D.C. tax cuts in 3 graphs

So, how much will you get back — and when?

The District’s first major income-tax overhaul in 15 years is broad-based but not that simple to pencil into your family budget. In general, if you make less than $60,000 a year (or if you are married and can file separately to get under that threshold) you will see a little more in your paycheck beginning in January.

Above that tax bracket, here’s the general rule: The more you make, the longer it will take to see any benefit in your annual tax bill during the five-year phase-in. (In fact, it might be easiest to think of it as a yearly bonus of $500 to $700 coming your way circa 2017.)

And, here’s the rub (there’s always a rub): Until then, many D.C. residents will actually see a subtle tax increase — especially if you’re addicted to yoga studios, car washes, bottled water or have a standing date with the billiards tables at Rocket Bar. In 2015, the city will tack its 5.75-percent sales tax onto six service industries previously exempt, such as health-club memberships, storage lockers and delivery of bottled water. (A $75-monthly gym membership, for example, will cost you an extra $52 over 12 months.)

How much should I get back?

 

On the whole, the effective tax rate for all D.C. residents should drop from 4.9 percent to 4.5 percent, according to estimates by the D.C. Council and Office of the Chief Financial Officer. If your salary is in five digits, expect an extra $350 to $600 by 2019 (and probably closer to 2017). If you make north of $100,000 a year, the cut will be exceed $700 and continue increasing until you make $500,000. Above that yearly salary, changes to personal exemptions will actually begin to increase your yearly levy.

What should I send to my accountant?

 

And, if you are an accountant, the following tax changes will become effective:

Jan. 1, 2015:

  • New individual income tax middle bracket of$40,000 – $60,000, taxed at 7 percent.
  • Expand the local EITC to single workers.
  • Raise the standard deduction to $5,200 for singles, $8,350 for married residents.
  • Phase out the personal exemption by 2 percent for each $2,500 above $150,000, with a complete phase-out at $275,000.
  • Exempt passive investment vehicles from Unincorporated Business Franchise Tax.
  • Reduce the Unincorporated and Incorporated Business Franchise Tax to 9.4 percent.
  • Change the franchise tax apportionment method to a single weighted sales formula.

Jan. 1, 2016:

  • Further reduce the rate on the new individual income tax middle bracket of $40,000 -$60,000 from 7 percent to 6.5 percent.
  • Reduce the individual income tax rate to 8.75 percent for those earning between $350,000 and $1 million per year. The tax rate will remain at 8.95 percent for those earning over $1 million per year.
  • Further Reduce Unincorporated and Incorporated Business Franchise Tax to 9 percent.
  • Estate Tax: Raise threshold from $1 million to $2 million.

Jan. 1, 2017:

  • Further raise the standard deduction to $6,100 for single residents and $12,200 for married residents to conform to the federal level.
  • Increase the personal exemption to $2,200.

Jan. 1, 2018:

  • Further increase the personal exemption to $3,200.
  • Business Taxes: Further reduce the Unincorporated and Incorporated Business Franchise Tax from 9 percent to 8.75 percent.
  • Estate Tax: Further raise threshold from $2 million to $5.25 million to conform to the federal level.

Jan. 1, 2019:

  • Individual Income Taxes: Increase the personal exemption to $4,200 to conform to the federal level.
  • Business Taxes: Further reduce the Unincorporated and Incorporated Business Franchise Tax from 8.75 percent to 8.25 percent.
Aaron Davis covers D.C. government and politics for The Post and wants to hear your story about how D.C. works — or how it doesn’t.
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