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My family will be moving to the DC area from Seattle. We have no income tax in Washington state. I noticed that DC has an 8.5% income tax rate. I will be working for a non-profit in downtown DC, but I would like to live (rent a home) in one of the suburban neighborhoods of Virginia along the metro Line. Do I have to pay that DC 8.5% income tax while renting a home in VA? Is there a non-resident income tax rate for those living in a different state but working in DC? Or should I expect to pay that 8.5% because I will be working in DC. Grateful to anyone who might know. Thanks!
Google "DC Virginia income taxes" and like the fourth result down explains it:
"you work in the District of Columbia, but live in Virginia. Because these two jurisdictions have a reciprocal agreement, you would file an exemption certificate with your employer in D.C. so that you do not have D.C. taxes withheld from your paycheck. Your employer would withhold taxes for Virginia instead (you may have to pay estimated payments on your own depending on the state and your employer). At the end of the year, you would file a Virginia income tax return."
Thanks!
Just to clarify, I can avoid paying the 8.5% DC rate and instead pay the 5.75% VA rate as long as I notify my employer to not withhold taxes for DC due to my living in VA? Am I correct in thinking that i will overall be saving 2.75% of my annual income by choosing to live in VA and not DC?
Thanks!
Just to clarify, I can avoid paying the 8.5% DC rate and instead pay the 5.75% VA rate as long as I notify my employer to not withhold taxes for DC due to my living in VA? Am I correct in thinking that i will overall be saving 2.75% of my annual income by choosing to live in VA and not DC?
No, because you are looking at the top marginal tax rate. Your actual income tax rate for either Virginia or DC will vary based on how much you make. For example, if you lived in Virginia, you would pay only 5.75% on the amount of your income that falls into the top income bracket (over $17,000). You pay different rates on amounts of your income that fall in lower brackets.
In addition, there is at least one tax Virginia has that DC doesn't: a personal property tax on cars. There might be other examples.
Last edited by stateofnature; 08-20-2015 at 02:24 PM..
Your employer will handle all of that when you check in with HR at your new job. In this area you pay income taxes based upon where you live. It's no big deal because so many people live in one area and work in another.
As stateofnature pointed out, the 8.5%/5.75% differential is only comparing the top marginal income tax rates. DC's sales tax rates are a touch lower, and our property taxes are substantially lower. Also, Virginia levies a 3% annual personal-property tax on cars, which DC and MD do not.
This gets really complicated. DC has higher income taxes, but lower property taxes than Virginia.
The problem is most people are not good at doing complex tax analysis.
However, with that being said, you pay taxes based on where you live here, not where you work.
This gets really complicated. DC has higher income taxes, but lower property taxes than Virginia.
The problem is most people are not good at doing complex tax analysis.
However, with that being said, you pay taxes based on where you live here, not where you work.
Exactly and if you're renter who gives a damn that there are low property taxes. Unless I were a millionaire, I wouldn't ever make relocation decisions based on taxes.
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