Estimated Tax Payment Vouchers (filed quarterly)

WHEN TO FILE

Calendar Year Filers - May 1, 2009 File by May 1, 2009, if you are a calendar year filer.

Fiscal Year Filers If your taxable year is not January 1 through December 31, your return must be postmarked by the 15th day of the fourth month following the close of your fi scal year.

When filing, you should write “FISCALYEAR FILER” across the top of Page 1 of Form 760PY and attach a statement indicating the beginning and ending months of your 12-month fiscal year. If you file after the due date or do not pay the full amount due by the due date, you may have to pay penalties and interest.

When filing by mail, the envelope must be postmarked by the due date. Put the correct postage on your envelope. If your return is sent back to you because of insufficient postage, you are liable for the penalties and interest if the postmark on the remailed return is after the due date.

If the due date falls on a Saturday, Sunday or legal holiday, you may file your return on the next day that is not a Saturday, Sunday or legal holiday.

Overseas Rule

If you are living or traveling outside the United States or Puerto Rico (including serving in the military or naval service), you must file your return by July 1, 2009. Be sure to check the appropriate box to the left of the name and address section.

Members of the Military - Members of the Armed Forces serving in a combat zone receive either the same individual income tax filing and payment extensions as those granted to them by the IRS, plus an additional fifteen days, or a one-year extension, whichever date is later. All extensions also apply to spouses of military personnel. Service families may wish, however, to file their individual income tax returns before the extended deadlines to receive refunds. Service members who claim this extension should write “Combat Zone” on the top of tax returns, as well as any notice issued by the Virginia Department of Taxation to combat zone personnel regarding tax collection or examination, and on the outside of the return envelopes used to mail the return. More information can be obtained from Tax Bulletin 05-5 on the website at www.policylibrary.tax.virginia. gov/OTP/policy.nsf. Go to the Tax Bulletin section and select VTB 05-5 (PD 05-67) from the list of 2005 tax bulletins.

In addition, every member of the armed services deployed outside of the United States is allowed an extension of his or her due date. The extension will expire 90 days following the completion of deployment. Service members who claim this extension should write “Overseas Noncombat” on the top of their tax returns.

Extension Requests

Virginia law provides an automatic six-month fi ling extension for income tax returns. No application for extension is required. The extension is for filing the return, not for payment of the tax; therefore, you must pay at least 90 percent of your tax by the due date, May 1 for calendar year filers. To make a payment of tentative tax, use Form 760IP.

If you file your return within six months after the due date but do not meet the 90 percent payment requirement, an extension penalty of two percent per month will apply to the balance of tax due with your return from the due date through the date of payment, to a maximum of 12 percent of the tax due. Interest will also be accrued on any balance of tax due with a return filed within the extension period, regardless of whether the 90 percent payment requirement is met.

If you file your return within six months after the due date but do not pay the tax due at the time of filing, the unpaid balance will be subject to a late payment penalty of six percent per month from the date of filing through the date of filing, to a maximum of 30 percent. The late payment penalty will be assessed in addition to any extension penalty that may apply. The automatic extension provisions apply only to returns that are filed within six months from the due date. If you file your return more than six months after the due date, a late filing penalty of 30 percent will apply to the balance of tax due with your return.

Refund Returns

You do not need to file Form 760IP if you cannot file by the due date and you are certain that your return will result in a refund. This is because the late filing penalty is not assessed on refund returns. To receive a refund, however, you must file within three years of the due date.

Foreign Income Exclusion

If you qualify for the federal foreign income exclusion and have requested an extension of time for filing your federal return, you may apply for an extension of time to file your state return. You will be granted an extension for thirty days after the date you expect to qualify for the exclusion. You must apply by letter on or before the first day of the seventh month following the close of your taxable year and attach a copy of the approved federal extension to your return when you file.

WHERE TO FILE

Tofile by mail, use the mailing address listed on the back cover of this book for the city or county where you live or last lived while a resident of Virginia. Local phone numbers are also provided. Most part-year returns can also be fi led electronically.

BALANCE DUE RETURNS

You can pay by check or by credit card. Make your check payable to the Treasurer of the city or county in which you reside. Make sure your social security number is on your check and make a notation that it is your 2008 income tax payment.

To pay by credit card, call 1-800-272-9829 (1 800 2 PAY TAX), or visit www.officialpayments.com. The jurisdiction code for Virginia is 1080. If you choose this option, fill in the box on Line 26 of Form 760PY, indicating this type of payment. You will be assessed a fee by the company processing the transaction.

If you have already filed your return with your Commissioner of the Revenue and did not indicate you were paying by credit card, call your Local Commissioner of the Revenue’s office for the correct jurisdiction code prior to initiating your credit card payment. Phone numbers are listed on the inside back cover.

DEBT COLLECTION ACT

Before issuing any refunds, Virginia law requires us to check for any outstanding debt with agencies of the Commonwealth of Virginia, Virginia local governments and the Virginia court system. If any such debt is found, regardless of the type of tax return filed, all or part of your refund may be withheld to help satisfy the debt and processing of your return will be delayed.

AVOID COMMON MISTAKES

Sign your return.
Make sure your name, address and social security number(s) are correct.
Check all math.
If you itemized deductions, make sure you complete Line 11(b) and Lines 47(a) - (c) on Form 760PY.
Put the correct postage on your envelope. If your return is sent back to you because of insufficient postage, you are liable for the penalties and interest if the postmark on the remailed return is after the due date.
File your original return. Do not file a photocopy.

HOW TO ASSEMBLE YOUR RETURN

If you completed any of the forms shown below, you must attach copies to your Virginia return. Place these forms behind your Virginia return in the following order and staple them together at the location labeled “STAPLE” on the top, center on the front of your Virginia return.

If filing both Form 760PY and Form 763, attach Form 763 behind Form 760PY so that the title of Form 763 can be seen over the top of the title of Form 760PY. Attach a statement over the Form W-2 on Form 760PY stating that “Form 763 is attached behind Form 760PY.”
Virginia Forms
- - Schedule NPY
- - Schedule CR
- - Form 760C or Form 760F
- - Form 760IP
- - Forms 301, 304, 306 or 307
- - Any additional documentation as required
Federal Forms
- - Complete copy of your federal income tax return
If claiming credit for income tax paid to another state on Schedule NPY, attach a complete copy of the state tax return fi led with the other state.

Withholding Forms Be sure to include W-2, 1099 and VK-1 forms that indicate the same amount of Virginia income tax withheld as the amount you claim on your return. Staple these to the center of the left margin on front of your return.

Payments Staple check to the lower left side of your return. If paying by credit card, please check the box on Line 26 of Form 760PY.

