Virginia Tax Form 763 - Nonresident 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 our website: 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 filed 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 763

To amend Form 763, complete a new Form 763 (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 763, indicating that this is an amended return. Also, check the box indicating the return is the result of a net operating loss (NOL) carryback. General instructions for computing the NOL can be obtained from the website at http://www.policylibrary. tax.virginia.gov/OTP/policy.nsf. Select 23VAC10-110-80 and 23VAC10-110-81 located in Chapter 110, Individual Income Tax, Virginia Tax Administrative Code. Be sure to attach a complete copy of your federal amended return, if applicable.

DECEASED TAXPAYERS

Use the following instructions to properly file 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 fill in the oval 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, the names and Social Security Numbers of both filers must be listed. Fill in the oval on page 2 to indicate the deceased filer. Use the Primary Taxpayer Deceased oval if the filer in the Your name and Social Security Number fields is deceased. Use the Spouse Deceased oval if the filer in the Spouse name and Social Security Number fields is deceased.

If completing a return for joint filers with both filers deceased, the names and Social Security Numbers of both filers must be listed. Fill in both deceased ovals on page 2. Include a copy of the federal Form 1310 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.

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

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 from line 7, minus any Virginia subtractions from line 9. Information on Virginia additions and subtractions is included in the instructions for Lines 29 - 40 of Form 763, later in this book.

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. 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 a joint return (both must have Virginia Source Income) and your combined VAGI is less than	$22,500
Married, spouse has no income from any source and your VAGI is less than	$11,250
Married fi ling 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 file for a given year. As a result, even if you do not need to file a return for 2008, 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 non active 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 19(f) of Form 763 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.

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.

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 file 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 4
• 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.

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 filing obligations.

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 Virginia Adjusted Gross Income (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 the next section, “WHICH FORM TO FILE”.

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 file 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.

Unified Nonresident Filers File Form 765

Partnerships, S Corporations and limited liability companies may file, on behalf of their non-resident partners, shareholders, or members, a unified return (Form 765) thereby relieving these persons of the responsibility of filing a Virginia non-resident individual return. An owner of a pass-through entity may also need to file a nonresident return (Form 763) to report Virginia source income that was not included on a Form 765. Income reported on a unified return would be subtracted on the Form 763 using Code 50 (Pass-Through Entity Income) on lines 39a - 39c. See Line 39 instructions.

Other Frequently Used Virginia Forms

To order, see Page 2.

Schedule NPY - Required for:

• deductions from Virginia Adjusted Gross Income
• credit for low income individuals
• credit for tax paid to another state
• addition to tax, penalty and interest
• contributions and consumer’s use tax

 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 (quarterly)

Form 763S Used by nonresidents to claim a refund of Virginia tax withheld if not required to file.

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 763 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 and 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

Extension Provisions: Virginia law provides an automatic six- month filing 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 your return is filed, 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 payment, 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

To file by mail, use the mailing address listed on the back cover of this book for the city or county in which all or the principal part of income from Virginia sources was derived. Returns can be filed directly with the Virginia Department of Taxation. Local phone numbers are also provided. Most part-year returns can also be filed 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 check box on Line 27 of Form 763, 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 Part IV, Lines 42-44 on Form 763.
• 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, left margin 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
  • - Supporting credit schedules
  • - 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 filed 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. When attaching form VK-1, fold in half and attach to front of return.

Payments Staple check to the lower left side of your return. If paying by credit card, please check the box on Line 27 of Form 763.

FORM 763 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, enter the complete name of your spouse. If you are married filing separate returns (Filing Status 3 or 4), DO NOT enter your spouse’s name in the spouse name box. Instead enter your spouse’s name on the Filing Status 3 or 4 line below the address box.

Address Enter your home street address. Please do not enter a P.O. Box 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 “Your social security number” box, must be the number of the person whose name is shown first.

City or County Enter the name of the city or county where the principal place of business, employment or income source in Virginia is located. Check the appropriate city or county box, and enter, in the next box to the right, the 3 digit locality code from the back cover for the city or county you entered.

