Esquire Tax Solutions is here to help solve your tax problems. I have put together the most frequently requested list of tax information pertaining to Washington DC taxes. If you have any questions or need help, please contact me today.
You are required to file a D.C. individual tax return (Form D40) if:
- You were a resident of the District of Columbia and you were required to file a federal tax return;
- Your permanent residence was in the District of Columbia for either part of or the full taxable year;
- You lived in the District of Columbia for 183 days or more during the taxable year, even if your permanent residence was outside the District of Columbia.
Unlike most States, D.C. does not have a nonresident individual income tax return. If you are seeking a refund of taxes withheld, you would file Form D40-B, Nonresident Request for Refund. Metro D.C. wage earners owe taxes to the jurisdiction where living and not where working.
The individual tax rates for District of Columbia are:
|If the taxable income is:||The tax is:|
|Not over $10,000||4% of the taxable income|
|Over $10,000 but not over $40,000||$400, plus 6% of the excess over $10,000.|
|Over $40,000 but not over $60,000||$2,200, plus 6.5% of the excess over $40,000.|
|Over $60,000 but not over $350,000||$3,500, plus 8.5% of the excess over $60,000.|
|Over $350,000 but not over $1,000,000||$28,150, plus 8.75% of the excess above $350,000.|
|Over $1,000,000||$85,025, plus 8.95% of the excess above $1,000,000.|
District tax rates are much higher than neighboring Virginia and are comparable with Maryland, which has a county tax. Tax Return due date is April 15th and if you expect to owe but are not yet ready to file, you need to submit an estimated payment with Form FR-127, Extension of Time to File. Taxpayers are encouraged to create an account with the Office of Tax & Revenue (OTR) to track filings and make payments https://mytax.dc.gov/_/
D.C. OTR charges significant penalties and interest for non-compliance, including:
- A penalty of 5% per month if you fail to file a return or pay any tax due on time, not to exceed an additional amount equal to 25% of the tax due;
- A 20% penalty on the portion of an underpayment of taxes if attributable to negligence.
- Interest of 10% per year, compounded daily, on a late payment;
- A one-time fee of 10% to cover internal collection efforts on any unpaid balance after 90 days.
Though the federal mandate has been eliminated, the District has enacted legislation that requires District residents to have minimum essential health coverage. Taxpayers without coverage pay a penalty equal to 2.5% of their taxable income. Taxpayers can seek an exemption by filing Form HSR, DC Healthcare Shared Responsibility Schedule.
Office of Tax and Revenue (OTR) Collections Division overseas delinquent taxpayer accounts. If full payment is not received within 15 days on an initial balance due notice, OTR send a notice of enforcement by certified mail to your last known address. It is important to read all Correspondence from OTR as these Notices contain important dates and information that may affect your rights. If you do not respond to letters or notices and your account continues to be delinquent, it is then assigned to a Revenue Officer for collection. Occasionally, OTR may outsource enforcement to third party Collection Agencies, the most common being MuniServices.
If a taxpayer cannot pay their balance in full, OTR will allow them to pay in installments, generally not to exceed 24 months (MuniServices may accept longer). Interest continues to accrue and taxpayers are expected to pay their current taxes concurrently. If installment payments are not made timely, OTR may collect the taxes due by seizing wages or bank accounts. Once an installment agreement is reached, a lien determination will be made. Any state and federal refunds are subject to interception and will be applied to outstanding tax liabilities.
OTR may file a tax lien covering all tax debt, recorded at the District’s Recorder of Deeds office, where it becomes public record and appears on your credit report. This enables the District to seize property (bank accounts, wages, and personal property) to pay the debt. A tax lien can appear on a taxpayer’s credit history for 10 years, even after the debt is marked paid in full.
OTR may waive or cancel delinquent return penalties if you show reasonable cause, defined as your exercising ordinary business care and prudence in the execution of your tax obligations, but some uncontrollable outside event (such as incapacitation or loss of records) prevented you from complying. The request should be submitted in writing and include any supporting documentation and explain the circumstances that caused your return to be late. Generally, OTR does not abate interest charges unless there is a considerable delay on the part of the District.
OTR has a Voluntary Disclosure Program encouraging businesses and individuals that are not in compliance with District tax laws to voluntarily come forward to bring their accounts into compliance. You are eligible for the program only if you have not received a Notice in the past regarding your particular tax issue. If you are accepted in the program, OTR will waive civil penalties if the tax and interest is paid in full, with a lookback period of generally 3 years.
Moving to DC?
One of them most common inquiries (and error notices) I see is when residents are moving in or out of the District. State tax issues to consider are withholding taxes, tax credits and choice of state residency.
Domicile vs Residency
You may be required to file and pay taxes to your state of residency and state of domicile. State of domicile is the location where one permanently intends to reside, as evidence by factors such as property ownership, voting and car registration, and banking. A taxpayer may reside temporarily in one state and be domiciled in another, for example to start a new consulting job. The number of days spent in the state is an important factor when considering tax on residency.
In the District of Columbia, a taxpayer will owe tax if he or spends 183 days or more residing in the District, even if domiciled in another state. Stated another way, if one is domiciled in another state and spend less half the year residing in the D.C., no taxes will be due to the District as the taxpayer is not required to file.
State Tax Credit
If you reside in one state and owe taxes to your state of domicile, you may be eligible to take a credit for the tax paid to the other state. For example, if you move to D.C. in May and do not establish a new domicile here, you may take a credit for taxes paid to the District for any taxes paid to your state of domicile.
State Reciprocal Tax Agreements
Complications arise when a taxpayer lives in one state and works in another. Which state to pay? The District has a reciprocal tax agreement with border states Virginia and Maryland, with taxes being paid to the state of residency. A common problem I resolve is taxes withheld from wages to the improper state of residency. For example, a Virginia taxpayer who works in Virginia moves to the District and fails to adjust withholding to have D.C. taxes taken out of his paycheck. By the time the taxpayer files his taxes in D.C., no taxes have been paid to the District!
State tax issues are complex as a diligent review of each states tax code is required. States have different rates, tax and exclude items differently and have unique residency requirements. Contact a D.C. State Tax Attorney for a consultation to make sure you are completing your state returns correctly.