COMPUTE YOUR LOWEST TAX

(Tip for Married Taxpayers) Since Virginia’s individual income tax is imposed at graduated rates, a couple with income attributable to each spouse may find that by using Filing Status 2 (filing a joint return), their joint income

is taxed at a higher rate than their separate taxable incomes would be. Filing Status 4 (married filing a combined return), is designed to adjust for this difference. When using Filing Status 4, tax is computed on each spouse’s separate taxable income and then the two amounts of tax are added together to arrive at their total tax. As a general rule, when both you and your spouse have income, Filing Status 4 will enable you to obtain the lowest combined tax provided you assign deductions and dependents to each spouse so that the taxable income in each column on Form 760PY is as close to equal as possible.

If only one spouse has income or if one spouse’s income would be reduced to zero (or less) after claiming personal exemptions and the subtractions on Lines 37 - 45, of Form 760PY, use Filing Status 2 instead.

FORM 760PY LINE INSTRUCTIONS PAGE 1

NAME, ADDRESS AND SOCIAL SECURITY NUMBER (SSN) Name

Enter your complete name (including middle initial) and mailing address in the boxes provided. If filing a joint return, Filing Status 2 or 4, enter the complete name of your spouse. If you are married filing separate returns (Filing Status 3), DO NOT enter your spouse’s name in the spouse name boxes. Instead enter your spouse’s name on the Filing Status 3 line below the address box.

Deceased Taxpayers:Single filers: You must list the filer’s name and Social Security Number and check the box on Page 2 for Primary Taxpayer Deceased. Include a copy of the federal Form 1310, and/or the appropriate court appointment papers.

Joint filers: If one filer is deceased each filer’s name and Social Security Number must be listed. Check the box on Page 2 to indicate the deceased filer. Use the Primary Taxpayer Deceased box if the filer in the Your name and Social Security Number fields is deceased. Use the Spouse Deceased box if the fi ler in the Spouse name and Social Security Number fields is deceased.

If completing a return for joint filers with both filers deceased, list the name and Social Security number of each filers. Check both deceased boxes on Page 2. Include a copy of the federal Form 1310 and/or the appropriate court appointment papers.

Address Enter your street address. Do not enter a P. O. Box address unless mail is not delivered to your street address.

Social Security Number (SSN) Be sure your Social Security Number is entered correctly. The Social Security Number entered in the “B: Your Social Security Number” box must be the number of the person whose name is shown first on the return.

Earned Income Credit Claimed on Federal Return If you claimed Earned Income Credit on your 2008 federal return, check here and enter the amount claimed.

City or County Where You Were a Resident Enter the name of the city or county in Virginia where you lived on January 1, 2009, and check the city or county box, as appropriate. Also, enter the three digit Locality Code found on the back cover.

If you lived in more than one Virginia city or county or if you did not live in Virginia on January 1, 2009, enter the name of the city or county in Virginia in which you last lived. This is not always the same as the city or county of your mailing address.

Privacy Act: The Privacy Act of 1974 requires any federal, state or local government agency that requests individuals to disclose their Social Security Numbers to inform those individuals whether the disclosure is mandatory or voluntary, by what statutory or other authority the number is requested and how it will be used. The following information is provided to comply with these requirements.

Disclosure of the Social Security Number is mandatory pursuant to these instructions, which are promulgated under the authority of Section 58.1-209 of the Code of Virginia. The Social Security Number is used as a means of identification for the fi ling and retrieval of income tax returns and is also used to verify the identity of individuals for income tax refund purposes.

CHECK BOXES

To the left of the name and address section, there are several check boxes. Please check all boxes that apply.

Amended Return Check this box if this is an amended return. For more information, please refer to the “Amended Return” section of these instructions. Also check the box if the reason for amending your return is the result of a net operating loss (NOL). For more information, please refer to the “Net Operating Loss” section of these instructions.
Fixed Date Conformity Modifications Check this box if your return has an addition or subtraction due to Fixed Date Conformity.
Qualifying Farmer, Fisherman or Merchant Seaman Check this box if you are a self-employed farmer, fisherman or merchant seaman and at least two-thirds of your gross income is from those employments. This information is used to identify farmers, fishermen and merchant seamen subject to special rules for paying estimated tax. See “Addition To Tax For Underpayment Of Tax” section of these instructions for details.
Overseas on Due Date Check this box if you were living or traveling outside the United States or Puerto Rico (including serving in the military or naval service), on May 1, 2009. You must file your return by July 1, 2009.
Coalfield Employment Enhancement Tax Check this box if you earned Coalfield Employment Enhancement Tax Credit.
Pass-Through Withholding Check this box if pass-through withholding is included on Line 18a or Line 18b. Attach Form(s) VK-1.
Dates of Residence -Enter the dates you, and your spouse if filing a joint return, lived in Virginia during 2008.

FILING STATUS

Check the box beside your filing status

Line 1 - Single (Filing Status 1)

Use this filing status if you claimed one of the following federal filing statuses on your federal return: Single, Head of Household, or Qualifying Widow(er). If you claimed the Head of Household filing status on your federal return, check the “Single” filing status box and the “Head of Household” box on Line 1.

Line 2 - Married, Filing Joint Return(Filing Status 2)

You and your spouse may choose to file a joint return if (a) you computed your federal income tax liabilities together on a joint federal return, or (b) neither you nor your spouse was required to file a federal return. You may claim this filing status even if your spouse has no income. When filing a joint return, your spouse’s exemption is included in the “Yourself” column. Do not claim your spouse as a dependent.

TIP: If both spouses have income, filing a combined return (Filing Status 4) may result in a lower balance due or a greater refund than a joint return (Filing Status 2).

Line 3 - Married, Filing Separate Return(Filing Status 3)

If you and your spouse filed separate federal returns, you can file separate state tax returns or you can choose to file a combined return (Filing Status 4). Generally, if you filed a joint federal return and only one spouse is a Virginia res ident, the Virginia resident must file a separate Virginia return. When you file separate returns in Virginia, you must report your federal adjusted gross income, exemptions and deductions on your Virginia return as if you had filed sepa rate federal returns. Federal rules must be applied to determine the exemptions and itemized deductions allowed when filing separate returns. If one spouse claims itemized deductions, the other spouse must also.

If the number of dependent exemptions or the amount of itemized deductions can not be accounted for separately, they must be proportionately allocated between each spouse based on each spouse’s income.

Also enter your spouse’s Social Security Number in the name and address section of the return and enter your spouse’s name on the line provided in the Filing Status section.

Line 4 - Married, Filing Separately on ThisCombined Return (Filing Status 4)

You can use this filing status if both you and your spouse had income, regard less of whether you filed jointly or separately for federal pur poses. When both spouses have income, this filing status usually enables a couple to compute a lower tax than filing a joint return (Filing Status 2). If you choose Filing Status 4, you are jointly and severally liable for the amount of tax due and any refunds will be made jointly payable.