Privacy Act The Privacy Act of 1974 requires any federal, state or local government agency that requests individuals to dis close their social security numbers to inform those individ uals 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 pursu ant 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.
  • Check if Result of NOL Also check this 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.
•  Overseas on Due Date Check this box if you were living or traveling outside the United States and Puerto Rico (including serving in the military or naval service), on May 1, 2009. You must file your return by July 1, 2009.
•  Qualifying Farmer, Fisherman or Merchant Seaman Check this box if you are a self-employed farmer, fishermen or merchant seamen 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.
•  Name(s) and Address Different Than Shown on 2007 Virginia Return Check this box if your or your spouse’s name and/or address is different than the one shown on your 2007 Virginia Return.
•  Coalfield Employment Enhancement Tax Check this box if you earned Coalfield Employment Enhancement Tax Credit.
•  Pass Through Entity Withholding Check this box if pass through entity withholding is included on Line 19a or Line 19b [Attach Form(s) VK-1.]

FILING STATUS

Check the box beside your fi ling status

Line 1 - Single (Filing Status 1)

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

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

BOTH spouses must have Virginia source income. You and your spouse may choose to file a joint return if both have Virginia Source Income and

• you computed your federal income tax liabilities together on a joint federal return; or
• neither of you was required to file a federal return.

When using Filing Status 2 or 3 on Form 763, your spouse’s exemption is in cluded in the “You” column. Do not claim your spouse as a dependent.

Line 3 - Married, Spouse Has No Income fromAny Source (Filing Status 3)

Husband and wife may elect to file under this status if

• federal income tax liabilities are determined on a joint federal return; or
• neither files a federal return; or
• one spouse files a separate return and the other spouse has no gross income and was not a dependent of another taxpayer. (Note that in this case, the standard deduction is limited to $3,000.)

Also enter your spouse’s name on the line provided.

Line 4 - Married, Filing Separate Returns(Filing Status 4)

A separate return must be filed if one of the following applies:

• both husband and wife are nonresidents and both have income from Virginia sources but do not elect to file jointly;
• both husband and wife are nonresidents and both have income but only one has income from Virginia sources; or
• one is a resident and the other is a nonresident with income from Virginia sources and they do not elect to file a joint resident return.

A spouse may claim only those personal exemptions, itemized deductions and other deductions that could have been claimed had a separate federal return been completed.

Where deductions and personal exemptions cannot be accounted for separately, they must be proportionately allocated between each spouse based on the income attributable to each. For exam ple, if you file a joint federal return, one of you is a nonresi dent and you are unable to account separately for the child and dependent care deduction, that deduction must be proportionately allocated between each spouse based on the income attributable to each. One spouse may never claim less than a whole personal exemption. Even in the case where a husband and wife have equal income and one child, only one spouse may claim that child.

Also, enter the spouse’s name on the line provided.

EXEMPTIONS

Enter the number of exemptions allowed in the appropriate boxes. The first exemption box has been completed for you.

Section 1

Dependents Generally, you may claim the same number of dependent exemptions allowed on your federal re turn. 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 sum of the exemptions claimed in the “You” and “Dependents” boxes by $930.

Section 2

65 or Over To qualify for the additional personal ex emption for age 65 or over, 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 consid ered blind for federal income tax purposes. Multiply the sum of exemptions claimed for “65 or over” and “Blind” by $800.

Exemption Amount Add the dollar amount from “Total Section 1” box to the dollar amount from “Total Section 2” box. Enter this 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, see the Line 11 instructions. Your standard deduction may be limited.

HOW TO ENTER NUMBERS 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 less than 50 cents are to be rounded down while all amount 50 cents - 99 cents are to be rounded up. Negative Numbers: Enter negative 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

Enter the total amount of your federal adjusted gross income from your federal income tax return. Do not enter your federal taxable income.

Where husband and wife have filed a joint return for federal income tax purposes and have not elected to file a joint Virginia income tax return, such items allowable for Virginia income tax purposes must be allocated and adjusted as follows:

• Each spouse must claim his or her income. Income must be allocated to the spouse who earned the income and with respect to whose property the income is attributable.
• Allowable adjustments to federal gross income with respect to trade, business, production of income or employment must be allocated to the spouse to whom they relate.

Line 7 - Additions

Complete Part I, Lines 29 through 32 on the back of Form 763, and enter the amount from Line 32.

Line 8 - Total

Add Lines 6 and 7 and enter the total.

Line 9 - Subtractions

Complete Part II on back of Form 763, Lines 33 through 40, and enter the amount from Line 40.

