District of Columbia Tax Changes Take Effect October 1st

The District of Columbia Office of Tax and Revenue (OTR) reminds taxpayers, tax professionals, software providers, businesses and others about tax changes that will take effect October 1, 2024. These changes are pursuant to the Fiscal Year 2025 Budget Support Emergency Amendment Act of 2024 (Act 25-0506), and the Fiscal Year 2025 Budget Support Amendment Act of 2024 (Act 25-0550).

The following changes will take effect October 1, 2024, unless otherwise indicated:

Clean Hands:

Clean Hands Certification Economic Expansion and Revitalization Amendment Act of 2024: As of October 1, 2024, the amount of delinquent taxes, including penalties and interest, that will disqualify an applicant from receiving a certificate of cleans hands will increase from $100 to $1,000.

Corporation Franchise Tax and Unincorporated Business Franchise Tax:

Small Retailer Property Tax Relief Amendment Act of 2024: For tax year ending December 31, 2024, the maximum credit is increased to $10,000 and the income eligibility cap is increased to $3,000,000 in federal gross receipts or sales. For tax years beginning after December 31, 2025, the maximum credit amount and the income eligibility cap will be increased annually pursuant to the cost-of-living adjustment.

Qualified High Technology Company Tax Amendment Act of 2024: The 3% capital gains rate on the sale or exchange of a QHTC investment is permanently repealed.

Combined Reporting Amendment Act of 2024: Starting January 1, 2026, the District will change how it calculates taxes for businesses that operate in multiple states. Instead of using the Joyce method, it will transition to the Finnigan method. This means that all the companies in a combined group will be treated as a single taxpayer. When determining how much income is taxable in the District, the District will consider all the income from the entire group, even if some companies in the group don't have a direct connection or nexus to the District.

Individual Income Tax:

Earned Income Tax Credit Amendment Act of 2024: For tax years beginning after December 31, 2023, if the amount of the DC Earned Income Tax Credit is $1,200 or more, a taxpayer may elect to receive the credit in 12 equal monthly payments. If the taxpayer does not make such an election, the credit will be paid in one total payment. The DC Earned Income Tax Credit will increase to 85% of the federal credit for tax years beginning after December 31, 2024, to December 31, 2028. The increase to 100% of the federal credit, for tax years beginning after December 31, 2025, has been postponed to tax years beginning after December 31, 2028.

Schedule H Credit: For tax year 2024, the maximum amount of the credit is increased to $1,375.00 and the income threshold amounts are increased to $63,900.00 for non-seniors and $87,100.00 for seniors.

Keeping Child Care Affordable Tax Credit: For tax year 2024, the maximum credit amount is increased to $1,160.00 per eligible child and the maximum eligible income amounts are increased to $174,300.00 for single, head of household and joint tax filers and to $87,100.00 for married filing separate tax filers.

Child Tax Credit Amendment Act: The District established a new refundable income tax credit for tax years beginning after December 31, 2024. The amount of the credit will be $420 for each qualifying child who has not reached the age of 6 years as of December 31 of the taxable year, up to a maximum of three qualifying children. The amount of the credit will be reduced by $20 for each $1,000 (or fraction thereof) by which the taxpayer’s adjusted gross income exceeds a certain threshold amount. The threshold amounts are $160,000 for an unmarried individual filing as single, head of household or qualifying widow(er), $240,000 in the case of married individuals or registered domestic partners filing either jointly or separately on the same return, or $120,000 for an individual filing as married filing separately. (The income threshold amounts will be increased annually pursuant to the cost-of-living adjustment beginning in tax year 2025.)

Income Tax Secured Bond and Out-of-State Municipal Bonds Amendment Act of 2024: For tax years beginning after December 31, 2024, interest on the obligations of other states and their political subdivisions will be included in District gross income. Interest earned on obligations of the District or a territory of the Unites States as well as obligations issued by DC Water, the Washington Metropolitan Area Transit Authority (WMATA), and the District of Columbia Housing Finance Agency (DCHFA) remain exempt.

Shared Responsibility Payment:

For tax year 2024, the applicable dollar amount used to calculate the shared responsibility payment has been increased to $795.00.