Since Virginia’s income tax is imposed at graduated rates, a couple with income attributable to each spouse may find that by using Filing Status 2, their joint income is taxed at a higher rate than their separate incomes would be. Filing Status 4 is designed to adjust for this difference. Filing Status 4 allows a couple to compute a combined tax by reporting income for each spouse separately and then allocating dependent exemptions and deductions as mutually agreed. Tax is computed on each spouse’s separate taxable income and then the two amounts of tax are added together to determine their total tax.

TIP: Use Filing Status 2 instead of Filing Status 4 if only one spouse had income or if one spouse’s income would be reduced to zero or less after claiming personal exemptions and the subtractions on Lines 37 - 44 of Form 760PY.

When using Filing Status 4, each spouse must claim his or her own income, personal exemptions and, if allowable, any additional exemption for age or blindness. The number of dependent exemp tions may be allocated between spouses as you mu tually agree. Each spouse has a separate exemption line.

EXEMPTIONS

Section 1 -Enter the number of exemptions you are allowed in the appropriate boxes next to your filing status. If filing a joint return (Filing Status 2), enter the number for both spouses combined. The first exemption box on the form has been completed for you.

Dependents Generally, you may claim the same number of dependent exemptions allowed on your federal return. If using Filing Status 3 or 4, see the Filing Status instructions in the previous section for the rules on claiming dependents. You may never claim less than a whole exemption. The same dependent may not be claimed on separate returns.

Multiply the total exemptions claimed in Section 1 by $930 and enter the result in the “Total Section 1” box.

Section 2 -65 or Over To qualify for the additional personal exemption for age 65 or older, you must have been age 65 or over on or before January 1, 2009.

Blind- To qualify for the additional personal exemption for the blind, you must have been considered blind for federal income tax purposes.

Multiply the total exemptions claimed in Section 2 by $800 and enter the result in the “Total Section 2” box.

Add the dollar amount from Section 1 to the dollar amount from Section 2. Use the sum when computing the prorated exemption amount on Line 12.

Line 5 - Dependent on Another’s Return

Check the box if you can be claimed as a dependent on someone else’s return. If you check this box and claim the Virginia standard deduction on Line 11(a), see “Exception: Dependent’s Limited Standard Deduction” following the Line 46(e) instructions. Your standard deduction may be limited.

HOW TO ENTER NUMBERS

Use the Correct Column: Enter numbers in Column B if you are using Filing Status 1, 2 or 3. Enter numbers in Columns A and B only if you are using Filing Status 4. When using Filing Status 4, make sure the information in Column B applies to the name and social security number listed first on the return. Column A is for your spouse.

Round to Whole Dollars: To improve accuracy of return preparation and speed the processing of your return, all amount entries on your return must be rounded to the nearest dollar. Amounts of 1 cent to 50 cents are to be rounded down while all amounts 51 cents to 99 cents are to be rounded up.

Negative Numbers: Enter negative numbers (numbers less than 0) in brackets. For example, if your federal adjusted gross income was negative 12,000, enter this as [12,000].

Line 6 - Adjusted Gross Income

Part I on back of Form 760PY must be completed before you make an entry on Line 6. Complete Lines 28 through 32, then enter the total amount of federal adjusted gross income on Line 6 as follows.

The instructions for Part I are on Page 13.

Filing Status 1, 2 or 3 Enter the amount from Line 32, Column B1, on Line 6, Column B.

Filing Status 4 Enter the amount from Line 32, Column A1, on Line 6, Column A, and enter the amount from Line 32, Column B1, on Line 6, Column B. When using Filing Status 4, the total of Column A and Column B on Line 6 must equal the total federal adjusted gross income on your federal return.

Line 7 - Additions

Complete Part II on back of Form 760PY, Lines 33 through 36, and enter the amount from Line 36. The instructions for Part II begin on Page 13.

Line 9 - Subtractions

Complete Part III on back of Form 760PY, Lines 37 through 45, and enter the amount from Line 45. The instructions for Part III begin on Page 14.

Line 10 - Virginia Adjusted Gross Income

Deduct Line 9 from Line 8 and enter the result. If the amount on Line 10 is less than the amount shown below for

your filing status, your Virginia income tax is $0.00 and you are entitled to a refund of any withholding or estimated tax paid. To claim a refund in these cases:

Skip to Line 17 and enter “0.00” as your tax, then
Complete Lines 18 - 27.

Filing Status	Filing Threshold
1. Single	$11,250
2. Married, fi ling jointly	$22,500
3. Married, fi ling separately	$11,250
4. Married, filing combined return*	$22,500
* When filing a combined return, compare the threshold to the total of Columns A and B, Line 10.

Deductions

TIP: Claiming Deductions When Filing a Combined Return: If you are filing a combined return (Filing Status 4), you can allocate deductions and dependents between spouses as you choose. As a general rule, you can lower your combined tax by assigning deductions and dependents to each spouse so that the taxable incomes in Columns A and B are as close to equal as possible. The deductions and dependents which can be allocated are on Lines 11(a) or 11(b), 12 and 13.

Line 11 - Standard or Itemized Deductions

Complete Part IV or Part V on back of Form 760PY, whichever is appropriate. You must claim the same type of deductions (standard or itemized) on the Virginia return as claimed on your federal return.

TIP: If a joint federal return was filed and you are fi ling separate returns in Virginia (Filing Status 3) and claiming itemized deductions, itemized deductions that cannot be accounted for separately must be allocated proportionately between spouses based on each spouse’s share of the federal adjusted gross income.

Line 11(a) - Standard Deductions: Enter the allowable Virginia standard deductions computed on Part IV, Line 46(e);

Line 11(b) - Itemized Deductions: Enter the allowable Virginia itemized deductions amount from Part V, Line 47(c).

Line 12 - Exemption Amount

The total exemption amount is the number of exemptions claimed prorated based on the portion of the year you resided in Virginia (see Ratio Schedule on Page 30). Complete the Prorated Exemption Worksheet below to compute your allowable personal and dependent exemptions.

TIP:If using Filing Status 4, each spouse must compute his or her own prorated personal exemptions based on the number of exemptions claimed on Line 4. Use the separate exemption amounts for “yourself” and your “spouse” when completing Lines A, B and C of the following worksheet.

