DC Residency Rules and How They Affect Your Taxes

Your residency status in the District of Columbia directly governs your tax obligations. The District has specific regulations to determine who qualifies as a resident, which dictates whether you are subject to DC’s income tax on your entire worldwide income. Being deemed a DC resident also determines eligibility for tax credits and other benefits available only to residents. Establishing or terminating residency involves taking official actions that demonstrate your intent to the Office of Tax and Revenue (OTR).

The Two Tests for DC Residency

The District of Columbia uses two tests to determine if an individual is a resident for income tax purposes, and an individual only needs to meet one to be classified as a DC resident. The first test is based on “domicile,” which is defined as your true, fixed, and permanent home—the place you intend to return to after any period of absence. It is a legal concept based on intent, not just physical presence.

To determine domicile, the DC Office of Tax and Revenue (OTR) examines a variety of factors. Key indicators of a DC domicile include obtaining a DC driver’s license, registering your vehicle in the District, and where you are registered to vote. Financial ties are also considered, such as the address on your tax returns and the location of your personal banking accounts. The location of your primary residence and community ties also strengthen a claim of DC domicile.

The second test for residency is the “statutory residency” test, or 183-day rule. This rule applies to individuals who have a “place of abode” in the District and are physically present for 183 days or more during the tax year. A place of abode is a home or apartment that you maintain, whether you own or rent it. Under DC Official Code § 47-1801.04, if you meet this threshold, you are considered a DC resident for that tax year.

Tax Filing Requirements for DC Residents

All DC residents required to file a federal income tax return must also file a DC individual income tax return using Form D-40. A major consequence of DC residency is paying taxes on all income, regardless of where it is earned, known as “worldwide income.” For example, income from a rental property in another state must be reported on your DC tax return.

A primary benefit of DC residency is access to tax credits. The Homeowner and Renter Property Tax Credit, claimed using Schedule H, is available to homeowners and renters who meet certain income limitations. For recent tax years, eligibility was limited to residents with a federal adjusted gross income under specific thresholds that vary by age.

DC residents may also be eligible for other credits, including a nonrefundable credit for child and dependent care expenses and the refundable Keep Child Care Affordable Tax Credit. The District has a progressive tax system, with rates for recent tax years ranging from 4% on the lowest income bracket to 10.75% for income over $1,000,000.

Steps to Establish DC Residency

Establishing residency involves taking official actions that show your intent to make DC your permanent home, aligning with the domicile factors the OTR evaluates. The process begins with gathering documents to prove your DC address, such as a signed lease, home purchase documents, or utility bills.

The next phase involves engaging with DC government agencies. A primary step is to obtain a DC driver’s license or non-driver ID card from the Department of Motor Vehicles (DMV). This requires presenting proof of identity and two documents proving DC residency. You must surrender any license from a previous state.

If you own a vehicle, you must register it in DC. Another action is registering to vote in the District. Finally, you must update your mailing address with your employer for tax withholding purposes, as well as with banks and other financial institutions.

Terminating Your DC Residency

Terminating your residency ties with DC requires actions that demonstrate your intent to abandon your DC domicile and establish a new one. The first step is to establish a new domicile in another state by acquiring a new driver’s license, registering your vehicle, and registering to vote there.

You must also proactively cut your official ties with DC. This includes canceling your DC voter registration and updating your address with all financial institutions and your employer.

For the year you move, you must file a part-year resident tax return with the DC Office of Tax and Revenue (OTR). On this return, you will report all income earned from any source while you were a resident, plus any income from DC sources earned after you moved.