The data required on the state tax returns for the District of Columbia, Maryland and Virginia is derived almost entirely from the federal return. Therefore, you should complete your federal return before starting to work on the state return.
The accompanying tables provide the basic filing instructions for each of the three local jurisdictions.
Maryland filing requirements are the same as federal, but the District and Virginia have lower minimums. Some D.C. and Virginia residents may have to file a state return even if no federal return is required.
TAX TIP: You should file for a refund if taxes were withheld from your pay even of your income is below the minimum for your filing status.
The first part of this article contains some general comments applicable to all three states. The state-by-state information which follows highlights difference between state requirements and federal practice. State instructions that do not differ from federal treatment of the same subiject are not repeated.
You may have special problems if you live in one state and have income (other than wages or salary) in another. The District, Maryland and Virginia have reciprocal agreemints covering this situation, but there are too many variations to permit coverage here.
Generally you will not have to pay tax twice on the same income. But you may have to file two returns -- one where the income originated, another in your state of residence. If you're in this situation, carefully review the instructions for filing in each state.
Observe the same precautions with your state return as you did with the federal return: Check your work for accuracy answer all questions, use the correct tax table or rate, sign the return (both signatures on a joint return), attach the state copy (normally Copy 2) from every W-2 and enter your Social Security number on any payment.
Unlike the IRS, none of the three local tax departments will compute your tax liability for you; you must do all the calculations yourself. In all three jurisdictions, you may round your figures to whole dollars as you did on the federal return.
On a District or Virginia return, use the peel-off label from the instruction booklet on your return, making any necessary corrections. Use the Maryland label only if all the information is correct.
All three states provide a tax benefit for a married couple (living together) when each spouse has separate income. Whether to file a joint return or. comebined separate returns (on the same form) depends on the amount of income attributable individually to each spous.
The District, Maryland and Virginia all offer the following four categories for filing:
Single (unmarried, widowed before 1978, divorced or separated).
Married, filing separately. (In Maryland, mandatory if you filed separate federal returns.)
Married, filing jointly. (In Maryland and Virginia, only if you filed a joint federal return of were not required to file a federal return.) This is the more advantageous way to file if either apouse had income less than $750 in D.C., $800 in Maryland or $600 in Virginia.
Married, filing combined separate returns. (In Maryland, only if you filed a joint federal return and elect to file separate state returns.) This is the better method if each spouse had taxable income greater than the above amounts.
The District has a fifth filing category. You may file as "head of family" and take an extra personal exemption if during 1978:
You were single or married but not living with your spouse.
Your home was also the home of a person who qualifies and is claimed as a dependent on your D.C. return.
If you are a legal ("domiciliary") resident of one of the three states, you do not lose that status when living elsewhere because of duty assignment. You are subject to income tax and required to file a resident return in your state of domicile regardless of where you are stationed.
Conversely, if you are a legal resident of another state, you are not subject to income tax in the District, Maryland or Virginia solely because you are assigned to duty here.
Unless you are a legal resident of Maryland or Virginia, you are not required to report of pay tax on military income. But you are liable for reporting, as a nonresident, income earned from other sources within the state, such as a "moonlighting" civilian job.
The District tax laws are more liberal. If you are a military member living in the District but claiming legal residence elsewhere, you need not report or pay tax on any income, regardless of the source.
The husband or wife of a military member is considered a resident or nonresident according to the general rules on residency in each state, without regard to the military status of the spouse.
All three states operate their income tax sustems on a "pay-as-you-go" basis. If you expect your tax liability to exceed the amount to be withheld during 1979 from wages or salary, or if you are self-employed, you are required to file a declaration of estimated tax and to make quarterly payments on the estimated shortfall.
If you are due a refund on your 1978 tax, you may have part or all of the refund applied to your 1979 estimate. In Maryland, if the amount so applied satisfies the tota. estimated liability for 1979, you need not file Form 502-D. But in the District or Virginia you shoule file the appropriate estimate form to account for the credit.
In each of the three local jurisdictions the standard deduction is considerably lower that the federal zero bracket amount (ZBA).