Prorated Exemptions Worksheet

	Col. A Spouse	Col. B Yourself
A. Enter the Exemption Amount for your filing status from Form 760PY, Lines 1 - 4	_________	_________
B. Enter the ratio amount from the Personal Exemption Ratio Schedule on Page 30 of these instructions	_________	_________
C. Multiply Line A by Line B and enter the result in the appropriate column on Form 760PY, Line 12	_________	_________

The prorated exemptions worksheet above is used to reduce your personal and dependent exemptions to an amount which is proportional to the number of days you resided in Virginia during the taxable year. For example, if you are single, claim no dependents and moved to Virginia on July 1, your prorated Virginia personal exemption is computed as follows:

Prorated Virginia Personal Exemption

$930	(One personal exemption)
X .504	(Ratio Schedule factor for July 1 move to Virginia)
$468.72	(Be sure to round to $469.00)

Exception

If 100% of your federal adjusted gross income was earned while you were a Virginia resident, you do not have to prorate your personal exemptions. If you are married, each spouse’s personal exemption is prorated separately based on that spouse’s period of residence in Virginia. However, if 100% of either spouse’s income is from Virginia sources, that spouse’s personal exemption does not have to be prorated.

If you moved into and out of Virginia during the year (or vice versa), base the proration on the total number of days that you were a Virginia resident.

When using Filing Status 3, if the number of exemptions cannot be accounted for separately, they must be proportionately allocated between each spouse based upon each spouse’s income.

Line 13 - Deductions

If you reported any deductions on Virginia Schedule NPY, enter the total amount from Part II, Line 2 of Schedule NPY.

Line 16 - Income Tax

If Line 15 exceeds the amount listed in the tax table included in these instructions, compute the tax from the tax rate schedule.

Line 17 - Total Tax

Add Column A and Column B, Line 16, and enter the result.

Line 18(a) - YOUR Virginia Income Tax Withheld

Enter the amount of Virginia income tax withheld for the person whose Social Security Number is in the “B: Your Social SecurityNumber” box in the name and address section on Form 760PY. If you are using Filing Status 4, this must be the person whose income is reported in Column B.

Line 18(b) - SPOUSE’S Virginia Income Tax Withheld

Enter the amount of Virginia income tax withheld for the person whose Social Security Number is in the “A: Spouse’s Social Security Number” box in the name and address section on Form 760PY. If you are using Filing Status 4, this must be the person whose income is reported in Column A. If filing a separate return (Filing Status 3), do not enter your spouse’s withholding.

Line 18(c) - Combined 2008 Estimated Tax Payments

Enter your total 2008 estimated Virginia income tax payments. If using Filing Status 2 or 4, enter the total payments made by you and your spouse, even if the payments were made using separate Form 760ES vouchers. Remember to include any estimated income tax carryover from your 2007 individual income tax return.

Line 18(d) - Combined Extension Payments

Enter the total tentative tax paid with Form 760IP, if applicable.

Line 18(e) - Credit For Low Income Individuals orVirginia Earned Income Credit

If your total family income does not exceed the federal poverty guidelines or you claimed the federal earned income credit, you may be eligible to claim this credit for low income individuals or the Virginia Earned Income Credit.

These credits may not be claimed if you, your spouse, or any dependent claims any of the following:

Virginia National Guard Subtraction
Military pay subtraction (fi rst $15,000)
Subtraction for first $15,000 for state and federal employees whose annual salary is $15,000 or less
Exemption for blind taxpayers or taxpayers age 65 and over
Age Deduction

If you are eligible, calculate these credits by completing Schedule NPY, Part III. After you have completed Part III, enter on Line 18(e) the credit amount from Schedule NPY, Part III, Line 10. See instructions for Schedule NPY starting on Page 19.

Line 18(f) - Credit for Tax Paid to Another State

Generally, Virginia will allow taxpayers filing resident individual income tax returns to claim credit for income tax paid as a nonresident to another state on earned or business income derived from sources outside Virginia or any gain (if included in federal adjusted gross income) on the sale of a capital asset outside Virginia, provided the income is taxed by Virginia as well as the other state.

If you are eligible, calculate the credit by completing Schedule NPY, Part IV. After you have completed Part IV, enter on Line 18(f) the credit amount from Schedule NPY, Part IV, Line 8. See instructions for Schedule NPY starting on Page 19.

Line 18(g) - Credits From Schedule CR

Complete Schedule CR and attach it to your return to claim the following tax credits. For some credits, other Virginia forms are also required. To order Schedule CR, Schedule CR Instructions and these other credit forms, see Page 3.

If you are only claiming a Political Contributions Credit, enter the amount of the credit and check the box. You do not need to attach Schedule CR. The Political Contributions Credit is available to individuals who make contributions to candidates for state or local political office. The credit is 50 percent of the amount of the contribution, subject to a $25 limit for individuals and a $50 limit for married taxpayers filing jointly and cannot exceed your tax liability.

TIP: For details on these credits and information on carryover and pass-through provisions, refer to Schedule CR, Schedule CR instructions and the organizations or forms specified.

The following table lists all the credits that can be claimed against individual income tax. For more information, call Tele-Tax at 804367- 2486. Or you can visit www.tax.virginia.gov.

Trust Benefi ciary Accumulation Distribution
Enterprise Zone Act
Neighborhood Assistance Act
Recyclable Materials Processing Equipment
Conservation Tillage Equipment
Fertilizer and Pesticide Application Equipment
Rent Reduction Program
Vehicle Emissions Testing Equipment and Clean-Fuel Vehicle
Major Business Facility
Foreign Source Retirement Income
Historic Rehabilitation
Day-Care Facility Investment
Low-Income Housing
Agricultural Best Management Practices
Qualified Equity and Subordinated Debt Investments
Worker Retraining
Waste Motor Oil Burning Equipment
Purchase of Long-Term Care Insurance
Biodiesel Fuels
Livable Home (formerly Home Accessibility Features for the Disabled)
Riparian Waterway Buffer
Land Preservation
Political Contributions
Coalfield Employment Enhancement
Virginia Coal Employment and Production Incentive

Line 20 - Income Tax You Owe

If Line 17 is larger than Line 19, enter the difference and skip to Line 22.

Line 21 - Overpayment Amount

If Line 19 is larger than Line 17, enter the difference.

Line 22 - Addition to Tax, Penalty and Interest

If you owe penalty and/or interest in addition to your tax, you can either calculate it using Schedule NPY, Part V, or leave Line 22 blank.

If you complete Schedule NPY, enter on Line 22 the amount from Schedule NPY, Part V, Line 4.

TIP: If you leave Line 22 blank, the Department will compute the addition to tax, penalty and interest for you and then send you a bill. If your income varied during the year, however, you may be entitled to a lower addition to tax than what the Department would automatically compute. In such cases, you should complete Form 760C to show when the income was received and what the addition to tax should be.

Attach Form 760C or Form 760F (for Farmers, Fishermen or Merchant Seamen) if you computed the addition to tax and/or if you are claiming one of the exceptions that voids the addition to tax.

