District of Columbia (DC) Tax Guide 2026

Personal income tax — 7 brackets

D.C. Code §47-1806.03 (as amended by the FY 2022 Budget Support Act) sets the 7-bracket schedule. For 2026 (illustrative, brackets fixed): • 4.0% on first $10,000 • 6.0% from $10,000 to $40,000 • 6.5% from $40,000 to $60,000 • 8.5% from $60,000 to $250,000 • 9.25% from $250,000 to $500,000 • 9.75% from $500,000 to $1,000,000 • 10.75% above $1,000,000 Standard deduction conforms to federal ($15,000 single / $30,000 MFJ for 2026). No personal exemption (TCJA conformity). DC offers an EITC = 70% of federal EITC — the most generous state-level EITC in the country. Social Security benefits are FULLY EXEMPT from DC income tax. Federal civil service annuities receive a $3,000 exclusion for filers 62+.

Unincorporated Business Franchise Tax (UBFT) — the self-employed trap

D.C. Code §47-1808.03 imposes an 8.25% franchise tax on the NET INCOME of unincorporated businesses (sole proprietorships, single-member LLCs taxed as disregarded entities, partnerships, multi-member LLCs taxed as partnerships) whose gross income from DC sources exceeds $12,000. Critical exemptions: • >80% of gross income must come from personal services AND capital is not a material income-producing factor → the 'personal services exemption' shields most consultants, lawyers, accountants, doctors • A trade/business that elects S-corp status is taxed as a CORPORATION at 8.25% (also subject to franchise tax but under §47-1807.02) Who gets hit hardest: real estate investors, retailers, restaurants, contractors, and anyone with material capital invested. They pay 8.25% UBFT at the entity level THEN owners pay personal income tax (up to 10.75%) on the residual distribution — economic double taxation, with a salary deduction inside UBFT to mitigate. Minimum tax: $250/year for entities with DC gross > $1M; $1,000/year for entities with DC gross > $5M.

Sales and use tax

DC has a single-rate 6% general sales tax (D.C. Code §47-2002) — no local add-ons because DC is a single jurisdiction. Special rates: • Restaurants, prepared food, alcohol for on-premises: 10% • Off-premises alcohol (liquor store): 10.25% • Hotel/transient lodging: 14.95% • Parking: 18% (one of the highest parking taxes in US) • Soft drinks / sugar-sweetened beverages: 8% • Rental cars: 10.25% Groceries: exempt. Economic nexus: $100,000 gross OR 200 transactions (post-Wayfair, D.C. Code §47-2202).

No convenience-of-employer rule — DC's commuter-friendly stance

Unlike New York (and Connecticut), DC sources income based on physical presence. Non-residents (Maryland and Virginia commuters) only owe DC tax on income earned for days physically worked IN DC. This is significant because, by federal law (49 U.S.C. §40116 and D.C. Code §47-1806.03(a)(7)), DC is PROHIBITED from imposing personal income tax on non-resident workers. Maryland and Virginia residents who work in DC pay tax to their HOME state on all wages. Practical effect: • MD resident working in DC: owes Maryland tax only; no DC return • VA resident working in DC: owes Virginia tax only; no DC return • DC resident working anywhere: owes DC tax on worldwide income This non-taxation of commuters costs DC an estimated $2B+/year — a perennial political issue (the 'commuter tax debate').

Property tax and estate considerations

DC property is taxed by class: • Class 1 (residential owner-occupied 1-5 units): 0.85% • Class 2 (commercial/non-residential): 1.65% to 1.89% • Class 3 (vacant): 5% • Class 4 (blighted): 10% Homestead deduction: $84,000 reduction from assessed value for owner-occupied principals. Assessment cap: 10%/year increase for Class 1 (D.C. Code §47-864). DC estate tax (D.C. Code §47-3701): 11.2%–16% rates on estates exceeding $4.873M (2024 base, indexed). Significantly LOWER threshold than the federal $15M exemption — a planning trap for DC residents with $5M–$15M estates. No DC inheritance tax. PTET available via S-corp/partnership election (D.C. Code §47-1812.04 framework, modeled on federal SALT-cap workaround).

Worked example: Jamal Okonkwo, DC-resident lobbying firm partner (MFJ, 2026)

Jamal is a partner in a DC-based lobbying partnership. His K-1 income is $850,000; wife earns $200,000 W-2. They own a $1.2M DC home.

Federal: top marginal bracket 35–37%; QBI likely phased out (SSTB if lobbying is consulting-adjacent; lobbying itself is arguably NOT an SSTB but often treated cautiously). DC personal: AGI: $1,050,000 Standard deduction: $30,000 Taxable: $1,020,000 DC tax through brackets (top 10.75% applies to $20k slice): ~$92,000 UBFT at partnership level: Lobbying = personal services > 80%, capital not material → UBFT EXEMPT (firm files informational only) Property tax on $1.2M home (Class 1): Assessment $1,200,000 − $84,000 homestead = $1,116,000 × 0.85% = $9,486/yr Total annual DC burden: ~$101,500 + property = ~$111,000

Statute references

• Personal income tax brackets (top 10.75%) — D.C. Code §47-1806.03
• Unincorporated Business Franchise Tax — D.C. Code §47-1808.03
• Corporate franchise tax (8.25%) — D.C. Code §47-1807.02
• Sales tax — D.C. Code §47-2002
• Federal prohibition on commuter tax — 49 U.S.C. §40116 / D.C. Code §47-1806.03(a)(7)
• Property assessment 10% cap — D.C. Code §47-864
• DC estate tax — D.C. Code §47-3701

Related pages

• State Tax Comparison →
• Multi-State Allocation →
• QBI §199A Deduction →