Tax question: Moving from DC to MD, possibly. Implications?

August 9, 2020 10:35 AM

YANML. I may be moving from DC to MD, and hit a snag when I found out that it seems like DC has eliminated their part-year resident scenario, and now requires all residents who live in DC more than 183 days to have their whole yearly income be deducted, regardless if they moved out. I'm trying to understand if I'm reading that right, or if there's something I'm missing.

My general understanding was that if I moved out of DC anytime during the year, my taxable income would then be prorated to only reflect the time I earned the income during living IN DC, as a part-year resident (the previous rules said this: "A DC taxpayer present in DC for 183 days or more and not domiciled in DC during the tax year is a part-year resident for the period not domiciled in DC").

My questions are:
a) According to this article, it seems like DC has changed the rules so that even though I'm moving out, say, September to MD, my income earned from September-December would still need to be taxed by DC. Is my interpretation correct?
b) If this is true, should I go ahead and pay the DC tax office the withheld tax amount per paycheck for September-December (for example, $60 per paycheck, so $60x9 paychecks), then just file for the refund in 2021?
c) Doesn't this conflict with the Supreme Court ruling in 2015 that 2 states can't tax you at the same time?
d) How about MD? I'm not clear with their laws specifically, but would that mean I'd need to pay taxes for the WHOLE year if I move to MD this month, or would I just need to pay the 'prorated' tax amount for August-December (which would be deducted from my paychecks automatically), as a part-year resident?
e) Finally, let's say I move to MD this month and get a second/new job in September, completely in Maryland. Would this job be subject to DC taxes as well, as I'd still be a "statutory" resident of DC?

I'm struggling to understand the above linked article of the DC changes, as it's not written in "laymen's terms", so am not sure if my understanding is correct or if there's something I'm missing. I'm definitely a resident of DC this year for more than 183 days, so that's why I'm not sure.

My tax situation is dead simple: single, work income only; all W2's, no contract work or any other taxes. Student loan credit, as well, but this year's will be tiny because of the COVID waiver.

I need to make the decision very soon, and recently found this while researching tax implications of moving to another state, which is why I'm asking here.

Thanks, and again, YANML.

posted by dubious_dude to Law & Government (7 answers total)

Best answer: NOT A DC tax expert, but I did work in the District for a couple years and got to experience their weird tax stuff. (And for several years I paid tax in multiple states so I've done a lot of part-year/non-resident filings in a lot of different places.) It looks like DC basically changed to be more in line with how most states handle it (whereas previously they had complicated rules about income reporting because so many people only lived there during the legislative session). From the D-40 tax form for 2019:

"Part-Year Resident
An individual is a part-year resident if he/she moves into or out of DC during the year with the intent to establish or abandon his/her domicile in DC. The calculation of tax liability for a part-year resident is prorated based on the income earned in DC, during the period of residency. An individual filing a part-year return must indicate the period of residency on Line 2 of Form D-40. All credits, exemptions and deductions must be prorated according to the time of DC residency. "

Moreover:
"A statutory resident is a full-year resident under DC law and, therefore, must file a tax return reporting his/her entire income for the taxable year. A statutory resident may seek credits for individual income taxes paid to other state(s), while concurrently a resident of DC. However, he/she must provide satisfactory proof of payment, including an individual income tax return filed with the other state(s), in order to be eligible for a credit"

It's always a pain in the ass the year after you move and you'll have to file in DC and MD to get stuff prorated, but programs like Turbo Tax make it pretty easy. (Leaving aside Turbo Tax's inherent evilness.) If your workplace is large, a quick e-mail to HR might also help clarify what you should expect, tax-wise, when you move. (Multi-state metro areas often have interstate compacts about handling tax withholding for residents of one state who work in another.) Some HRs are very helpful about this; others are not. But it doesn't hurt to ask.

