DC deduction, exemptions, credit and rates updated

The District of Columbia recently enacted the Fiscal Year 2018 Budget Support Emergency Act of 2017. This legislation enacts, on an emergency basis, changes to the standard deduction, personal exemption, low income credit, and personal and corporate income tax rates. However, most of the changes have been previously announced by the District’s Chief Financial Officer (CFO) because they were subject to the statutory rate reduction triggers of Sec. 47-181, D.C. Code. That code section reduces rates or increases exemptions based upon the availability of funding in the District. Many of the changes below are the result of the conditional language related to Sec. 47-181, D.C. Code being removed and the rates or exemption levels triggered by that language being incorporated into the statutes. The emergency law also reenacts with slight changes the two special assessments on hospitals. Provisions governing property tax changes are covered separately.

Standard deduction.

For tax years beginning after December 31, 2017, the standard deduction will rise from the 2017 amounts of $5,650 for single individuals, $7,800 for head of households, and $10,275 for married filing jointly to the federal standard deduction amount as determined in Code Sec. 63(c). For 2017, the federal standard deductions are $6,350 for single individuals, $9,350 for head of households, and $12,700 for married filing jointly. Previously, due to sufficient funding levels the District’s CFO had announced a standard deduction increase to $6,100 for single individuals, $8,950 for head of households, and $12,200 for married filing jointly. Prior to this emergency legislation, the change the CFO announced was to have been effective on January 1, 2018. After 2017, the standard deduction amount is no longer tied to the availability of funding and Sec. 47-181, D.C. Code.
The additional personal exemptions allowed a blind person, a taxpayer who has attained the age of 65 before the close of his/her tax year, and the spouse/registered domestic partner of a blind or a person age 65 (if the spouse has not gross income and is not the dependent of another taxpayer) will not be allowed once the standard deduction conforms to the level of federal standard deduction. The standard deduction is scheduled to rise to the level of federal standard deduction for tax years beginning after December 31, 2017. Previously, these exemptions were to be allowed only until the individual income tax middle bracket of $40,000 – $60,000 was reduced 7.0% to 6.75%, based upon availability of funding in accordance with Sec. 47-181(c)(1), D.C. Code. The rate for that bracket was reduced to 6.5% for the 2016 tax year.

Low income credit.

The low income credit will no longer be allowed for tax years beginning after December 31, 2017. This change was previously announced by the District’s CFO because the statute required the low income credit to no longer be allowed once the personal exemption is increased to conform to the federal level.

Personal income tax brackets.

The personal income tax rates and brackets as in effect for tax years beginning after December 31, 2015 will remain in effect. All language as to the rates being subject to the availability of funding and the rate reduction triggers of Sec. 47-181, D.C. Code has been repealed. Thus, for tax years beginning after 2015, the rates remain:

  • For taxable income of $0 to $10,000, the rate is 4% minus $0;
  • For taxable income of $10,001 to $40,000, the rate is 6% minus $200.00;
  • For taxable income of $40,001 to $60,000, the rate is 6.5% minus $400.00;
  • For taxable income of $60,001 to $350,000, the rate is 8.5% minus $1,5600.00;
  • For taxable income of $350,001 to 1,000,000, the rate is 8.75% minus $2,475.00.
  • For taxable income of $1,000,001 and over, the rate is 8.950% minus $4,475.00. (Act 22-104 (D.C.B. 22-341), Laws 2017, effective January 1, 2018, except as noted above, for a 90-day period that expires October 18, 2017.)

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