Line 10 - Virginia Adjusted Gross Income

Subtract Line 9 from Line 8 and enter the result. You are not required to file an individual income tax return if:

• you are single (Filing Status 1) and Line 10 is less than $11,250;
• you are married, filing a joint return (Filing Status 2) and Line 10 is less than $22,500; or
• you are married and your spouse has no income from any source (Filing Status 3) or you are married filing a separate return from your spouse (Filing Status 4) and Line 10 is less than $11,250.

The filing threshold amount for a dependent (regardless of age) is the same as for any other individual (even if the dependent’s standard deduction would be limited on Line 11).

If you are not required to file a return but had income tax with held or made estimated income tax payments, take the following steps to claim your full refund:

• skip to Line 18 and enter “0” as your tax (because your income is below the fi ling threshold).
• complete Lines 19(a) through (g), Line 20 and Lines 22 through 28. You are entitled to a full refund. If you are required to file a return, continue to Line 11.

Line 11 - Standard Deduction

Enter either your standard deduction amount from Part III or the amount of itemized deductions from Part IV. The standard deduction must be claimed unless itemized deductions are claimed on your federal income tax return.

NOTE: If you could be claimed as a dependent on the federal income tax return of another taxpayer and had any unearned income during the year, your standard deduction may be limited. See “Dependent’s Limited Standard Deduc tion” in the instructions for Line 41 for more information.

Line 12 - Exemption Amount

Add the dollar amount from Section 1 to the dollar amount from Section 2.

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 14 - Subtotal

Add Lines 11, 12 and 13 and enter the total.

Line 15 - Taxable Income Computed as a Resident

Subtract Line 14 from Line 10 and enter the result.

Line 16 - Percentage from Line 59, Part V

Complete Part V on back of Form 763, Lines 45 through 59, and enter the percentage from Line 59. Enter 100% if all of your income is from Virginia sources.

NOTE: Compute the percentage amount to one decimal place (example: 5.4%) not to exceed 100% or an amount less than 0. If the percentage amount is not entered as one decimal place, the processing of your return may be delayed.

Line 17 - Nonresident Taxable Income

Multiply the amount shown on Line 15 by the percentage shown on Line 16 and enter the result.

Line 18 - Income Tax

Enter the tax from the tax table included in these instructions. If Line 17 exceeds the maximum amount listed in the tax table, compute the tax using the tax rate schedule.

Line 19 - Payments

Line 19(a) - Your Virginia Income Tax Withheld

Line 19(b) - Spouse’s Virginia Income Tax Withheld 

Enter the amount shown as Virginia income tax withheld on Forms W-2, W-2G, 1099 or VK-1. Each form must show Virginia as the state where the income tax was withheld. Staple the forms to your return in the location indicated in the left margin.

Withholding Forms: To receive credit for withholding, you must attach withholding statements (Forms W-2, W-2G, 1099 and VK-1) to your return. Make sure these withholding forms are easy to read and indicate the same amount(s) of withholding as you claim. Also, these statements must show the correct social security numbers and that the withholding was paid to Virginia. Staple these forms to the middle of the left margin on front of your Form 763. If you need a corrected Form W-2, 1099 or VK-1, you must contact the issuer of that form.

Line 19(c) - 2008 Estimated Income Tax Payments

Enter the amount of 2008 Virginia estimated income tax payments. Also include any amounts credited to 2008 Virginia estimated income tax from the overpayment on your 2007 Virginia individual income tax return.

Line 19(d) - Extension Payments

Enter the total tentative tax payment made with Form 760IP.

Line 19(e) - Tax Credit for Low Income Individuals or Virginia 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 the credit for low income individuals or the Virginia Earned Income Credit. Individuals who are dependents on another taxpayer’s return are not eligible for these credits.

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 taxpayers who are blind or age 65 and over
• Age Deduction
• You are a claimed as a dependent on another taxpayer’s return

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

Line 19(f) - Credit for Tax Paid to Another State 

Generally, Virginia will not allow taxpayers filing nonresident individual income tax returns to claim credit for income tax paid to another state. The only exception to the above rule involves income taxes paid to the following states:

• Arizona
• District of Columbia
• California
• Oregon

If you are a resident of one of the above states and have Virginia Source income as a “nonresident” and the income is taxed by both Virginia and the other state, you are eligible for this credit. After you have completed Schedule NPY, Part IV, enter on Line 19(f) the credit amount from Schedule NPY, Part IV, Line 8. See instructions for Schedule NPY starting on Page 18.

