Your short answer is that you should just list Virginia as your "home" state of residence, and leave it at that. Because Washington, D.C. has a special agreement with Virginia, if your only income from Washington, D.C. is from your W-2 employment, then you don't need to enter that fact into TurboTax, or file a D.C. income tax return. In TurboTax, this will look like the screen-capture images attached to the bottom of this text; simply click the images to open. For a longer answer, please continue reading.
If you live and work in Virginia (and
this applies to telecommuters too), then it actually doesn't matter where your
employer may be based, or what return address is printed on your W-2. It could be Maryland, California, or even Paris,
France. As an individual, you don't have to file a tax return or pay
taxes in your employer's home state (or country), or in the state where they
may happen to have a payroll office (hence the address on your W-2).
Really, all someone normally needs to do is report
and pay taxes on what they earn from their employment in the state(s) where they
actually live and where they work. In your case this is Virginia and Washington, D.C. But, as was already mentioned, by special agreement Virginia residents working in Washington, D.C. don't have to pay income taxes to the District of Columbia. Thus, a Washington, D.C. return is not required.
Don't be concerned, for income tax filing purposes, what the employer's address
on your W-2 indicates.
In other words, an employer's
corporate (or agency) address or headquarters that is different from the state(s) in which
you live and work, has no actual meaning or effect on how you file your
personal income tax return. Thus, you don't need to input an answer in
TurboTax that you made money in any another state, simply because of where your
employer is based. That's not what it means to have or earn income in
more than one state (although we can certainly understand and appreciate the
confusion if you haven't faced this issue before).
Let's work through another example just
for clarity. Say that Mary lives and work in Kansas, but her employer is
headquartered in North Carolina. Furthermore they have a payroll office
in Minnesota that issues her a weekly paycheck and mails her a W-2 at the the
end of the year. In this situation, she only has to file a tax return and
pay taxes in Kansas. She can and does ignore North Carolina and Minnesota
for tax reporting purposes. Hopefully, that logic and this explanation
will help to clarify things.
In conclusion, as you can see, it
makes all the difference for personal income tax reporting where you are
working and living; but it does not matter where your employer is located.
Thank you for asking this important
question.
