Recent changes to the federal tax structure will have an immediate impact on residents of Washington DC and Virginia. While the overall tax burden for those living in the nation’s capital will go down, local taxes in DC will increase.
One key change to the federal tax plan is a capping of state and local tax deductions (SALT). The individual rates have all gone down, however a resident’s share of the local tax burden will likely go up.
According to a recent analysis, nearly half of DC residents will see their local taxes in DC rise. The result will be roughly $50 million in additional taxpayer funds flowing into the city.
Two-thirds of taxpayers in Washington D.C. will see their overall tax bills decrease. 17% would see their overall bills go up. The rest would see no significant change. The median cut to DC taxpayers is $1,159. The median increase is $929.
Doubling the standard deductions and expanding the child tax credit in addition to lower rates will result in a net decrease for most taxpayers. However, local taxes in DC will go up due to the capping of SALT deductions.
In all, 43% of residents will see their local taxes in DC increase by around $336. Of those taxpayers, more than half earn between $50,000 and $200,000 annually. A fifth make below $50,000.
The Bottom Line on Local Taxes in DC
The bottom line is that more money will flow into city coffers as opposed to the federal government. A majority of DC residents will see their overall tax burden decrease. The long-term effects are unknown as many of the cuts expire in ten years.
Overall, the general belief among many analysts is that the average person looks more at their overall tax burden rather than where it goes. Supporters argue that taxes paid at the local level can be used more directly to benefit the community in which the taxpayer lives.
While the new federal tax bill seems to result in a net decrease in taxes to most individuals, your location matters. Local taxes in DC and elsewhere may wind up increasing for some taxpayers.
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