Sales and Use Tax:

Sales and Use Tax Amendment Act of 2024: The general sales tax rate on the gross receipts from the sale of or charges for tangible personal property, digital goods and taxable services, currently 6.0%, will be increased to 6.5% for periods beginning October 1, 2025 through September 30, 2026 and 7.0% for periods beginning October 1, 2026.

Sports Wagering Tax:

Sports Wagering Amendment Act of 2024: Effective August 1, 2024, the tax rate structure for the tax on gross gaming revenue of licensed operators will be 20% (Class A), 10% (Class B) and, 30% (newly created, Class C).

Real Property Tax:

Real Property Tax Amendment Act of 2024: As of October 1, 2024, residential real property previously classified as Class 1 will now be classified as either Class 1A or Class 1B. Class 1A property is any non-transient, residential property that is not included in the definition of Class 1B property. Class 1B property is non-transient residential property with no more than two dwelling units. It includes mostly single-family homes, properties receiving the senior/disabled tax relief, and up to two contiguous condominium units with common ownership. (Short-term, licensed rentals of such properties do not affect their Class 1A or Class 1B status.) The rate structure for Class 1A and Class 1B property is as follows:

Class 1A Entire taxable assessed value 0.85% Class 1B For the first $2,500,000 of taxable assessed value 0.85% For the remainder of the taxable assessed value above $2,500,000 1.00%

Recordation Tax:

The purchase price for a residential property eligible for the reduced rate of recordation tax for first-time homebuyers for tax year 2025 (beginning October 1, 2024) shall not exceed $753,000.00. The income ceilings for households of such properties are also adjusted for the change in the consumer price index. These changes will be reflected in the application form for tax year 2025.

Additional Changes Effective October 1, 2024:

Cigarettes and Other Tobacco Tax:

Cigarettes: There is no change to the cigarette tax, which remains at $5.03.

Other Tobacco: The tax rate on other tobacco products will decrease from 79 percent of wholesale sales of other tobacco products to 71 percent of wholesale sales of other tobacco products. Additionally, the rate for little cigars remains at $0.2515 per little cigar.

Motor Fuel Tax:

The motor fuel surcharge will increase from $.114 to $.118 per gallon on the sale of gasoline, gasohol, and other motor vehicle fuel. This surcharge is in addition to the $.235 tax on the sale of gasoline, gasohol and other motor vehicle fuel.

Additional Changes Effective January 1, 2025

Estate Tax:

For estates of decedents who die on or after January 1, 2025, and on or before December 31, 2025, the exclusion (zero bracket) amount is increased to $4,873,200.00.

For additional information, contact OTR’s Customer Service Center at (202) 727-4TAX (4829).

Additional Resources:

Fiscal Year 2025 Budget Support Emergency Act of 2024

Fiscal Year 2025 Budget Support Act of 2024

Chief Financial Officer, Office of the - Tax and Revenue, Office of - Notice of Increase in the Surtax on Cigarette Packages for Tax Year 2025

Chief Financial Officer, Office of the - Tax and Revenue, Office of - Notice of Tax Rate on Other Tobacco Products for Tax Year 2025

Chief Financial Officer, Office of the - Tax and Revenue, Office of - A Notice of Increase in the Local Transportation Surcharge on Motor Vehicle Fuels for Tax Year 2025

Chief Financial Officer, Office of the - Tax and Revenue, Office of - Eligibility for the Reduced Recordation Tax Rate for First-Time Homebuyers in Tax Year 2025

Chief Financial Officer, Office of the - Revenue Analysis, Office of - Notice of Increases in the Schedule H Maximum Credit and Income Thresholds for Tax Year 2024

Chief Financial Officer, Office of the - Revenue Analysis, Office of - Notice of Increase in the Keep Child Care Affordable Tax Credit and Income Thresholds for Tax Year 2024

Chief Financial Officer, Office of the - Revenue Analysis, Office of - Notice of Increase in the Applicable Dollar Amount for Computation of the District's Shared Responsibility Payment for Tax Year 2024

Chief Financial Officer, Office of the - Tax and Revenue, Office of - A Notice Pertaining to the District of Columbia Estate Tax Return for a Decedent's Gross Estate When the Date of Death is On or After January 1, 2025