If you are a District resident, you may itemize on the D.C. return even if you used the ZBA on both returns.
In Virginia you may itemize only if you itemized on the federal return. If the total of your itemized deductions is at or slightly above the ZBA, you may want to itemize on both returns.
In Maryland you may itemize regardliss of whether or not you itemized on the federal return. But if you used the ZBA on the federal return, then total itemized deductions for Maryland may not exceed the ZBA claimed on your federal return. The Distriict
You are required to file a D.C. income tax return of your legal residence was in the District any time during 1978, or if you actually lived in the District (regardless of your legal residince) for more than seven months during the year, and your 1978 income exceeded the amount shown in the table for your filing status.
A nonresident is not required to file a tax return in the District. However, you should file Form D-40-B to claim a refund if District tax was withheld from your earnings.
Because of the special relationship of the District to the feddral government, there are special rules for certain employes or officials who live in the District. You are exempt from D.C. income tax if you are in one of the following categories and claim domiciliary residence elsewhere:
An elected official of the U.S. government.
An officer of the executive branch whose appointment was made by the president, required Senate confirmation, and could be terminated at the pleasure of the president.
An employe on the personal staff of an elected official of the legislative branch, provided both you and that official are legal residents of the same state. A person in this category must file an information return on Form D-100 annually.
If you moved your peramanent home into or out of the District during 1978, or if you maintained a residence (but not your legal domicile) in D.C. for more than seven months but iess than the full year, you must file a part-year return.
Include only income received during the period of residence in the District. Prorate persomal and dependent exemptions by month. (Count anything over half a month as a full month, drop half a month or less.) You may not use the optional tax table (on page 9 of the instruction booklet) or claim the property tax credit. You may itemize deductions, claiming only those paid during the period covered by the return.
If you elect to use the standard deduetion, take the lesser of 10 percent of your D.C. adjusted gross income or the prorated share of $1,000 ( $500 for a married person filing separately).
In the Adjusted Gross Income Summary on page 2 of Form D-40, list each category of income as it appears on your federal Form 1040, with the following modefications:
Salary or wages: A reduction of Salary made, by agreement with your employer, to purchase a tax-sheltered annuity may not be excluded from gross wages for D.C.
Interest and dividends: Use District Schedule B to list dividend and interest income, even if either total does not exceed $400. Exclude interest received on obligations of the U.S. government, any federal agency, or any state or municipality. The District does not not allow the $100-per-taxpayer dividend exclusion authorized on the federal return.
Business income: The District does not allow a deduction for contributions to a Keogh (self-employed retirement) plan. Use Schedule C if gross receipts from the business were less than $12,000 for the year, or if the business was carried on solely outsede the District.
If gross receipts amounted to $12,000 or more, you may be liable for an unincorporated business franchise tax return. Use Form D-30 instead of Schedule C, then carry any income of loss (to the extent that it was not taxable to the business itself) to Part IV of Schedule E.
Capital gains and losses: District rules governing capital gains and losses have been changed to conform to the Nov. 1, 1978 change in the federal tax. Some D.C. tax booklets do not reflect this change.
If your D.C. tax package contains Schedule D, you should use it only if all your capital gains or losses took place before Nov. 1, 1978. If you are reporting capital transactions after Oct. 31, 1978, use the new Schedule D-A, available from the District tax office.
Pensions and annuities: There are major differences between federal and D.C. handling of income from pensions. If you contributed to the cost of a pension plan, you need only report and pay tax, each year, on 3 percent of the total amount you had paid towards your annuity until you have recovered, tax-free, am amount equal to your contribution.
After you have recovered that total or if you did not contribute and were not taxed on your employer's payments on your behalf, then the entire amount is taxable as ordinary income.
Rental income: If gross rental income from property located in the District exceeded $12,000 and you furnished services such as gas or heat to the tenants, you are liable for an unincorated business franchise tax return. Otherwise, copy the information from Part II of federal Schedule E.