Line 19(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 obtain Schedule CR, Schedule CR Instructions and these other credit forms, see Page 2, Where to Get Forms.

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 visit www.tax.virginia.gov.

• Trust Beneficiary 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
• 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 - Total Payments and Credits

Add Lines 19(a) through 19(g) and enter the total on Line 20.

Line 21 - Income Tax You Owe

If Line 18 is larger than Line 20, enter the difference and skip to Line 23.

Line 22 - Overpayment Amount

If Line 20 is larger than Line 18, enter the difference.

Line 23 -Addition to Tax, Penalty and/or 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 23 blank.

If you complete Schedule NPY, enter on Line 23 the amount from Schedule NPY, Part V, Line 4. See instructions for Schedule NPY starting on Page 18.

TIP: If you leave Line 23 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 24 - Credit to 2009 Estimated Income Tax

Enter the amount of the net overpayment amount from Line 22 to be credited to 2009 estimated tax.

Line 25 - Contributions

Enter the amount for contributions and consumer’s use tax from Schedule NPY, Part VI, Line 7. See instructions for Schedule NPY starting on Page 18.

Line 27 -Amount You Owe

IF YOU OWE TAX on Line 21, add Line 21 and Line 26.

— OR —

If Line 22 is an OVERPAYMENT and Line 26 is LARGER THAN Line 22, subtract Line 22 from Line 26.

Payment Options

Check- Make your check payable to the Treasurer or Director of Finance of the city or county in which all or the principal part of income from Virginia sources was derived. 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 27 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.

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.

Line 28 - Amount to Be Refunded to You

If Line 22 is larger than Line 26, subtract Line 26 from Line 22 and enter the refund amount. If you are due a refund and do not com plete Line 28, your refund may be delayed.

Sign Your Return- The signature block on Form 763 is on the bottom of Page 2. Be sure to sign and date your return. If filing jointly, both spouses must sign the return. In so doing, you agree that filing jointly on this return makes you jointly and severally liable for the tax due and any refunds will be paid jointly.

Telephone Numbers-Include your daytime and evening phone numbers in the spaces provided. The telephone number blocks on Form 763 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.

Earned Income Tax Credit- If the Earned Income Tax Credit (EIC) was claimed on your federal return, check the box and enter the amount on Form 763 at the bottom of Page 2.

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

FORM 763 LINE INSTRUCTIONS PAGE 2

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 has been 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 I - ADDITIONS TO FEDERAL ADJUSTED GROSS INCOME

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 must be entered as an addition unless you attach a statement provided by the fund that:

• details the amount of dividends you earned; 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 states is taxable for Virginia purposes, even though exempt for fed eral purposes. Unless the taxpayer is able to sub stantiate the amount attributable to the Virginia bonds, the total amount of dividends exempt from federal taxation will be an addition on the Virginia return.

Line 29 - Interest on Obligations of Other States

Enter the interest 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 subdi vision of any such state unless created by compact or agree ment to which this state is a party.

Line 30 - Other Additions

• Interest On Federally Tax-Exempt US Obligations Enter the interest or dividends earned, 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 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. Subtract Line 2 from Line 1. Include this amount on Form 763, Line 30	___________

• Other Attach an explanation for other additions.

Line 31 - Special Fixed Date Conformity Additions

Check the box on the top left of Page 1 of Form 763 if your return has an addition 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 Fixed Date Conformity Additions from Supplemental Instructions - If federal tax legislation passed after the printing deadline for these instructions, please refer to the Supplemental Fixed Date Conformity Instructions to determine if you are required to make any additional additions due to federal tax legislation. The Supplemental Fixed Date Conformity Instructions are available on the department’s website, www.tax.virginia.gov. If you are required to make any Supplemental Fixed Date Conformity additions, please enter the total amount of such additions on this line.	___________
C. Total of Lines A and B Enter the total of Lines A and B here and on 763, Line 31	___________

PART II - 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 ex empt for Virginia purposes, the entire income 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 provide this information, enter the exempt portion of income on Line 35 or Line 39 as appropriate.