Line 23 - Credit to Estimated Tax

Enter the amount of net overpayment from Line 21 to be credited to 2009 estimated tax in the respective columns. Desig nate overpayment credit to Column A, spouse, if using Filing Status 2 or 4 or Column B, you (as you mutually agree). NOTE: If you are filing a joint or combined return with a deceased spouse AND you are entitled to claim the overpayment, enter the overpayment in your column. The total amount of overpayment on Line 23 may not exceed your overpayment (Line 21) minus any addition to tax, penalty and interest (Line 22).

Line 24 - Contributions and Consumer’s Use Tax

Enter the amount from Schedule NPY, Part VI, Line 7.

Line 26 - Amount You Owe

If You Owe Tax on Line 20, add Line 20 and Line 25.

—OR—

If Line 21 is an OVERPAYMENT and Line 25 is LARGER THAN Line 21, deduct Line 21 from Line 25.

This is the amount you owe. The amount you owe must be paid in full at the time of filing your return.

Payment Options

Check If you file your return locally, make your check payable to the Treasurer or Director of Finance of the city or county in which you reside; otherwise, make your check payable to the Department of Taxation. See the inside back cover for a listing of localities. Make sure your Social Security Number is on your check and make a notation that it is your 2008 Virginia income tax payment. Staple your check to the return.

Credit Card Call 1-800-272-9829 or visit www.officialpayments.com to pay by credit card. If you choose this option, check the box on Line 26 indicating this type of payment.

The company processing the transaction will assess an additional fee. Prior to payment, you will be informed of the fee and will have the option to cancel the transaction at that time with no charge.

Line 27 - Amount to Be Refunded to You

If Line 21 is larger than Line 25, deduct Line 25 from Line 21 and enter the amount to be refunded.

Sign Your Return The signature block on Form 760PY is on the bottom of Page 2. You have not filed a complete or legal return unless you sign it. A joint or combined return must be signed by both you and your spouse.

If the primary taxpayer and/or spouse died during the tax year, check the appropriate box.

If you would like to give the Department of Taxation authorization to discuss your return information with your preparer, check the box above the declaration line.

Telephone Numbers The telephone number blocks on Form 760PY are to the right of the signature lines on the back of the form. Phone numbers are requested so we can call you if we have a question about your return.

Tax Preparer Information If you paid someone to prepare your return, the preparer should provide contact information in the spaces provided.

FORM 760PY LINE INSTRUCTIONS PAGE 2

PART I - SCHEDULE OF INCOME AND ADJUSTMENTS

Your return will not be accepted as complete unless this schedule is completed. The purpose of the Schedule of Income and Adjustments is to allocate the items that constitute federal adjusted gross income between Virginia and another state. Column 1, Lines 28 - 32, is an abridged version of federal Form 1040, 1040A or 1040EZ. Use Lines 28(a) - 28(c) to report all income. Use Line 30 to report all moving expenses included as adjustments to total income on the federal return. Use Line 31 to report all other adjustments to total income on the federal return. The sum of Line 32, Columns A1 and B1 must equal the federal adjusted gross income on your federal Form 1040, 1040A or 1040EZ. Base the allocation on where you were a resident when you received the income or paid the expense. NOTE: If claiming Filing Status 4, complete both the “A” and “B” sections of the schedule. For all other fi ling statuses, complete only the “B” section. References to Column 1, 2 or 3 mean Column A1, A2 or A3 (or B1, B2 or B3), as appropriate.

Line 28 - Income

Enter in Column 1 the total amount of wages as shown on federal Form 1040, 1040A or 1040EZ. In Column 2, enter the portion of wages attributable to your period of residence in Virginia. Enter the balance in Column 3.
Enter in Column 1 the total amount of interest and dividends as shown on federal Form 1040, 1040A or 1040EZ. In Column 2, enter the portion of interest and dividends attributable to your period of residence in Virginia. Enter the balance in Column 3.
Enter in Column 1 the net amount of other income as shown on federal Form 1040 or 1040A. This includes, but is not limited to, refunds of state and local income taxes, alimony received, business income, taxable pensions and capital or other gains and losses. In Column 2, enter the portion of other income attributable to your period of residence in Virginia. Enter the balance in Column 3.

Line 29 -Gross Income

Add Lines 28(a), 28(b) and 28(c) and enter the total here.

Line 30 - Adjustments to Income: Moving Expenses

Enter in Column 1 the total moving expenses claimed as an adjustment to income on federal Form 1040. If you moved to Virginia, claim the moving expenses in Column A2 and/or B2 as an expense to Virginia income. If you moved outside of Virginia, claim the moving expenses in Column A3 and/or B3. Moving expenses are considered an expense to the income from the state to which you move.

Line 31 - Other Adjustments to Income

Enter in Column 1 all adjustments to income as shown on federal Form 1040 or 1040A other than the moving expenses included on Line 30. This includes, but is not limited to, reimbursed employee business expenses, payments to an IRA and alimony paid. In Column 2, enter the portion of these adjustments that is attributable to your period of residence in Virginia. Enter in Column 3 the balance of these adjustments.

Line 32 - Adjusted Gross Income

Deduct the total of Line 30 and Line 31 from Line 29 and enter the balance here. The total of Column 1 must equal your federal adjusted gross income on your federal return. If using Filing Status 4, the total of Columns A1 and B1 must equal your federal adjusted gross income on federal Form 1040, 1040A or 1040EZ.

Enter the totals of Columns A1 and B1 on Line 6, Form 760PY (front). If the Schedule of Income and Adjustments is properly completed, the sum of Columns 2 and 3 will equal your federal adjusted gross income as shown in Column 1.

Enter the total of Line 32(b), Column 3, on Line 40. If you are using Filing Status 4, enter the amounts from both Columns A3 and B3 in the respective Columns on Line 40.

Line 32(a) - Net Fixed Date ConformityModifications

Complete Form 760PY, Lines 33 and 37, enter the net amount on Line 32(a), Column 1. In Column 2, enter the portion attributable to your period of residence in Virginia. Enter the balance in Column 3.

Line 32(b) -Fixed Date Conformity FAGI

Combine Line 32 and Line 32(a) and enter the result. Enter the total of Line 32(b), Column 3, on Line 40. Note: If you are claiming the standard deductions on your return, the total of Line 32(b), Columns A2 and B2, must be entered on Line 46(b), Part IV.

Fixed Date Conformity Update Virginia’s date of conformity with the Internal Revenue Code was advanced from December 31, 2006, to December 31, 2007. The special 30% and 50% bonus depreciation allowance for certain assets under the IRC and the 5-year net operating loss (NOL) carry back allowed for net operating losses generated in taxable year 2001 or 2002 are still not allowed.

At the time these instructions went to print, the only required adjustments for “fixed date conformity” were the two mentioned above. However, if federal legislation is enacted that results in changes to the Internal Revenue Code for the 2008 taxable year, taxpayers will be required to make adjustments to their Virginia returns that are not described in the instruction booklet. Information about any such adjustments will be posted on the Department’s website at www.tax.virginia.gov.