Nontaxable income: On page 2 of Form D-40 list all income not subject to D.C. tax. On a joint or combined return identify the recipient ("H", "W", of "j" for joint) for each item. Income Adjustments
The District allows the same disability income exclusion as the IRS. On a full-year return you may attach a copy of IRS Form 2440; on a part-year return use D.C. Form D-2440. (If you are married, you must file a joint or combined return to qualify for this exclusion.)
Moving expinses may be claimed in D.C. either ad an itemized deduction or an adjusiment to gross income, but only to the extent that reimbursement from your employer was included in your reported gross income.
(Note: The D.C. instruction booklet lists moving expenses only as a miscellaneous deduction. If you do not itemize, moving expenses to the extent included as income should be shown on line 35 as an employe business expense and explained on a separate sehedule.) Payments into an IRA may not be deducted from income on a D.C. return. In conformity with federal rules, alimony payments are taken as an adjustment to gross income. Child care exp nses are the basis for a tax credit of 6 percent of allowable expenses, with a ceiling of $120 for one qualifying individual or $240 for two or more.
You may either itemize or take the standard deduction without regard to your itemize, you may generally take the same deductions as authorized for the federal return with these exceptions:
Medical expense: The medical deduction is figured the same way as for the federal retured. But the 3 percent deduction from gross medical expenses may be different because adjusted gross income for the District may be defferent from federal AGI.
Taxed: Eliminate from the federal deduction state income tax claimed; add any D.c/. real estate recordation tax paid in 1978.
Contributions: The dediction is limited to qualified organizations that carry on a substantial part of their activities in the District, National health organizations with D.c/. chapters quality, but local agencies whose activities center outside the District do not.
The total deduction for contributions cannot cannot exceed 15 percent of adjusted gross income. Any unused balance is lost; it may not be carried forward to following years.
Miscellaneous: Most miscellaneous deductions on the federal return may also be taken on the D.C. return. Political contributions, however, may not be claimed as a deduction, but may qualify for a tax credit, explained below. Tax Computation
If your adjusted gross income is $5,000 or less, you are submitting a frllyear return and neither you nor your spouse itemizes deductions, find your tax from the table in the instruction booklet.
Otherwise, compute your tax from the tax rate schedule on page 2 of the form.
A tax credit is authorized for plitical campaign contributions made to any of the candidates specified on page 4 of the instruction booklet. The credit is 50 percent of qualifying contributions, with a maximum credit of $50 on a joint return or $25 per tax-payer on all others.
If you were a ligal resident of another state for the entire year, you may claim credit on your District return for income tax or intangible personal property tax required to be paid to your home state.
Special rules for prorationg state tax liability are given in the instruction booklet for anyone who was a D.C. resident for less tham the full year.
Property Tax Credit
You may qualify for a special property tax credit (from Table A in the instruction booklet) if: You owned or rented your home in the District for the full year.
The house or apartment in which you lived was not part of a public housing project.
You were not clamed as a dependent by another taxpauyer (unless you were 65 or older on Dec. 31 1978).
Your household gross income during all of 1978 was $20,000 or less. ("household gross income" includes all income -- taxable or not --received by all individuals living in the home.)
If you were 62 or older on Dec. 31, 1978, you can qualify for the higher credit in Table B if you meet the tests and you (together with your spouse, if married) contributed at least half of the household gross income during 1978.
If you were bling or disabled on the last day of the year, the 50 percent income test is waived and you may use Table B. In this case, complete the physicisn's certifrcation on page 2 of Sechedule H.
Depending on your status, use either Part A or Part B of Schedule H to calculate the property tax credit. If you are required to file a D.C. income tax return, enter the amount of the credit on line 19 of Form D-40, and attach Schedule H to the return.
If you have no D.C. tax liability and are not filing a tax credit. File Schedule H by itself; if you qualify, you will receive a cash payment for the amount of the credit. CAPTION: Illustration 1, The Washington Post Income Tax Guide; Chart 1, Filing Instructions, The Washington Post; Chart 2, Filing Minimums, The Washington Post; Chart 3, Standard Deduction, The Washington Post; Illustration 2, "Actually, we ought to get a tax benefit for the eating and drinking we do with OUR customers.", Copyright (c) 1978 L.A. Times Synd. maryland
The minimum income requirements for filing a Maryland tax return are the same for all filing categories as the federal minimums.