Line 33 - Age Deduction

Are you eligible to claim an age deduction? For 2008, taxpayers born on or before January 1, 1944, may qualify to claim an age deduction based on birth date, filing status and income. A taxpayer who qualifies to claim an age deduction may NOT also claim either of the following:

•  Disability Subtraction (Form 763, Line 37) If you qualify to claim an age deduction, you may not also claim a disability subtraction. For married taxpayers, each spouse, if eligible, may claim either an age deduction or a disability subtraction.

You should claim the deduction or subtraction that gives you the greatest tax benefit.

•  Credit for Low Income Individuals or Virginia Earned Income Credit You may not claim both an age deduction and a credit for low income or Virginia Earned Income Credit. For married taxpayers filing separate returns, if one spouse claimed a credit for low income, then neither spouse can claim an age deduction.

If you, or your spouse if you are married, are not claiming a disability subtraction or a credit for low income and your birth date is on or before January 1, 1944, please read the information below to determine if you qualify for an age deduction and how to determine the amount of the age deduction you may claim for 2008.

Line 33(a) - Enter Birth Date

• For Filing Status 1, enter your birth date in Column B.
• For Filing Status 2 and 3, enter your birth date in Column B and your spouse’s birth date in Column A. Both birth dates are required even if only one qualifies for an age deduction.

Line 33(b) - Age Deduction

•  Taxpayers Age 65 and Older If you, or your spouse if you are married, were born on or before January 1, 1944, you may qualify to claim an age deduction of up to $12,000 each for 2008. The age deduction you may claim will depend upon your birth date, filing status, and income.

If your birth date is:

• On or before January 1, 1939 Your age deduction is not income based. You may claim an age deduction of $12,000. If you are married, each spouse born on or before January 1, 1939, may claim a $12,000 age deduction. For a spouse born after January 1, 1939, the age deduction for that spouse is based on the criteria below.
•  On and after January 2, 1939 Your age deduction is based on your income. A taxpayer’s income, for purposes of determining an income based age deduction, is the taxpayer’s adjusted federal adjusted gross income or “AFAGI”.

A taxpayer’s AFAGI is the taxpayer’s federal adjusted gross income, modified for any fixed date conformity adjustments, minus taxable Social Security and Tier 1 Railroad benefits.

• For Filing Status 1, Single taxpayer, the maximum allowable age deduction of $12,000 is reduced $1 for every $1 the taxpayer’s AFAGI exceeds $50,000.
• For All Married Taxpayers, whether filing jointly or separately, the maximum allowable age deduction of $12,000 each is reduced $1 for every $1 the married taxpayers’ joint AFAGI exceeds $75,000.

To compute your income based age deduction, use the Age 65 and Older Income Based Age Deduction Worksheet on the next page.

Also, be sure to enter the following at the beginning of Line 33:

• If completing the Age 65 and Older Age Income Based Deduction Worksheet on the next page, enter the Adjusted Federal Gross Income (AFAGI) from Line 8 of the worksheet.
• If Filing Status 4 is selected, enter your spouse’s birth date.

Notice to ALL Married Taxpayers- A married taxpayer’s income based age deduction is always determined using the married taxpayers’ joint AFAGI. Regardless of whether you are filing jointly or separately, if you are married, your income based age deduction is determined using both your and your spouse’s income.

In addition, if both spouses are claiming an income based age deduction, regardless of whether filing jointly or separately, the married taxpayers must compute a joint age deduction first and then the joint age deduction is allocated to each taxpayer.

Line 34 - 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. 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 subtracted from federal adjusted gross income on the Virginia return.

Line 35 - Income from U.S. Obligations

Enter the amount of income (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. The following is a partial list of taxable and exempt income. 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 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 37 - 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 subtract up to $20,000 of disability income as defi ned under Internal Revenue Code Section 22(c)(2)(b)(iii). Check the box to indicate which taxpayer is receiving disability income.

