Unless DC tax was withheld from your unemployment, no. DC does not tax a nonresident of DC. If you did have DC tax withheld, you may file a DC nonresident request for a refund.
Is that true even though unemployment benefits are not earned income? I thought tax reciprocity agreements only applied to earned income?
Q. Is that true even though unemployment benefits are not earned income?
A. Yes. The technicality is that the income (UIC unemployment income compensation) was received in MD. This is a common situation and the rule is the same in all states; you only pay tax on out of state UIC to your home state.
So if I lived in Maryland and received DC UI, with federal withdrawals, I owe Maryland?
Yes, if you were a resident of Maryland you would only have to report and pay the tax on unemployment in Maryland, even if it was DC UI.
I received my last two DC UI checks while a resident of Virginia. Will this have any impact on what I owe Maryland?
If you were a Virginia resident when you received the Unemployment, it would be allocated to Virginia. If you file a Part Year Virginia return, you would include it on as income on the Virginia return, and then not include it for Maryland (on the part-year MD502 under Subtractions). Note: Unemployment is not taxable income in Virginia.
Is the opposite also true? What I mean is if you're a DC resident and got MD unemployment?
@burtongirls Since you are a DC resident, DC taxes all of your income no matter where you earned it. If MD tax was withheld from the unemployment, you would need to file a MD return to get a refund for mistaken withholdings (as you do not pay MD tax on the unemployment). But you are taxed in DC if they do not exclude the income as the Federal Government is.
Thanks! I got some mixed advice earlier about this question. We'd already filed the Federal and DC forms, but we were told we also needed to file in MD. Then, I tried to fill out the MD form and was even more confused by the information--lots of double negatives. I checked the DC form again, and I saw that we'd paid DC taxes for the unemployment benefits and that didn't seem to make sense to me. That's when I found this series of posts.
I'm sure that a lot of people are confused about unemployment benefits this tax season! I appreciate the clear answer and the understandable explanations!
@burtongirls That might be the understatement of the year. When tax law gets changed in March, it is not an easy adjustment.
@MaryK4 , I have a related question: Do I report unemployment income based on the payment issue date or the benefit date?
I moved from CA to DC and back to CA in 2020. My unemployment was filed in CA, and I only received unemployment payments ($$ in account) while a resident of CA. The unemployment benefit dates, however, cover a period of time when I was a resident in DC. Would this income be considered only CA income (and therefore untaxed), or would the portion that covered benefit dates while I was a DC resident be subject to DC tax?
How long were you in DC? It's possible that even though you "moved" to DC you still are considered a nonresident of DC.
Even if that is not the case, though, DC is conforming to the Federal provision to exclude up to $10,200 of your unemployment compensation from your DC tax return.
@DanielV01 I was living in DC for about 275 days, so over the 183 days that would qualify me as a resident, as far as I can tell. If I received over $10,200 in unemployment (for days I was unemployed and residing in DC, but all of which I actually *received* when I was residing in California), would the amount over $10,200 be taxed as DC income, or would it all be considered CA income based on the dates the payments were issued to me by California's Employment Development Department? I didn't get any payments at all for unemployment until November, though I'd been unemployed since March.
You do seem to meet the DC definition of a statutory resident. As such, all of your income for the entire year is taxable to DC as a resident. You will need to prepare the DC return first, and, if you were also a resident of California (maintained your domicile in California and returned there), you may claim a credit on your California return for tax you pay to DC.
If you did not maintain a domicile in California, you may file California as a nonresident instead. In this situation, you prepare the California return first, and you only claim income you received while physically present in California.
The unemployment income is taxed in DC, unfortunately, because a resident state (DC acts like a state for this purpose) is allowed to tax all of your income from all sources. Some states consider unemployment compensation that has been derived from a job within the state as taxable to the state, and many others do not. California obviously does not because they don't tax the income anyways. But it still is taxable in DC (above $10,200).
Thanks for your response, @DanielV01. So on DC form D-40, line 8 under "Subtractions from DC Income," "Income received by a part-year resident during period of nonresidence," how much of the unemployment I received do I include:
1) all of it, because I was paid all of the unemployment when I was no longer a resident of DC, and it wasn't income before that, or
2) only the part I received for benefit dates when I was no longer a resident of DC?