Your need not repeat on the Maryland return the detailed figures furnished on your federal return. Simply transfer the total for each category of income and deduction to the appropriate line on the Maryland return.
Because the Maryland return is accepted without the supporting data, you are required to notify the state if the IRS makes any change in your federal return. Simply fransfer the total for each category of income and deduction to the appropriate line on the Maryland return.
Anyone whose legal domicile was in Maryland during any part of 1978 (regardless of where he or she actually lived) or who maintained an actual residence in Maryland for more than six months of the year regardless of legal domicile) is considered a resident.
A resident must report all income, wherever earned, exactly as entered on the federal return.
Everyone else is a nonresident. A nonresident is required to file a Maryland return if he or she had income from Maryland sources and files a federal return.
Exception: You need not file if you were a nonresident for the entire year; your Maryland income was solely from wages or salary; no Maryland tax was withheld from your earnings, and your home state imposes a personal income tax and grants a reciprol exemption to Maryland residents.
If you moved both your legal and actual residence out of Maryland during 1978, you are taxable as a resident for that part of the year prior to the move.
Similary, if you moved into the state with the intention of becoming a Maryland resident, you are taxed as a resident for the period following the move. In either case you must:
File a resident return if you had taxable income during the period of residence in Maryland.
File a nonresident return if you had Maryland taxable income during the nonresident period.
Prorate personal and dependent exemptions by months.
Eliminate any adjustments to federal income and itemized deductions not applicalbe to the period covered by each return.
The Short Form
You may use the simplified Form 503 if you meet all of the following tests:
You have total income of $10,000 or less, and had no business income.
You are not required to modify your federal income by any "additions" or "subtractions."
You do not itemize deductions.
You are filing a joint Maryland return if you filed a joint federal return.
Your are filing a full-year resident return on a calendar-year basis.
You are not claiming a credit either for taxes paid to another state or for Maryland personal property tax.
If you use Form 503, simply transfer your federal income figures, find your state tax liability from the tax table, and add the appropriate local tax.
Any resident may elect to use the standard Form 502; of course if you do not meet all of the qualifications above, you must use Form 502. The following instructions relate to the standard form.
On Form 502 you also start by transferring figures for the various categories of income and the total amount of adjustments to income (disability pay, moving expenses, employe travel expenses) from the federal return to Maryland Schedule A.
Then in Schedule C show those "additions" (listed in the instruction booklet) that are excluded from federal income but are taxable in Maryland. The two principal items are:
Interest earned on obligations of state and local governments other than Maryland.
The $100-per-taxpayer dividend exclusion, or as much of it as was taken on the federal return.
Maryland rules differ from federal requirements on imposition of the minimum tax on high-income taxpayers. If you reported more than $10,000 of tax preference income on your federal return (IRS Form 4625), see the Maryland instruction booklet and Form 502TP for details.
Schedule D on Form 502 is used to enter "subtractions" -- income taxed by the federal government but exempt in Maryland. The most important of these are:
Interest on U.S. government obligations.
Any state tax refund included as income on your federal return.
Pensions received by policement and firemen for injuries or disabilities incurred in the line of duty.
For anyone 65 or over or totally disabled on Dec. 31, 1978, up to $5,200 (increased from $3,200 last year) of pension or retirement income that was included on your federal return -- but reduced by any Social Security or railroad retirement benefits received. Use the special schedule near the bottom of page 2 of Form 502 for the calculations.
Also include as a subtraction child and dependent care expenses to the same extent allowed on the federal return. (Attach a copy of federal Form 2441 to the Maryland return.)
The rules for defining dependents are the same as federal rules except that the gross income limitation is $500, not $750. Unlike federal rules, Maryland taxpayers are authorized an extra exemption for each dependent who was 65 or older on Dec. 31, 1978.
Each personal and dependent exemption is worth $800 on a Maryland return. If you are filing a part-year return, prorate by claiming $67 per exemption for each month covered by the return.