NOTE: Eligible taxpayers may claim EITHER this disability income subtraction OR the age deduction on Line 33 . If you are married fi ling 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 38 - Special Fixed Date Conformity Subtractions

Check the box on the top left of Page 1 of Form 763 if your return has a 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 subtracted from Federal Adjusted Gross Income based upon the recomputation of allowable depreciation.	____________
B. Other Fixed Date Conformity Subtractions from Supplemental Instructions - If federal tax legislation passed after the printing deadline for these instructions, please refer to the Supplemental Fixed Date Conformity Instructions to determine if you are required to make any additional subtractions due to federal tax legislation. The Supplemental Fixed Date Conformity Instructions are available on the department’s website, www.tax.virginia.gov. Enter total Supplemental Fixed Date Conformity subtractions here	____________
C. Total of Lines A and B Enter the total of Lines A and B here and on 763, Line 38.	____________

Line 39 - Other Subtractions

Enter the code and subtraction amount on Lines 39a-39c. If you have more than 3 subtractions, enter Code “00” and the total amount of Other Subtractions you are claiming on Line 39a and attach to your return a list showing each of 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.

21 Federal Work Opportunity Tax Credit Wages Enter the amount of wages or salaries eligible for the federal work opportunity tax credit that you included in your federal adjusted gross income. Do not enter the federal credit amount.

22 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.

24 Virginia Lottery Prizes Enter the sum of all prizes under $600 awarded to you by the Virginia Lottery Department to the extent that you included them in your federal adjusted gross income.

28 Virginia National Guard Income Enter the amount of wages or salaries for active and inactive service in the National Guard of the Commonwealth of Virginia for persons of rank O3 and below included in federal adjusted gross income. This amount may not exceed the amount of income received for 39 days or $3,000, whichever is less. Reminder: This subtraction does not apply to members of the active or reserve units of the Army, Navy, Air Force or Marines, or the National Guard of other states or the District of Columbia. If you claim this subtraction, you cannot claim a credit for Low Income Individuals.

29 Operation Joint Endeavor Combat Pay Enter the amount of combat pay for service in support of Operation Joint Endeavor which was included in federal adjusted gross income.

30 Military Pay and Allowances Attributable to Active Duty Service in a Combat Zone or a Qualifi ed Hazardous Duty Area Enter any military pay and allowances earned while serving by the order of the President of the United States with the consent of Congress in a combat zone or qualifi ed hazardous duty area treated as a combat zone for federal tax purposes pursuant to section 112 of the Internal Revenue Code that has not been otherwise subtracted, deducted or exempted from federal adjusted gross income.

31 Retirement Plan Income Previously Taxed by Another State Enter the amount of retirement income received during the taxable year on which the contributions were taxed in another state, but were deductible from federal adjusted gross income during the same period. The total amount of this subtraction cannot exceed the amount of the contributions previously taxed by another state, usually in a previous year.

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 benefi ciary’s death, disability or receipt of scholarship.

37 Unemployment Benefits Enter the amount of unemployment compensation Benefits received during the taxable year reported as income on your federal income tax 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 $1.00 of income over $15,000, the maximum subtraction is reduced by $1.00. 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 Employees Any individual who qualifi es 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 your federal adjusted gross income, 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 his or her will, transactions with or actions of the Nazi regime, treatment of refugees fl eeing Nazi persecution, or holding of such assets by entities or persons in the Swiss Confederation.

41 Tobacco Settlement Fund Income Enter the amount of payments received under the Tobacco Master Settlement Agreement, the National Tobacco Grower Settlement Trust, and the Tobacco Loss Assistance Program, provided they have not been deducted for federal tax purposes.

42 Gain on The Sale of Land for Open-Space Use Enter the amount of any gain on the sale or exchange of real property or easement to real property which results in the property or easement being devoted to open-space use as defi ned in Section 58.1-3230 for a period not less than 30 years.

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 An individual income tax subtraction is available for indemnification payments received by qualified contract poultry growers and table egg producers as a result of the depopulation of poultry fl ocks because of avian infl uenza in 2002. Indemnifi cation 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 subtracted.

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

50 Pass Through Entity Income Enter the amount of Pass Through Entity (PTE) income that was included on a unifi ed return. Do not include the PTE income in the nonresident allocation percentage schedule.

99 Other Attach a schedule of explanation for other subtractions.

PART III - STANDARD DEDUCTION

You must claim the same type of deduction (standard or itemized) on your Virginia return as claimed on your federal return. You cannot claim both.

Line 41 - Standard Deduction

Enter the applicable standard deduction amount shown below on Form 763, Line 41.

Filing Status	Standard Deduction
1. Single	$3,000
2. Married, filing joint return.	$6,000
3. Married, spouse has no income from any source	$3,000
4. Married, filing separate return	$3,000

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 763 if you can be claimed as a dependent on another’s return.