PART II - ADDITIONS TO FEDERAL ADJUSTED GROSS INCOME

Line 33 - Special Fixed Date Conformity

Check the box on the top left of Page 1 of Form 760PY if your return has an addition or subtraction due to Fixed Date Conformity.

A. Bonus Depreciation - For an explanation, please see the section titled, Fixed Date Conformity Update. Enter the amount that should be added to Federal Adjusted Gross Income based upon the recomputation of allowable depreciation.	__________
B. Other Changes Not Listed Above - Add any other amounts not covered above that should be adjusted because of Virginia’s conformity to the Internal Revenue Code as it existed on December 31, 2007. Check our website, www.tax.virginia.gov, for other Fixed Date Conformity adjustments that may have passed after these instructions were printed.	__________
C. Total of Lines A and B Enter the total of Lines A and B here and on 760PY, Line 33.	__________

Mutual Funds

If you received federally tax exempt interest dividends from a regulated investment company (mu tual fund) that invested in obligations both taxable and ex empt for Virginia purposes, the entire dividend income earned while you were a Virginia resident must be entered as an addition unless you attach a statement provided by the fund that:

details the amount of dividends you earned while a Virginia resident; and
summarizes the prorations between exempt and taxable dividends (monthly breakdown is preferred).

A typical situation would involve a mutual fund that invests in bonds of several states, including Virginia. The interest on the bonds issued by the other state is taxable for Virginia purposes even though exempt for federal purposes. Unless the taxpayer is able to substantiate the amount attributable to the Virginia bonds, the total amount of dividends exempt from federal taxation will be an addition on the Virginia return.

If you attach the information specified above, enter the exempt portion of income on Line 34 or Line 35, as appropriate.

Line 34 - Interest on Obligations of Other States

Enter the interest earned while a Virginia resident that was not included in federal adjusted gross income, less related expenses to the extent not deducted in determining federal taxable income, on obliga tions of any state other than Virginia, or of a political subdivision of any such state unless created by compact or agree ment to which this state is a party.

Line 35 - Other Additions

Interest on Federally Tax-Exempt US Obligations Enter the interest or dividends earned while a Virginia resident, less related expenses to the extent not deducted in determining federal taxable in come, on obligations or securities of any authority, com mission or instrumentality of the United States, which the laws of the United States exempt from federal income tax but not from state tax.
Transitional Modifications Enter the amount necessary to prevent the deduction of any item properly deductible in determining a tax under prior Virginia state law.
Accumulation Distribution Income Enter the taxable income used to compute the partial tax on an accumulation distribution as reported on federal Form 4970.
Lump-Sum Distribution Income If you received a lump-sum distribution from a qualified retirement plan while you were a Virginia resident and elected to use the 20% capital gain election, the ten-year averaging option, or both on federal Form 4972, complete the worksheet below to determine what portion, if any, must be included as an addition on the Virginia return.

1. Enter the total amount of the distribution subject to federal tax (ordinary income and capital gain)	___________
2. Enter the total federal minimum distribution allowance, federal death benefit exclusion and federal estate tax exclusion	___________
3. Deduct Line 2 from Line 1. Include this amount on Form 760PY, Line 35	___________

Other Attach an explanation for other additions.

PART III - SUBTRACTIONS FROM FEDERAL ADJUSTED GROSS INCOME

Mutual Funds If you received income from a regulated investment company (mutual fund) that invested in obligations both taxable and exempt for Virginia purposes, the entire income earned while you were a Virginia resident must be considered taxable by Virginia unless you attach a statement provided by the fund that:

• details the amount of income you earned; and • summarizes the prorations between exempt and taxable income (monthly breakdown is preferred). If you attach the information specified above, enter the exempt portion of income on Line 41 or Line 44, as appropriate.

Line 37 - Fixed Date Conformity

Check the box on the top left of Page 1 of Form 760PY if your return has an addition or subtraction due to Fixed Date Conformity.

A. Bonus Depreciation. For an explanation, please see the section titled, Fixed Date Conformity Update. Enter the amount that should be deducted from Federal Adjusted Gross Income based upon the recomputation of allowable depreciation.	___________
B. Other Changes Not Listed Above. Deduct any other amounts not covered above that should be adjusted because of Virginia’s conformity to the Internal Revenue Code as it existed on December 31, 2007. Also, please attach a schedule and explanation of such subtraction. Check our website, www.tax.virginia.gov, for other Fixed Date Conformity adjustments that may have passed after these instructions were printed.	___________
C. Total of Lines A and B Enter the total of Lines A and B here and on 760PY, Line 37	___________

Line 38 - Age Deduction

Taxpayers born on or before January 1, 1944, may be eligible to claim the Age Deduction. Eligible taxpayers must calculate the deduction by completing Schedule NPY, Part I. After completing Part I, enter on Line 38 the deduction amount from Schedule NPY, Part I, Line 4. See instructions starting on Page 19.

Line 39 - State Tax Refund or Overpayment Credit Reported as Income on Your Federal Return

Enter the amount of any state income tax refund or overpayment credit reported as income on your federal income tax return and received while a resident of Virginia (claim in the same column as the income was reported on Line 6 on the front of the Virginia return).

State, local or foreign income taxes withheld from your salary, estimated tax payments or payments made on tax for a prior year to such taxing authority may be deducted on your federal return for the year withheld or paid. The federal deduction is for the amount paid rather than the tax liability, so a refund or credit is generally treated as taxable income (a recovery of an excessive deduction) on the federal return. Since Virginia does not allow the state and local income tax deduction, a federally taxable refund or overpayment credit is to be deducted from federal adjusted gross income on the Virginia return.

Line 41 - Income From U.S. Obligations

Enter the amount of income received while a resident of Virginia (interest, dividends and gain) derived from obligations or the sale or exchange of obligations of the United States and on obligations or securities of any authori ty, commission or instrumentality of the United States to the extent included in federal adjusted gross income but exempt from state income taxes under the laws of the United States. This includes, but is not limited to, stocks, bonds, treasury bills and treasury notes. It does not include interest on refunds of federal taxes, equipment purchase con tracts or normal business transactions. A partial list of taxable and exempt income follows.

This list is based on the Department’s analysis of federal and state law as applicable to selected organizations. For organizations not listed below, additional information must be attached showing that the income is exempt from Virginia individual income tax.

