Why DC Doesn't Tax Commuters' Wages

The rule

When Congress gave Washington DC limited self-government in the District of Columbia Home Rule Act of 1973, it included a specific restriction: the DC Council may not impose a tax on the personal income of people who are not DC residents. That means a person who lives in Maryland or Virginia and works in DC pays no DC income tax on those wages. They pay income tax to the state where they live.

This is unusual. States almost always tax nonresidents on wages earned within their borders — New York taxes New Jersey commuters, and Massachusetts taxes New Hampshire commuters. DC cannot.

Why it matters so much in DC

DC is a small jurisdiction at the center of a large region. More than half of the people who work in the District live in the Maryland and Virginia suburbs. Their wages are earned in DC, and many use DC roads, transit and services during the workday, but their income tax goes to Annapolis and Richmond and, for Marylanders, to their county.

DC officials have long argued for a commuter tax, noting that DC must fund both state-level and city-level services from one budget, while a large share of its economy is off-limits to income tax. Congress has not changed the rule. DC relies instead on taxes it can collect: income tax from residents, property tax, sales tax and business taxes.

What commuters pay instead

Maryland residents pay Maryland state tax on graduated brackets from 2% up to 5.75% for most incomes — with new 6.25% and 6.5% brackets for very high incomes starting in 2025 — plus a county "local" income tax. Montgomery and Prince George's counties use 3.2% in Rate and Reason's estimates, and counties can now set up to 3.3%.

Virginia residents pay Virginia tax on brackets from 2% to 5.75%, with the top rate starting at just $17,000 of taxable income. For 2026 the standard deduction is $8,750 ($17,500 joint). Virginia localities do not add income tax, but many charge personal property tax on cars.

DC residents pay DC tax on brackets from 4% to 10.75%.

A worked comparison

On a $110,000 DC salary for a single filer with $6,000 of pre-tax deductions, federal tax and FICA are the same in all three places. The difference is the state and local tax: Rate and Reason's DC vs Maryland vs Virginia calculator estimates the DC resident's tax, the Montgomery County resident's state and county tax, and the Virginia resident's state tax side by side. At many middle incomes, Virginia comes out ahead because it adds no local income tax, while Maryland's county tax pushes its total up.

How withholding works

A DC employer withholds DC tax by default. Maryland and Virginia residents file Form D-4A, Certificate of Nonresidence, so the employer stops DC withholding and withholds for the home state instead. If DC tax was withheld by mistake, a nonresident can file a DC return to get it refunded.

Reciprocity also runs the other way: DC residents who work in Maryland or Virginia generally pay only DC tax on those wages.

Beyond income tax

Income tax is only part of the decision. Housing costs, commute time, property tax, car taxes and childcare often matter more. DC offers free universal pre-K for three- and four-year-olds, which can outweigh an income-tax difference for a young family. Maryland and Virginia suburbs often offer more space for the money, and Virginia's car tax can be a surprise for new residents.

Could it change?

Changing the rule would require an act of Congress. Proposals for a DC commuter tax have been introduced over the years without success, so for now, where you live — not where you work — decides who taxes your paycheck in the DC region.