Why Do I Owe DC Taxes After Moving to a New State?

Moving to a new state doesn’t always mean you’re free from tax obligations in your previous one. Many people are surprised to receive a tax bill from Washington, D.C., even after relocating. This can happen due to residency rules, income sources, and how taxes were withheld during the year.

Understanding why you owe D.C. taxes requires examining part-year filing requirements, withholding errors, or nonresident tax obligations. There may also be opportunities to claim credits or resolve disputes if you believe the amount owed is incorrect.

Residency Status

Washington, D.C. determines tax residency based on where you establish your permanent home, known as your domicile. Even after moving, you may still be considered a D.C. resident if you maintain significant ties, such as a D.C. driver’s license, voter registration, or a primary residence. The Office of Tax and Revenue (OTR) evaluates these factors to determine whether you have truly severed residency.

A common issue arises when individuals leave D.C. but continue using a D.C. address for official documents like bank statements or tax filings. If you still receive mail at a D.C. address or claim a homestead deduction on a D.C. property, the city may presume you remain a resident. Additionally, spending more than 183 days in D.C. during the tax year can subject you to its income tax under the statutory residency rule, even if you claim residency elsewhere.

Intent also plays a role in residency determinations. If you move but do not establish residency in another state—such as obtaining a new driver’s license or registering to vote—D.C. may argue that your move was temporary. This can result in a tax bill, especially if you continue working remotely for a D.C.-based employer.

Part-Year Filing

If you move out of Washington, D.C. during the year, you typically need to file a part-year resident tax return, ensuring you only pay D.C. income tax on the earnings received while you were a resident.

D.C. uses a prorated approach to calculate part-year tax liability. You must report total annual income but only pay tax on the portion earned while living in the district. For example, if you earned $90,000 in 2024 but lived in D.C. for six months, you would be taxed on approximately $45,000.

Certain types of income remain taxable in D.C. even after moving. Deferred compensation from a previous D.C. employer, such as bonuses or stock options, may still be subject to local tax. Rental income from a property in D.C. is also generally taxable regardless of where you live.

Local Withholding Discrepancies

Errors in tax withholding frequently lead to unexpected D.C. tax liabilities after a move. Many employers continue withholding D.C. income tax even after an employee relocates, particularly if payroll systems are not promptly updated. This often happens when a remote worker moves but remains employed by a company with a D.C. presence.

Employers are required to withhold based on where the employee performs their work. If an employee moves but does not update payroll records, their wages may still be subject to D.C. withholding. This can create complications when filing taxes, as the employee may need to request a refund from D.C. while ensuring taxes are properly paid in their new state.

Virginia and Maryland have reciprocity agreements with D.C., allowing residents to be exempt from D.C. withholding if they submit Form D-4A. Those moving to states without such agreements must take extra steps to adjust their withholdings.

Another issue arises when an employer incorrectly reports the work location on W-2 forms. If D.C. is listed as the tax jurisdiction despite the employee living and working elsewhere, the OTR may assume the individual owes D.C. taxes. Correcting this requires obtaining a revised W-2 or providing documentation proving the change in work location. In some cases, an employee may need to file a D.C. return solely to claim a refund for erroneously withheld taxes.

Nonresident Return Obligations

Even after leaving Washington, D.C., you may still need to file a nonresident tax return if you have income sourced from within the district. Unlike part-year residents, nonresidents do not owe tax on earnings from work performed outside of D.C., but certain types of income—such as business profits, rental earnings, and compensation for services physically performed in D.C.—remain taxable.

Independent contractors and self-employed individuals are particularly affected, as D.C. applies income tax to earnings generated from work conducted within its borders. A consultant who resides in New York but periodically travels to D.C. for client meetings, for example, must allocate income based on days worked in the district and may owe tax on that portion. Similarly, partners in a D.C.-based partnership or members of an LLC with operations in the district could be subject to nonresident tax obligations on their share of distributive income, even if they live elsewhere.

Credits or Offsets

If you owe D.C. taxes after moving, you may be able to reduce or eliminate the liability through tax credits or offsets. Many states, including D.C., offer credits for taxes paid to another jurisdiction, preventing double taxation on the same income. If you were taxed by both D.C. and your new state on overlapping earnings, you may qualify for a credit on your new state’s return.

To claim this credit, you typically need to provide documentation such as a copy of your D.C. tax return and proof of taxes paid. Each state has different rules on how much credit they allow, with some capping the amount at the tax rate of the new state. If your new state has a lower tax rate than D.C.’s 4%-10.75% bracket, you may still owe the difference. Some states do not offer credits for local taxes, meaning you could still be responsible for a portion of the D.C. liability.

Another potential offset involves amending prior-year returns if an error in residency status or withholding caused an overpayment. If you mistakenly filed as a full-year D.C. resident after moving, you may be able to amend the return to reflect part-year status and secure a refund. Similarly, if your employer withheld D.C. taxes incorrectly, you may be able to recover the amount by filing a nonresident return and requesting a refund. These processes can take time, as the OTR may require additional verification before issuing adjustments.

Late Payments and Penalties

Failing to pay D.C. taxes on time can lead to penalties and interest charges. The district imposes a late payment penalty of 5% per month, up to a maximum of 25% of the unpaid tax. Additionally, interest accrues on the outstanding balance at a rate determined by the OTR, which is adjusted annually based on federal rates.

If you receive a tax bill unexpectedly, addressing it promptly can help minimize penalties. Even if you dispute the amount owed, partial payments can reduce accumulating interest while the issue is resolved. D.C. offers payment plans for those unable to pay in full, allowing taxpayers to spread the liability over time. However, entering into a payment agreement does not stop interest from accruing, so paying as much as possible upfront is often the best approach.

If penalties result from an employer’s withholding error or a residency misclassification, you may be able to request an abatement. The OTR considers penalty waivers for reasonable cause, such as incorrect tax reporting by an employer or unforeseen circumstances that prevented timely payment. Supporting documentation, such as a corrected W-2 or proof of residency in another state, is often required.

Resolving DC Tax Disputes

If you believe your D.C. tax bill is incorrect, there are formal avenues to challenge the assessment. The first step is to review the notice carefully and compare it against your records to identify discrepancies. Common issues include misclassified residency, incorrect income reporting, or failure to apply eligible credits.

Taxpayers can dispute a liability by filing an appeal with the Office of Administrative Hearings (OAH) or requesting an informal review with the OTR. The informal review process allows taxpayers to present evidence, such as lease agreements, utility bills, or employer statements, to support their claim. If the dispute is not resolved at this stage, a formal appeal can be filed with the OAH, where an administrative law judge will review the case.

In some cases, professional assistance from a tax attorney or accountant may be beneficial, especially if the dispute involves complex residency issues or significant amounts. If the OTR denies an appeal, further recourse may be available through the D.C. Superior Court, though this step is typically reserved for high-value disputes.