If you used the zero bracket amount on your federal return, you may either itemize or take the standard deduction in Maryland. But if you elect to itemize, total itemized deductions may not exceed the ZBA you took on the federal return.
If you use the standard deduction, it is calculated on the income of each taxpayer separately, even if you are filing a joint return.The income from jointly-owned property is considered to be divided equally between the owners for this purpose.
Thus if you file jointly, if both husband and wife had income, and you wish to take the standard deduction, you must complete Columns A and B as well as Column C (totals) in Schedule A to compute the total dedution.
If you use the ZBA on the federal return but elect to itemize for Maryland, you must attach to your Maryland return either Maryland Form 502A or federal Schedule A. (If you itemize on both the federal and Maryland returns, no supporting schedule is required.)
If you itemiz ed deductions on the federal return, you may either itemize or take the standard deduction in Maryland. If you are married and file separate returns, both spouses must go the same way -- if one itemizes, the other must itemize also.
To itemize deductions, copy in Schedule B the total for each category from Schedule B of the federal return. In addition, Maryland taxpayers may be authorized a deduction (calculated on Form 502-H) for the amortized costs of preserving historical structures.
After adding all itemized deductions, subtract any state or local income taxes included in the federal deduction for taxes.
Taxpayers using the short form must use the tax table to find their tax. If you use form 502, you may use the table if your Maryland adjusted gross income was $10,000 or less; you ae filing a full-year return on a calendar year basis; you do not itemize deductions, and you od not claim a credit for taxes paid.
If you do not use the tax table, compute your tax from the tax rate schedule on page 2 of Form 502, using lines 7 through 11 of the form.
After computing your Maryland tax, add the local "piggyback" assessment to determine your total tax liability. The local rate is 50 percent of the state tax, except in these counties: Calvert, 20 percent; Queen Anne's, 40; Talbot, 35; and Worcester, 20.
Property Tax Credit
If during 1978 you paid personal property tax to the state of Maryland on property used in a trade or business, you may claim credit for the full amount against your Maryland income tax.
Personal property tax imposed by a county or city does not qualify for this credit, but may be claimed as an expense of the business, or -- if you itemize -- as a deduction on both the federal and Maryland returns.
Claim the credit on Form 502-CR, which must be attached to your return along with the receipt from the collecting agency. At the same time you must include the amount of the tax in Schedule C as an addition to federal adjusted gross income.
Taxes Paid Elsewhere
Form 502-CR is also used to claim credit for income tax paid to another state. You qualify for this credit only if you are a Maryland resident and cannot claim credit from the other state, as a nonresident, for taxes paid to Maryland on the same income.
Each taxpayer may contribute $2 to the Maryland Fair Compaign Financing Fund. This is a voluntary contribution; but unlike the federal "designation" you must actually add the $2 to your tax liability if you elect to contribute.
On a joint return either taxpayer may contribute alone; or you may both contribute, for a total addition of $4. Cirginia
You are required to file a Virginia tax return if you were a resident of Virginia in 1978 and you filed a federal return, or if your income exceeded the amount shown in the table for your filing status; or if you were a nonresident but filed a federal return and had taxable income from Virginia sources.
Virginia does not require that you provide supporting details for most of the figures carried over from the federal return. However, you are required to attach to your Virginia return a copy of federal Schedule A, C, D, E, or F (including supporting schedules such as depreciation).
In addition, you must report to the Virginia Department of Taxation, within 90 days, any change made to your federal return, either by the IRS or by a voluntary amendment.
Anyone who maintained a legal residence (domicile) in Virginia for any length of time during 1978 or who had an actual residence (place of abode) in Virginia for more than 183 days during the year is subject to tax as a resident.
Anyone else who had income from Virginia sources during 1978 may be taxed as a nonresident. Exception: You are not required to file a Virginia return if you were a nonresident for the entire year; your Virginia income came only from wages or salary; you commuted to your work on a daily basis from a residence in Kentucky, Maryland, West Virginia, or the District, and your income is subject to tax in your home state.
