Washington DC collects income tax, and the rate is higher than most states

Yes, Washington DC has a local income tax. DC is not a state, but it operates its own tax system separate from the federal government. The DC tax rate on ordinary income ranges from 4% to 9.75% depending on your income bracket, which is steeper than the average state income tax rate.

DC residents pay both federal income tax and DC income tax. If you work in DC but live in Maryland or Virginia, you typically owe DC tax on the income you earn there, though your home state may offer a credit to avoid double taxation. The rules differ slightly by state, so your situation depends on where you live and where you work.

Key Takeaways

  • DC income tax rates run from 4% to 9.75% on ordinary income, making DC's tax burden higher than most states.
  • DC residents owe both federal and DC income tax; you cannot avoid one by paying the other.
  • If you work in DC but live in Maryland or Virginia, you owe DC tax on DC wages, though your home state may credit part of it.
  • DC offers a standard deduction and tax credits that reduce your actual tax bill, similar to federal deductions.
  • Self-employed people in DC must pay DC income tax on net business income, plus federal self-employment tax.

DC income tax brackets and rates for 2024

DC uses a progressive tax system with six income brackets. The lowest bracket starts at 4% on income up to $10,000 for single filers. Each bracket increases until the top rate of 9.75% applies to income over $350,000. Married couples filing jointly have higher bracket thresholds but the same rates.

These brackets adjust slightly each year for inflation. The DC Office of the Chief Financial Officer publishes updated brackets in the fall for the following tax year. Your actual tax bill depends on which bracket your total income falls into, not on a flat percentage of everything you earn.

DC also taxes capital gains, dividends, and interest at the same rates as ordinary income. Long-term capital gains do not receive preferential treatment under DC law the way they do under federal law, so you pay the full rate on investment income.

Who has to pay DC income tax

You owe DC income tax if you are a resident of DC or if you earned income in DC during the tax year. Residency is defined as living in DC for more than 183 days in the year, or maintaining a permanent home there. Part-time residents and people who moved mid-year may owe tax for only part of the year.

Non-residents who work in DC owe tax only on income earned in DC, not on income from other sources. If you live in Maryland and work in DC, you file a DC return on your DC wages and a Maryland return on any other income. Maryland and Virginia both offer credits for DC taxes paid, so you typically do not pay the full rate twice on the same dollar.

DC also taxes income earned by DC residents no matter where they work. If you live in DC and work remotely for a company in another state, you still owe DC tax on that salary.

DC standard deduction and tax credits

DC allows a standard deduction that reduces your taxable income before the tax rate is applied. For 2024, the standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly. These amounts are higher than they were a few years ago and increase annually.

DC also offers an earned income tax credit (EITC) for low- and moderate-income workers. The DC EITC is separate from the federal EITC and can be claimed in addition to it. The credit amount depends on your income and filing status, and it reduces your DC tax bill dollar for dollar.

Other credits available include a child and dependent care credit, a credit for taxes paid to other jurisdictions, and credits for certain types of income. You claim these on your DC tax return when you file.

How to file DC income tax

DC residents and non-residents who earned DC income file using Form D-40 (the DC individual income tax return) or Form D-40EZ (a simplified version for people with straightforward tax situations). Both forms are available on the DC Office of the Chief Financial Officer website.

You can file on paper by mail or electronically through approved tax software or a tax professional. The DC important date is the same as the federal important date, usually April 15. If you file your federal return late, your DC return is also considered late, and penalties explore.

If you are a non-resident who earned DC income, you file Form D-40NR instead. This form asks for your home state address and the amount of income earned in DC versus outside DC. You attach pay stubs or other proof of DC income to support the amount you report.

DC taxes on self-employment and business income

If you are self-employed or own a business in DC, you owe DC income tax on your net business income. You calculate net income the same way you do for federal taxes: gross income minus ordinary and necessary business expenses. DC does not have a separate self-employment tax; you pay income tax on the net amount.

You also owe federal self-employment tax (Social Security and Medicare), which is separate from DC income tax. The federal self-employment tax rate is 15.3% on 92.35% of your net earnings, and you pay it in addition to federal and DC income tax.

If you operate as a sole proprietor, you report business income on Schedule C and attach it to your DC return. If you are an LLC or S-corporation, the rules are more complex and depend on how your business is taxed for federal purposes. A tax professional can help you determine what you owe.

DC taxes versus neighboring states

DC's top income tax rate of 9.75% is higher than Virginia's top rate of 5.75% and Maryland's top rate of 8.75%. However, comparing tax burdens requires looking at brackets, deductions, and credits together, not just the top rate. A person earning $100,000 may pay a different effective rate in each jurisdiction depending on how the brackets are structured.

Maryland taxes capital gains at a higher rate than ordinary income (8.75% on long-term gains versus lower rates on ordinary income in some brackets), while DC taxes them the same. Virginia offers a tax credit for federal taxes paid, which DC does not. These differences mean your total tax bill depends on your specific income sources and filing status.

If you work in DC but live in Maryland or Virginia, you typically owe DC tax on DC wages and your home state tax on other income. Your home state usually credits the DC tax you paid, so you do not pay the full rate in both places on the same income.

Frequently Asked Questions

Do I owe DC income tax if I work in DC but live in Maryland or Virginia?

Yes, you owe DC income tax on income you earn in DC. You also owe income tax to your home state on other income. Maryland and Virginia both allow credits for DC taxes paid, so you typically do not pay the full rate twice. Check your home state's rules for how the credit works.

What is the DC standard deduction for 2024?

The DC standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly. These amounts increase each year. You can claim the standard deduction or itemize deductions, whichever gives you a larger reduction in taxable income.

Can I claim the DC earned income tax credit if I also claim the federal EITC?

Yes. The DC EITC and federal EITC are separate credits and can both be claimed on the same return. The DC credit amount is based on your DC income and filing status. You claim it on your DC return in addition to claiming the federal credit on your federal return.

What happens if I file my DC return late?

DC charges a failure-to-file penalty of 5% per month (up to 25%) of the tax you owe, plus interest. If you file late but owe no tax, you may not owe a penalty. If you expect to owe, file as soon as you can to minimize penalties.

Do I owe DC income tax on money I earned before I moved to DC?

No. You owe DC income tax only on income earned while you were a DC resident or on income earned in DC while you were a non-resident. Income earned in another state before you moved to DC is not subject to DC tax.