State to State move . How bonus is taxed

[ELSCPA]

I thought DC and VA have a recipricol agreement where they do not tax each others residents. And DC does not have a non resident return, so if one moved from DC to  VA, I do not know how DC would tax a bonus earned while a DC resident and paid while a VA resident. I do not think they have an accrual rule for moving out of the state, although I am not sure.

I would be interested in knowing about this more if anyone knows.

Thank you,

[AmyC]

Yes, there is a reciprocal agreement between DC and VA. DC nonresidents can file a request for refund, D-40B - DC Office of Tax and Revenue.

@ELSCPA 

[TomD8]

@ELSCPA --

According to this accounting website, non-residents of DC who have DC-source income must file DC Form D-40 if their DC-source income exceeds $12,550 (2024).

Do You Need to File a D-40 Tax Form as a Non-Resident? - Accounting Insights

[ELSCPA]

I think that is incorrect. Here is the VA site regarding their reciprocity agreement with DC

https://www.tax.virginia.gov/reciprocity#:~:text=Virginia%20Residents%20who%3A,are%20exempt%20from%2....

[AmyC]

VA will not tax DC income when you live in VA. DC taxation is not covered under VA law.

Your VA link states: Virginia Residents who:

• Work in the District of Columbia, but do not establish residency in Washington, D.C are exempt from taxation there. These Virginia residents will pay income taxes to Virginia. This applies to individual income tax only, not to the District of Columbia Unincorporated Business Franchise Tax.

Then we go straight to DC to read their rules here. You were a part year resident so you need to file part year with the DC income and part year with VA income. Between them, all of your income needs to be taxed.

If you were a nonresident, we could move to special circumstances and see it says: My employer withheld District of Columbia income tax, and I am not a resident of DC. Which form do I file to receive a refund?
Use Form D-40B, Non-Resident Request for Refund (available by visiting Tax Forms, Publications, and Resources).

@ELSCPA 

[ELSCPA]

Hi,

For the record I am not a resident of DC or VA but I am just trying to understand how DC handles the flip side of the bonus situation someone brought up earlier. DC does not tax nonresidents to the best of my understanding, plus DC has a reciprocal agreement with  VA to not tax each others residents.

The situation I am thinking of is a 2023 DC resident (assume full year) who moved on 1/1/24 to VA. They were paid a bonus in early 2024 based on work performed during 2023. The work was performed while a DC resident and in DC. However, it was paid while the taxpayer was a VA resident.

Where I live, in NY, this bonus paid in the next year would be considered NY income to the extent the taxpayer worked in NY in the prior year, the year the bonus was earned. NY has no reciprocal agreements and has a nonresident tax form.

I think in the situation I mention, the 2023 earned, 2024 paid bonus is only taxed by VA, neither taxable or reportable in DC. If the employer were to withhold DC tax on the bonus income, taxpayer would file for a full refund. Do you not agree with this?

Separately, what is the DC employers responsibility for withholding. Are they required to withhold VA tax and are they allowed or required to not withhold DC tax, in this situation.

Thank you al!

[TomD8]

@ELSCPA --

 "...if one moved from DC to  VA, I do not know how DC would tax a bonus earned while a DC resident and paid while a VA resident."

6. Who is considered to be a DC resident?
An individual is a DC resident if that individual (a) was domiciled in DC at any time during the taxable year or (b) maintained a place of abode in DC for a total of 183 days or more during the year at issue (also known as a “statutory resident”).  

https://otr.cfo.dc.gov/page/non-filer-faqs

DC residents file DC Form D-40, on which they report all their income.