Welcome to Arlington County, Virginia, situated on the southwestern bank of the Potomac River and directly across from Washington, D.C. Arlington is widely considered the second-largest principal city of the D.C. metropolitan area and consistently ranks as a Top 10 median family income county in the U.S. Though Arlington has many high paying jobs, this means its residents also pay the highest federal income taxes, and while state income tax in Virginia is not quite as high as that of the District, most taxpayers still pay a top marginal rate of 5.75%.
Having lived in Arlington, I am intimately familiar with the tax structure in Virginia and the tax issues that arise given the Washington metropolitan area encompasses multiple distinct state and local taxing authorities. Many residents new to the area may live temporarily one jurisdiction before becoming situated; taxpayers may buy investment property to rent in one state; taxpayers may live in one tax area and work in another. Washington multi-state tax laws are confusing and there are basic rules you need to know.
Arlington, Virginia – D.C. Tax Reciprocity:
Virginia has reciprocity with several states, including D.C. This allows Virginia residents who have a limited presence in those states to be taxed only by Virginia. Likewise, residents of the other states who have a limited presence in Virginia are taxed only by their home states. If you meet the reciprocity criteria, you are exempt from filing requirements and income tax in your state of non-residence. Virginia residents earn wages in the District of Columbia, but do not establish residency in Washington, D.C. are generally exempt from taxation there. These Virginia residents will pay income taxes to Virginia, however, this applies to individual income tax only, and not to the District of Columbia unincorporated business franchise tax (https://esquiretax.com/dc-franchise-tax/)
Correct Withholding Errors
If you accept employment in Washington as an Arlington resident and meet the criteria for exemption, ask your employer to withhold Virginia income tax. If your employer will not withhold Virginia tax, ask that no tax be withheld (as a tax credit may not be allowed) and so you have money to make estimates. If your employer withholds tax for the other state and you find out that you are exempt, correct your information with your employer immediately, and seek a refund from the other state, but be diligent as there are time limits on claiming your money. If you are a resident of the District, accept employment in Virginia, and meet the criteria for exemption, complete Form VA-4 to certify your exemption and give the form to your employer. If your employer withholds Virginia income tax and you find out that you are exempt, correct your withholding information and file Form 763-S to claim a refund.
Domicile vs. Residency:
You are domiciled in Arlington, VA if this is your permanent legal residence meaning this is the place you intend to be, even if you do not live here currently. Domicile indicators include drivers license, voting, car registration, real property ownership, business pursuits and social ties. You may also be a Resident of Arlington if you maintain a place of abode here and spend more than 183 days in Virginia, even though you are domiciled somewhere else (special rules exist for Military service members and their spouses). You may be considered a part-year resident if you either moved into or out of Arlington and were domiciled subsequently or previously elsewhere, the significance being that part year residents pay VA taxes during their allotted time here, while those domiciled are taxed for the full year, subject to credit for state taxes paid elsewhere.
Credit for Taxes Paid to Other States:
Virginia residents are taxed on all income earned from all sources, regardless of location. If you have received income from another state and are required to pay taxes there, you may be eligible for a credit to avoid double taxation. For example, if you are working in New York you may be able to claim a credit for NY taxes paid on your VA resident return. May taxpayers forget to claim this credit, resulting in an overpayment of their tax. Do not claim a credit for taxes paid to the District, instead seek a refund, as DC does not tax non-residents unless you are operating a business or rental activity and paying the franchise tax.
Arlington Business License Tax:
The Arlington Commissioner of Revenue assesses a business license tax on every business in Arlington, including home-based businesses, known as the Business, Professional and Occupational License (BPOL) Tax. Individuals renting or leasing houses, apartments, part of their own residences, or other types of dwellings, including vacation rentals are also considered businesses. Business license taxes are usually based on a business’s previous year’s gross receipts, with gross receipts in excess of $100,000 utilizing a tax rate dependent on their business activities. Arlington County categorizes businesses activities into various classifications that determine the tax rate applicable to each type of business. Based on my experience as a Tax Attorney, the county does aggressive audit for non-filers by cross referencing Schedule C filers with Arlington addresses. If you have received a Notice from the Arlington Commissioner of Revenue or believe that your business has been improperly assessed, please don’t hesitate to contact me.
Popular Neighborhoods of Arlington:
Arlington is separated into North Arlington and South Arlington. South Arlington leads from the District to Crystal City via Jefferson Davis Highway, Pentagon City and Shirlington via I-395. South Arlington is home to the Pentagon, Reagan National Airport and Arlington National Cemetery. Amazon announced that Crystal City would be the location of one of two campuses for its Amazon HQ2, marketed as National Landing, which includes 10 million plus square feet of office space in a mixed-use, walkable urban center that includes more than 25,000 residents, nearly 6,000 hotel rooms and 500 restaurants and shops. North Arlington is accessible from the District via the Key Bridge and Route 66, leading to the popular stretch along Wilson Blvd. of Rosslyn, Clarendon and Ballston. No matter where you live in Arlington, the area has plenty to offer, is a great place work, and is rich in history and culture, with such close proximity to the District.
More about Arlington.
News and Events: Arlnow.com