Issuing Organization	VA Tax Status
Export-Import Bank of the United States (Export-Import Bank of Washington)	Exempt
Farm Credit Bank	Exempt
Federal Deposit Insurance Corporation	Exempt
Federal Home Loan Bank	Exempt
Federal Intermediate Credit Bank	Exempt
Federal Land Bank	Exempt
Federal Reserve Stock	Exempt
Governments of Guam, Puerto Rico and Virgin Islands	Exempt
Resolution Trust Corporation	Exempt
Student Loan Marketing Assoc. (Sallie Mae)	Exempt
Tennessee Valley Authority	Exempt
US Postal Service	Exempt
US Treasury bills, notes, bonds & savings bonds (such as Series E, EE, H, HH, etc.)	Exempt
Fed. Home Loan Mortgage Corp. (Freddie Mac)	Taxable
Fed. National Mortgage Assoc. (Fannie Mae)	Taxable
Government National Mortgage Association (Ginnie Mae)	Taxable
Inter-American Development Bank	Taxable
International Bank for Reconstruction and Development	Taxable

Line 42 - Title II Social Security and Tier 1 Railroad Retirement Act Benefits

Enter the amount of Title II Social Security Act benefits and equivalent Tier 1 Railroad Retirement Act bene fits included in adjusted gross income on your federal income tax return due to Section 86 of the Internal Revenue Code and received while a resident of Virginia. This is the amount reported as taxable social security benefits on your federal return.

Line 43 - Disability Income

Enter the amount of disability income reported as wages (or payments in lieu of wages) on your federal return for permanent and total disability. On joint returns, each spouse can qualify for the deduction. Individuals can deduct up to $20,000 of disability income as defined under Internal Revenue Code Section 22(c)(2)(b)(iii).

NOTE: Eligible taxpayers may claim EITHER this disability income subtraction OR the age deduction on Line 38. If you are married filing a joint return, each spouse may claim, if eligible, either an age deduction or disability subtraction. Use the one that benefits you the most.

Line 44 - Other Subtractions

Enter the code and subtraction amount on Lines 44a - 44c. If you have more than 3 subtractions, enter Code “00” and the total amount of Other Subtractions on Line 44a you are claiming and attach to your return a list showing each of the subtractions along with its subtraction code and amount.

20 Income From Virginia Obligations Enter the amount of income from Virginia obligations that you included in your federal adjusted gross income and received while you were a resident of Virginia.

22 Federal Work Opportunity Tax Credit Wages Enter the amount of wages or salaries eligible for the fed eral work opportunity tax credit not subtracted for federal income tax purposes and received while a resident of Virginia.

23 Tier 2 and Other Railroad Retirement and Railroad Unemployment Benefits Enter the amount of Tier 2 vested dual benefits and other Railroad Retirement Act benefits and Railroad Unemployment Insurance Act benefits included in federal adjusted gross income and reported on your federal return as a taxable pension or annuity and received while a resident of Virginia.

If any part of your Tier 1 Railroad Retirement Act Benefits paid by the Railroad Retirement Board is properly treated as a fully taxable pension on your federal income tax re turn, deduct the amount received while a resident of Virginia on this line. Do not include any amount of Tier 1 Railroad Retirement Board retirement benefits that were included in your gross income as the taxable portion of your social security and railroad retirement benefits on your federal return because that portion should be deducted on Line 42.

This subtraction does not apply to supplemental annuities received by retired employees of railroads under a com pany pension plan set up by a particular railroad, whether the plan was contributory or non contributory.

24 Virginia Lottery Prizes Enter the amount of each prize less than $600 awarded to you by the Virginia Lottery Department to the extent included in federal adjusted gross income and received while a resident of Virginia.

28 Virginia National Guard Income Enter, to the extent included in federal adjusted gross income, the wages or salaries received for active and inactive service in the rank of O3 and below in the Virginia National Guard not to ex ceed the amount of income derived from up to 39 days of such service or $3,000, whichever amount is less. This subtraction does not apply to members of: 1) the active or reserve components of the Army, Navy, Air Force or Marines; or 2) the National Guard of other states or the District of Columbia.

29 Operation Joint Endeavor Combat Pay Enter the amount of combat pay for service in support of Operation Joint Endeavor included in federal adjusted gross income and received while a resident of Virginia.

30 Military Pay and Allowances Attributable to Active Duty Service in a Combat Zone or a QualifiedHazardous Duty Area To the extent included in federal adjusted gross income and not otherwise subtracted, deducted or exempted, enter any military pay and allowances earned while a resident of Virginia serving by order of the President of the United States with the consent of Congress in a combat zone or qualified hazardous duty area treated as a combat zone for federal tax purposes pursuant to §112 of the Internal Revenue Code.

31 Retirement Plan Income Previously Taxed byAnother State Enter the amount of retirement income, received during the taxable year while a resident of Virginia, on which the contributions were taxed in another state but were deductible from the federal adjusted gross income during the same period. The total amount of this Virginia subtraction cannot exceed the amount of contributions previously taxed by another state. This subtraction ap plies to retirement income from qualified pension, profit sharing, or stock bonus plans as described by Internal Rev enue Code (IRC) Section 401, individual retirement ac counts or annuities established under IRC Section 408, deferred compensation plans as defined by IRC Section 457, or any federal government retirement program as long as you paid tax to another state on contributions to the plan.

34 Virginia College Savings Plan Income Distribution or Refund Enter the amount of any income included in federal adjusted gross income that is attributable to a distribution of Benefits or a refund from the Virginia College Savings Plan (previously called the Virginia Higher Education Tuition Trust Fund), in the event of a beneficiary’s death, disability or receipt of scholarship.

37 Unemployment Benefits Enter any taxable unemployment compensation benefits received while a Virginia resident reported as income on your federal income tax return (claim in the same column as the income was reported on Line 6 on the front of the Virginia return).

38 Military Basic Pay Some taxpayers who qualify as military personnel stationed inside or outside Virginia and who are on extended active duty for more than 90 days can subtract up to $15,000 of military basic pay received during the taxable year. If the military basic pay does not exceed $15,000, then the entire amount may be subtracted. If the basic military pay is over $15,000, then the subtraction is reduced by the amount exceeding $15,000. For every $1 of income over $15,000, the maximum subtraction is reduced by $1. If your basic military pay is $30,000 or more, you are not entitled to a subtraction. On joint returns, each spouse can qualify for the subtraction. If you claim this subtraction, you cannot claim a credit for Low Income Individuals.

39 Federal and State Employee Low Income Pay Any individual who qualifies as a federal or state employee earning $15,000 or less in annual salary from all employment can subtract up to $15,000 of the salary from that state or federal job. If both spouses on a joint return qualify, each spouse may claim the subtraction. The subtraction cannot exceed the actual salary received. If you claim this subtraction, you cannot claim a credit for Low Income Individuals.