Just glancing at some DC tax lawsuits from the 2010s, it seems like getting to pick and choose how much of your income "belonged" to DC (i.e., the part of it you earned while living in DC) led to a super-lot of tax evasion, where people would do all their income-earning work while in DC for 5 months of the year, and then claim they earned it all in Florida or Texas or somewhere else with no income tax, thus avoiding any taxation. This change seems like a problem for rich lobbyists, not for working stiffs such as yourself.
posted by Eyebrows McGee at 12:13 PM on August 9, 2020

Best answer: If you're moving, full stop, you'll be a part year resident in DC and a part year resident in MD. Have your employer change your withholding when you move, and file your taxes with the same date, and that'll be the end of it. That other law comes into effect if you maintain multiple residences, of which DC is only one, and as Eyebrows points out it's basically meant to tax lobbyists and lawyers who effectively live and earn here year round but claim that they live primarily somewhere else as a way to skirt the taxes.
posted by fedward at 12:31 PM on August 9, 2020

Response by poster: Thanks for the answers! :) Follow up questions below.

a) fedward, are you saying that I wouldn't be considered a statutory resident of DC? Where does it say that this applies to multiple state residences? Here's the definition from the DC D-40 of a statutory resident: "An individual is a DC statutory resident, even though not domiciled in DC, if he/she maintained a place of abode in DC for an aggregate of 183 days or more days during the taxable year" (bolding mine for emphasis). So, based on that language, does that mean they consider anyone who lives in DC more than 183 days a full-year resident, even if you move out in August or September?

b) So, if I'm understanding correct, I don't need to pre-pay all of the September-December DC withholding amounts? I just change my address with my employer (planned to do that anyway), then file as a part-year resident, not a statutory resident? Then I'd get prorated refunds for both MD/DC, provided enough is withheld?

And, yes, again acknowledging YANML.
posted by dubious_dude at 1:56 PM on August 9, 2020

Best answer: Here's my non-lawyer's read on it.

This whole thing gets a bit clearer when you go back to the atual statute and realize that for the purposes of taxation, there's only two buckets -- "Resident" and "Nonresident", but then there's two types of resident.
D.C. Code § 47-1801.04:

(35) “Nonresident” means every individual other than a resident.
...
(42) “Resident” means an individual domiciled in the District at any time during the taxable year, and every other individual who maintains a place of abode within the District for an aggregate of 183 days or more during the taxable year, whether or not the individual is domiciled in the District, excluding [ a bunch of stuff pertaining to elected/appointed Federal officials, their staff, and members of the Supreme Court]. In determining whether an individual is a resident, an individual’s absence from the District for temporary or transitory purposes shall not be regarded as changing his domicile or place of abode.

The other important point in the statute is the phrase "every other individual". That means that the second clause only applies to individuals to whom the first clause doesn't apply. That is, there's two categories of resident:
(1) People who were legally "domiciled" in DC for any portion of the year
(2) People who were never legally "domiciled" in DC, but "maintained a place of abode" for over half a year.

As Eyebrows McGee notes, people who have more than one home can play games with where they are "domicled" for tax purposes. You could claim that you were never "domiciled" in DC at all, and therefore you should be a nonresident for tax purposes. DC is cutting off that loophole by saying that regardless of whether you were domiciled in DC or not, you don't get to call yourself a nonresident if you "maintained a place of abode" in DC over half the year.

Note that the article you found cites that same statute, and makes it clear that a "Domiciliary Resident" is someone who meets the first part of the sentence, and "Statutory Resident" is someone who meets the second half.

The District Code however defines a “resident” as, in relevant part, “an individual domiciled in the District at any time during the taxable year (Domiciliary Resident), and every other individual who maintains a place of abode within the District for an aggregate of 183 days or more during the taxable year, whether or not the individual is domiciled in the District (Statutory Resident), ... In determining whether an individual is a resident, an individual’s absence from the District for temporary or transitory purposes shall not be regarded as changing his domicile or place of abode.” (Emphasis added4.) Both a Domiciliary Resident and a Statutory Resident are subject to the income tax for the entire tax year and all income is taxable wherever earned5.

