January 13, 2015

District of Columbia

State & Local Taxes in 2015


District of Columbia Tax Code Features

Progressive Features

• Graduated personal income tax structure

• Provides a 40% refundable EITC for families with children and 100% credit to childless workers (income eligibilty is higher than the federal credit)

• Limits itemized deductions for upper-income taxpayers

• Provides a refundable property tax “circuit breaker” credit for low-income and elderly taxpayers

• Sales tax base excludes groceries

• Requires the use of combined reporting for the corporate income tax

Regressive Features

• Comparatively high cigarette tax rate

Tax Changes Enacted in 2013 & 2014

• Expanded property tax “circuit breaker”

• Expanded earned income tax credit (EITC) for childless workers

• Increased the standard deduction

• Created a new middle-income tax bracket with a lower rate

• Began phasing-out personal exemptions for high-income taxpayers

• Reduced sales tax rate to 5.75 percent (from 6.0 percent) and broad­ened the sales tax base to include more services

• Reduced business franchise tax rate

• Reformed gasoline tax to allow rate to grow alongside gas prices

• Additional changes will be enacted if revenue growth targets are met

ITEP Tax Inequality Index

According to ITEP’s Tax Inequality Index, DC has the 50th most unfair state and local tax system in the country making it one of the least regressive tax systems. States with regressive tax structures have negative tax inequality indexes, meaning that incomes are less equal in those states after state and local taxes than before (See Appendix B for state-by-state rankings and more details).

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