Moved Maryland to DC mid year, worked in MD all year

[emulhern72]

I started the 2021 living and working in Maryland, as I have for the last 5 full years. In September '21 I moved to DC while continuing my job in Maryland and my employer continued to withhold Maryland State taxes since I never updated my state tax documents with them. How will this affect my tax filing for FY21? And what forms do I need to submit to my employer to have taxes properly withheld in DC for FY22? Thanks for any clarity with this. 

[TomD8]

You will file two state returns for 2021: a part-year resident return for DC, and a resident return for MD.  Here is MD's rule:

"If you are a resident of Washington, D.C. or Virginia who works in Maryland, and you do not
live in Maryland for more than six months during the calendar year, you are exempt from
Maryland state income tax withholding on wages and salaries earned in Maryland. If you do
live in Maryland for more than six months, you are considered a statutory resident and will
need to file a resident income tax return with Maryland."

https://www.marylandtaxes.gov/forms/Personal_Tax_Tips/tip56.pdf

For 2022, file MD Form MW507 with your employer and check Box 4, indicating that you are a DC resident and thus exempt from MD withholding.  Here's a link to the form:

https://www.marylandtaxes.gov/forms/current_forms/mw507.pdf

[DanielV01]

You file part-year returns for both Maryland and DC.  The part-year Maryland return will only claim the income you earned while living in Maryland.  Since you had Maryland tax withheld the entire year, this should result in a significant refund.  But this is "rob Peter to pay Paul", because you will likely owe most of this refund to DC (since you have not had DC tax withheld).

Yes, you want to make sure you have your tax withholdings adjusted accordingly.  Because of the reciprocal agreement, you no longer want to have Maryland taxes withheld, and if you don't move back to Maryland will not have to file a 2022 return for Maryland.

[TomD8]

@emulhern72 --

Since you lived in MD more than 6 months during the tax year, the reference cited in my previous answer indicates that you must file your 2021 MD tax return as a resident.

[emulhern72]

Thank you for the detailed response. Once I submit MD507 for exemption from Maryland withholdings in FY2022 what form do I need to submit to start DC withholds appropriately?

[TomD8]

You must file DC Form D-4 with your employer.  Here's a link:

https://otr.cfo.dc.gov/page/withholding-tax-forms-and-publications

Note that the form on DC's own website is the 2017 form.  I don't know if the 2022 form is yet available.