Changes in D.C. taxes

June 24

The following changes will become effective Jan. 1, 2015:

• A lower individual income tax rate of 7 percent is established for those earning $40,000 to $60,000, down from 8.5 percent.

• The standard deduction increases to $5,200 for singles, $6,650 for a head of household, and $8,350 for married couples.

• The local earned-income tax credit is extended to single workers.

• Some little-used tax breaks — the D.C. homebuyer credit, the long-term care insurance credit and the government pension exclusion — are eliminated.

• The personal exemption phases out by 2 percent for each $2,500 above $150,000 in yearly income and is eliminated entirely at $275,000.

• Taxpayers are invited to report unpaid use tax on their personal income tax returns.

• The 5.75 percent general sales tax is extended to certain services, including health clubs, tanning salons, storage units and carwashes.

• Some tobacco products, such as loose pipe tobacco, will be taxed at a higher rate.

• The unincorporated and incorporated business franchise tax is reduced to 9.4 percent from 9.975 percent.

• Passive investment vehicles, such as mutual funds, are exempted from the unincorporated business franchise tax.

The following changes will become effective in sequence once additional revenue becomes available to cover the cost:

1. Reduce the rate on the new individual income tax bracket for those earning $40,000 to $60,000 from 7 percent to 6.75 percent. Cost: $6.59 million.

2. Create an 8.75 percent individual income tax bracket for those earning $350,000 to $1 million, leaving the 8.95 percent bracket intact for those earning more. Cost: $3.63 million.

3. Reduce the unincorporated and incorporated business franchise tax from 9.4 percent to 9.2 percent. Cost: $6.95 million.

4. Reduce the rate on the new individual income tax bracket for those earning $40,000 to $60,000 from 6.75 percent to 6.5 percent. Cost: $6.59 million.

5. Reduce the unincorporated and incorporated business franchise tax from 9.2 percent to 9.0 percent. Cost: $6.95 million.

6. Raise the threshold for the application of the estate tax from $1 million to $2 million. Cost: $4.5 million.

7. Raise the standard deduction to $5,650 for singles,$7,800 for heads of households and $10,275 for married couples. Cost: $7.86 million.

8. Increase the personal exemption from $1,675 to $2,200. Cost: $11.23 million.

9. Raise the standard deduction to $6,100 for singles,$8,950 for heads of household and $12,200 for married to conform to the federal levels. Cost: $7.86 million.

10. Further increase the personal exemption from $2,200 to $2,700. Cost: $10.95 million.

11. Reduce the unincorporated and incorporated business franchise tax from 9.0 percent to 8.75 percent. Cost: $8.7 million.

12. Increase the personal exemption from $2,700 to $3,200. Cost: $10.95 million.

13. Raise the threshold for application of estate tax from $2 million to about $5.25 million to conform to the federal level. Cost: $9.4 million.

14. Reduce the unincorporated and incorporated business franchise tax from 8.75 percent to 8.5 percent. Cost: $8.71 million.

15. Increase the personal exemption from $3,200 to $3,700. Cost: $10.95 million.

16. Reduce the unincorporated and incorporated business franchise tax from 8.5 percent to 8.25 percent. Cost: $8.71 million.

17. Increase the personal exemption from $3,700 to $4,200 to conform to the federal level. Cost: $10.95 million.

— Mike DeBonis

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