40 Income Received by Holocaust Victims To the extent included in FAGI, subtract any income resulting from the return or replacement of assets stolen during the Holocaust and throughout the time period leading up to, during, and directly after World War II as a result of Nazi persecution, individual being forced into labor against their will, transactions with or actions of the Nazi regime, treatment of refugees fleeing Nazi persecution, or holding of such assets by entities or persons in the Swiss Confederation.

41 Tobacco Settlement Fund Income If you received income while a Virginia resident from the tobacco “Master Settlement Agreement” you may be eligible to claim a subtraction for the amount received, provided it has not been subtracted for federal tax purposes. The income must have been received by (i) tobacco farmers; (ii) persons holding a tobacco marketing quota, or tobacco farm acreage allotment; or (iii) persons with the right to grow tobacco pursuant to a quota or allotment as a result of (a) the tobacco Master Settlement Agreement, (b) the National Tobacco Grower Settlement Trust, and (c) the Tobacco Loss Assistance Program.

42 Gain on the Sale of Land For Open-Space Use Provides a subtraction for any gain received, while a Virginia resident, on the sale of land or easement to an organization which dedicates the land for open-space use.

44 Medal of Honor Recipients Enter the amount of military retirement income you received as an individual awarded the Medal of Honor.

45 Avian Influenza Enter the amount of any indemnification payments received by qualified contract poultry growers and table egg producers as a result of the depopulation of poultry flocks because of avian influenza in 2002. Indemnification payments made to owners of poultry who contract with poultry growers do not qualify for this subtraction.

46 Military Death Gratuity Payments Enter the amount of military death gratuity payments made after September 11, 2001, to survivors of military personnel killed in the line of duty. This subtraction must be reduced by the amount that is allowed as an exclusion from federal gross income on the survivor’s federal income tax return.

47 Peanut Quota Buyout Allows a subtraction from taxable income for individuals and corporations who receive payments in accordance with the Peanut Quota Buyout Program of the Farm Security and Rural Investment Act of 2002. If the taxpayer chose to accept payment in installments, the gain from the current year installment may be subtracted. However, if the taxpayer previously opted to receive a single payment, 20% of the gain recognized in the year that the payment was received may be subtracted for this year and for each succeeding taxable year until 100% has been deducted.

49 Certain Death Benefit Payments Allows a beneficiary taxpayer to subtract the death benefit payments received from an annuity contract that are subject to federal income taxation, for taxable years beginning on or after January 1, 2007.

99 Other Attach a schedule of explanation for other subtractions.

PART IV - STANDARD DEDUCTION

If you did not claim itemized deductions on your federal income tax return, you must claim the standard deduction on your Virginia income tax return. Your allowable standard deduction on Form 760PY will be prorated based on the portion of your federal adjusted gross income that was received while a resident of Virginia.

Line 46 - Standard Deductions

46(a) Enter the federal adjusted gross income (Total of Line 32(b), Columns A1 and B1 from Part I).

46(b) Enter the income attributable to your period of Virginia residence (Total of Line 32(b), Columns A2 and B2 from Part I).

46(c) Divide the amount on Line 46(b) by the amount on Line 46(a) and report as a percentage, not to exceed 100%. Example: 0.3163 becomes 31.6%.

46(d) If using Filing Status 1, enter $3,000. If using Filing Status 2 or 4, enter $6,000. If using Filing Status 3, enter $3,000.

46(e) Multiply Line 46(c) by Line 46(d). Enter here and on Line 11(a), Form 760PY, Page 1.

When using Filing Status 4, the standard deduction may be allocated between each spouse as you mutually agree. As a general rule, you can lower your combined tax by assigning deductions (Lines 11 and 13) and dependents (Line 12) to each spouse so that the taxable incomes in Columns A and B are as close to equal as possible.

Exception: Dependent’s Limited Standard Deduction If you could be claimed as a dependent on the federal income tax return of another taxpayer, your allowable standard deduction may not exceed the amount of your earned income. This rule applies to dependents of all ages, including children under age 19 and full- time students under 24 years old who are eligible to be claimed as a dependent on their parent’s return.

Remember to check the box (on Line 5) on the front of Form 760PY if you can be claimed as a dependent on another’s return. Your maximum standard deduction for Line 46(d) is the lesser of EARNED INCOME; or

$3,000 if you are single (Filing Status 1)
$6,000 if you are married and file a joint or combined return (Filing Status 2 or 4)
$3,000 if you are filing a separate return from your spouse (Filing Status 3).

EXAMPLE: (Standard Deduction Limited): A person (claimed as a dependent on another’s return) moved to Virginia on June 25, 2008. Before moving to Virginia he had unearned income of $5,000 in another state. While in Virginia he has interest income from a bank account (unearned income) of $4,200 and income from a summer job of $1,200 (earned income). This person’s limited standard deduction to be entered on Line 46(e) is $622.80 which should be rounded to $623.

The limited standard deduction is computed by multiplying the maximum limited standard deduction on Line 46(d), which is $1,200 of earned income, by the percentage on Line 46(c), which would be 51.9%. Line 46(d) is $1,200 because the $1,200 of earned income is less than the $3,000 standard deduction for a single taxpayer.

NOTE: The return of a taxpayer claiming a child (or other person) as a dependent is not affected if the child is required to claim a limited standard deduction.

PART V - ITEMIZED DEDUCTION

Line 47 - Virginia Itemized Deduction

If you claimed itemized deductions on your federal income tax return, you must claim itemized deductions on your Virginia income tax return. Your allowable itemized deductions on Form 760PY are expenses claimed on Schedule A for which payment was made while you were a Virginia resident. State and local income tax claimed as an itemized deduction on your federal return is not allowed as a Virginia deduction. If you have an addition or subtraction due to Fixed Date Conformity, you must complete the FDC Worksheet to compute your Virginia itemized deductions.

47(a) Total Federal Itemized Deductions Paid While A Resident Of Virginia Enter the total itemized deductions claimed on federal Schedule A (or the FDC Worksheet if you have an addition or subtraction due to Fixed Date Conformity) paid while a resident of Virginia.

47(b) State And Local Income Tax Enter the amount of state and local income tax allowed on your federal Schedule A that was paid while you were a resident of Virginia. Before making an entry on this Line, check to see if your total itemized deductions were limited on your federal return. If your federal adjusted gross income is more than $159,950 or $79,975 if married and filing a separate federal return, your deduction may be limited. The amount of state and local income tax reported on Schedule A must be reduced proportionately to reflect any reduction in total itemized deductions. Complete the ITEMIZED DEDUCTIONS WORKSHEET if you are subject to the limitation. If you did not claim any state and local income tax on federal Schedule A, enter “0.00” on this line; you do not need to complete the worksheet.

47(c) Virginia Itemized Deductions Deduct Line 47(b) from Line 47(a). Enter here and on Line 11(b) on the front of your return. The copy of your federal income tax return attached to Form 760PY must include the Schedule A.

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