To put (fake) numbers to it, let's say the situation was as follows:
-I lived in CA in January, in DC February-July, and in CA again August-December.
-I was unemployed February-September and awarded $30k in unemployment for that time period ($3750/month).
-My unemployment claim took months to process, so I received all $30k of the unemployment payments in December while I was a CA resident.
-All of my unemployment was paid through California's unemployment office.
In that case, under "income received by a part-year resident during period of nonresidence," would I put $3,750 (amount awarded for September, when I was in CA) or $30,000 (amount received in December, when I was in CA)?
That also depends. Remember that if you are a DC statutory resident (you were maintaining a residence for 183 days or more), then you must file a resident return, and all of your income is taxed in DC. However, you could be a part-year resident if you maintained a residence for less than 183 days in DC, even though you were physically present in DC for more time. If you are a part-year resident, then you only include in DC income any income constructively received during your DC residence.
Since the unemployment was not DC-sourced, you do not pay DC tax on it unless you were a DC resident when you received it. The definitions that DC uses to define a resident can be a bit "fine" depending on the definition of "maintaining a residence". Presence in DC does not establish residency, if under 183 days. However, if you are present in DC more that 183 day, but you did not maintain a DC residence, then you are a part-year resident for DC purposes.
In your case: if you were maintaining a residence (which is generally some kind of "permanent dwelling" such as an apartment and not a hotel or temporary living quarters), then you were a DC resident last year and must file all of your income to DC. If you were not maintaining a residence, then you are a part-year resident and only pay tax on income earned/received while you were living in DC. DC does not tax nonresidents.
So if you live for more than 183 days in DC, and then say move to Georgia, can DC collect taxes on your income in GA? What about Georgia, or would you get tax credits in DC for the taxes you had to pay to GA on the same income?
If you maintain a residence (key wording) for 183 days or more in DC, then the answer to your question is yes because this is how DC defines a statutory resident. However, if you were present in DC for more than 183 days without actually maintaining a residence in DC, then you are a part-year resident, and only your income earned while you were in DC is taxed to DC.
In your example, if you are a DC resident, and begin to earn in Georgia, then you file your Georgia return, and you claim a credit on your DC return for taxes you pay to Georgia on the "double-taxed" income (taxed in both states).
In the end, you know your situation and will make that call on how to file. But I'm helping to explain the rules that DC has established.
But the DC booklet for form D-40 says "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." If you move to Georgia without ever planning on going back to DC, wouldn't that mean you've abandoned your domicile and should therefore be a part-year resident, even if you maintained a residence in DC for, say, 185 days?
Undoubtedly this is a point of debate with DC. Notice what is posted on their website: DC Statutory Resident. If you believe that you qualify as a part-year DC resident versus a statutory resident, and decide to claim such it will be up to you to prove with DC why you take the position you do. If you take the position as you mention above, be ready to provide proof to back up that assertion if DC asks (and they might not).
@DanielV01 , thanks again.
Unfortunately, I now worry that my DC return is wrong and that I have made the situation worse.
Because I indicated a MD-based income in response to the intial prompts, the TurboTax system started the MD forms and it added tax credit to my DC return. I filed and DC accepted my return before resolving the conficting guidance on whether the MD unemployment was taxable nonresident MD income.
I didn't realize nonresident returns should be done before filing resident returns. (Did TurboTax file the incomplete MD nonresident return along with my completed DC return? I cannot tell now.) Beause MD has extended its filing deadline to July, I thought I had time to resolve this issue, but I didn't see any reason to delay filing in DC--where the deadline was fast approaching. Wish now that I hadn't filed either state return until I had resolved this issue and deleted the incomplete MD return from TurboTax.
I went back into TurboTax today after deleting the unfiled and unfinished MD nonresident return, which I now know that I don't need to file, and it adjusted the DC taxes, showing that I get a much lower refund.
From what I have found, I will either have to file an amendment or DC will catch the error and adjust/reduce my refund. Also, it seems that experts recommend against filing any amendments until the initial return has been processed. Would you agree? If I wait and DC doesn't catch the error and adjust/reduce my refund on its own, will I get penalized for receiving the higher $ return or, worse, audited, before I can amend my DC return?
What a mess!
Do you have any advice for me?
Thanks!