Your maximum standard deduction for Line 41 is the lesser of EARNED INCOME; or

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

Example: A person claimed as a dependent on another taxpayer’s return has $4,200 interest from a bank account (unearned income) and $1,200 from a summer job (earned income). The standard deduc tion is $1,200 (the lesser of earned income or $3,000). If this dependent had earned income of $3,200 from the summer job, the full standard deduction of $3,000 would be allowed. All dependents are subject to the limitation. This includes children under age 19 and full-time students under the age of 24 who are eligible to be claimed as dependents on their parents’ returns. Remember to check the box on Line 5 if you can be claimed as a dependent on someone else’s return and had unearned income. 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 IV - ITEMIZED DEDUCTION

You must claim itemized deductions on your Virginia return if you claimed itemized deductions on your Federal return. Before completing Lines 42 - 44, answer the following questions:

Do you have an addition (Line 31) or subtraction (Line 38) for Fixed Date Conformity?

YES Complete the following FDC Worksheet and Itemized Deduction Worksheet.

NO  Are your itemized deductions on your federal return limited?

YES Complete the following Itemized Deduction Worksheet.

NO Proceed to the instructions for Line 42 on the following page.

Line 42 - Total Federal Itemized Deductions

If you were not required to complete one or both of the above work sheets, enter the total claimed on federal Schedule A; otherwise, follow the directions on the worksheet(s) for this Line’s amount.

Line 43 - State and Local Income Tax

Enter the amount of state and local income tax allowed on your federal Schedule A. 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 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” on this line.

Line 44 - Virginia Itemized Deductions

Subtract Line 43 from Line 42. Be sure you enter this total on Line 11.

PART V - NONRESIDENT ALLOCATION PERCENTAGE SCHEDULE

Complete this schedule to determine the percentage of your income derived from Virginia sources. Each type of income listed is from TOTAL INCOME shown on the federal individual income tax return with the exception of Lines 56 and 57. Do not include any income that was already included on a unifi ed return.

Lines 45 Through 55

For each type of income listed, enter in Column A the amount reported as income on your federal individual income tax return. NOTE: Do not reduce this income by any adjustments to income shown on your federal individual income tax return.

Line 56 - Interest on Obligations of Other States

Enter the amount from Form 763, Line 29.

Line 57 - Lump-Sum Distributions/AccumulationDistributions

Enter the total lump-sum and accumulation distri butions included in the amount reported on Form 763, Line 30.

Lines 45 Through 57, Column B:

For each type of income listed in Column A, enter in Column B the portion of the income that is from Virginia sources. Income from Virginia sources includes:

1. Items of income gain, loss and deductions attributable to:
   • The ownership of any interest in real or tangible personal property in Virginia;
   • A business trade, profession, or occupation carried on in Virginia; and
   • Prizes paid by the Virginia Lottery Department, and gambling winnings from wagers placed or paid at a location in Virginia.
   For example, wages from a Virginia employer or the gain on the sale of real estate in Virginia.
2. Income from intangible personal property, including annui ties, dividends, interest, royalties and gains from the dis position of intangible personal property employed by an individual in a business, trade, profession or occupation carried on in this state (for example: dividend income from a Virginia S corporation).
3. Exception for Certain Nonresidents: Residents of Kentucky, Maryland, Pennsylvania, West Virginia and the District of Columbia who meet the “Exceptions for Certain Nonresidents” in these instructions are not required to file a Virginia return if their only income from Virginia sources was from salaries and wages. If these individuals have business income from Virginia sources, other than from salaries and wages, only that other business income should be entered in Column B. For most nonresidents, the income shown on Lines 46, 47 and 56, Column A, is not considered income from Virginia sources. For example, if a nonresident earned interest from a bank account or dividends from a corporation located in Virginia, that income is intangible income and therefore would generally not be entered in Column B. Virginia does not tax nonresident individuals on intangible income except as noted in number 2 above.

Line 58 - Total

Total Lines 45 through 57, Column A and Column B.

Line 59 - Nonresident Allocation Percentage

Divide Line 58, Column B, by Line 58, Column A, and report the result as a percentage amount to one decimal place, showing no more than 100% or less than 0%. Example: 0.3163 becomes 31.6%. Enter the percentage here and on Line 16, Form 763, Page 1.