If you moved both your legal and actual residence out of the state or moved wither your legal or actual residence into the state during 1978, you must file a part-year resident return for the period you lived in Virginia.
The Short Form
Short Form 760S may be used by any taxpayer, regardless of the amount of income, who meets all of the following tests:
You file a full-year resident returns on a calendar year basis.
Your total income is from wages or salary, interest, and dividends; and you claim no credit against Virginia tax (except for taxes withheld from earnings).
You are not required to modify your federal income.
You used the ZBA on your federal return and will take the standard deduction in Virginia.
If married, you are filing a joint return.
If you can be claimed as a dependent on an other's return, you had no unearned income such as interest.
Any resident taxpayer may elect to use the standard Form 760. Residents who do not meet all of the above tests for the short from must use Form 760.
The following information applies to the standard form.
Transfer the amount of federal adjusted gross income to line 5 of Form 760. Then in Part I on page 2 enter any additions, including interest income on obligations of state and local governments other than Virginia. Carry the total from Part I to line 6 on page 1.
Next enter in Part II the various items of income on your federal return that are exempt from Virginia tax:
Any state income tax refund.
Interest on U.S. obligations and on Virginia state and local obligations if included on your federal return.
Except pension or retirement benefits received by former officers or employes (or their surviving spouses) of the state of Virginia or its subdivisions or agencies (unless you elect to take the credit for taxpayers aged 62 or over, explained below).
The extra personal exemption of $400 if you were 65 or older on Dec. 31, 1978; or $800 (on a joint return) if both spouses had reached that age.
If you used the zero bracket amount on the federal return you must take the standard deduction in Virginia.
Conversely, you must itemize for Virginia if you itemized on the federal return. Enter the total of your deductions from federal Schedule A, then subtract any state or local income tax deduction included in the federal total.
Be sure to transfer to your Virginia return the total of your itemized deductions (from line 39 of federal Schedule A), rather than only the excess deductions on line 41.
If you are married and filing combined separate returns in Virginia, you may allocate the total deduction (standard or itemized) between husband and wife as you please. If one spouse had considerably more income than the other, you are likely to save tax dollars by giving the entire deduction to the spouse with the larger income.
The federal return provides for a tax credit for child care expenses; this item is a deduction in Virginia. If you qualified for the federal credit, enter the amount of the credit on line 36 of the Virginia return. Then on line 37 enter five times this amount, to get the total allowable deduction.
Transfer the child care deduction from line 37 to line 10(c) on page 1. If you are filing a combined return, this additional deduction may also be allocated to either spouse.
The child care deduction is not available to you if you take the standard deduction. If you used the ZBA on your federal return, and your federal itemized deductions are about equal to the ZBA, you may want to reconsider.
If your Virginia taxable income is under $12,000, use the tax table or compute your tax from the tax rate schedule, both found on page 9 of the instruction booklet.
If your taxable income is over $12,000, your tax is $470 plus 5 3/4 percent of the excess over $12,000.
Tax Credit for the Elderly
You are eligible for this tax credit if you have Virginia tax liability and meet all of the following tests:
You were at least 62 years old on Dec. 31, 1978.
Social Security or basic Railroad Retirement Act benefits did not exceed $4,225 if you were 62 by Dec. 31, 1978; $4,66 if you were 63 by that date; $5,094 for age 64, or $5,518 if you were 65 or older.
You are not claiming an exclusion for retirement pay from state employment.
Calculate the credit in Part VII of Form 760. It must be computed separately for each taxpayer; if you file a joint return you must make the calculations individually for husband and wife. If both qualify, however, you may claim the combined credit against your joint tax.
Taxes Paid Elsewhere
You may be able to claim credit (in Part VI) for income tax paid to another state. If you're a Virginia resident, you may claim the credit only if the other state does not grant credit (as a resident or nonresident) for Virginia tax paid on income earned in that state.
As a nonresident you may claim credit against Virginia tax on Virginia income only if your home state allows similar credit to Virginia residents who are nonresident taxpayers of that state.
If you claim the credit be sure to attach to your Virginia return a copy of the tax return made to the other state.