The thing that makes your situation different from the above situation is that your "absence from the District" would not be temporary. You are making a permanent move. That means that you are a "resident" until the date you move, and then a "nonresident" after that.

You are currently domiciled in DC- that is your permanent residence. You are not currently "maintaining a place of abode" in DC, as that is something that only relevant to people who are not domiciled in DC. If/When you move to MD, you will become a part-year resident -- per the DD-40, someone who "moves into or out of DC during the year with the intent to establish or abandon his/her domicile in DC."

And per D.C. Code § 47-1803.02 (a)(2)(F), you don't owe DC any tax after you stop being a resident.:

(a) Gross income. — The words “gross income” shall have the same meaning as defined in § 61 of the Internal Revenue Code of 1986. In addition to the items specifically included or excluded by reference to § 61(b) of the Internal Revenue Code of 1986, the following items shall also be included or excluded in the computation of District gross income:
...
(2) The following items shall be excluded in the computation of District gross income:
...
(F) Income received or, in the case of a taxpayer reporting on an accrual basis, income accrued when the taxpayer was not a resident of the District.

posted by yuwtze at 6:10 PM on August 9, 2020

Best answer: Not lawyer, but here is my take. To get the correct answer consult a tax accountant/lawyer.

However, I believe what they are talking about are the case of a Congressional staffer. They are a resident of state X and have a home in state X. They also maintain an residents in DC and live there for more then 183 days during the year. They would be treated as a full time resident of DC.

I believe that since you will be leaving DC as your permanent home and now living in MD full time this would not apply in your case. Read the last paragraph of the DHG article you posted above.

"Finally, it should be pointed out that if an individual does not meet the requirements to be a Statutory Resident, then a part-year resident return is not required. OTR instructions provide that “an individual is a part-year resident if he/she moves into or out of DC during the year with the intent to establish or abandon domicile.” A nonresident income tax return is not required to be filed. Nonresident individuals (those not considered Domiciliary Residents or Statutory Residents) are not subject to any tax on the whole or any portion of their personal income in the District under Federal legislation, known as the District of Columbia Home Rule Act of 1973. Albeit, an important exception is carved out for nonresidents conducting a trade or business within the District as unincorporated businesses."
posted by tman99 at 6:55 AM on August 10, 2020

Best answer: The statutory resident definition only comes into play if you maintain a dwelling in DC for more than half the year but claim residence in another state for the same time. If you end your lease or sell your house, you're not maintaining the dwelling in DC and you're a part-year resident. DC will not come after you. DC's statutory resident laws are targeting people who maintain second (or third, or or or) homes in DC year round. They aren't targeting people who have only one residence at a time, and having a brief overlap while you accomplish moving doesn't really count.

As an example: my old landlord owned houses in DC and another state. They really lived in DC, worked in the DC area, and mostly spent weekends in the other state, aside from the occasional vacation week. If they were to claim their house in the other state as their primary domicile, DC would tax them as a statutory resident, because they owned the house in DC and maintained it for their own use for that entire time. DC also has requirements that you register any car regularly parked on DC streets. My landlord's car had an out of state tag, up until it didn't. I wonder what happened.

NB: if you own your place in DC and you're thinking of keeping it and offering it as a short term rental via AirBNB or something like it that will probably also get you in trouble in one way or another. DC's laws on such sharing platforms allow short term rentals of up to 30 days provided the owner is also living in the property, and sets a 90 day annual cap on short term rentals if the owner is not living in the property. You can't both be resident for short term rental purposes and non-resident for tax purposes. If you have a tenant with a long term lease, then it's not a second domicile for you because it's somebody else's primary residence.
posted by fedward at 7:32 AM on August 10, 2020

Response by poster: All very helpful answers, thanks a trillion! I feel confident now that it'll be OK to file as a part-year resident for both states, if I move out.
posted by dubious_dude at 7:04 PM on August 10, 2020