The individual income tax laws of the District of Columbia, Maryland and Virginia changed only slightly in 1990, so preparation of your local taxes should be similar to last year.
Taxpayers new to the area should note, in all three jurisdictions, the starting point to prepare your state return is the adjusted gross income (AGI) figure from your federal return -- not taxable income -- so you should complete your federal return before tackling the state return.
In general, you must file a local return if you are a resident of the particular locality and meet the minimum income levels established by the jurisdiction. All three local jurisdictions define a resident as an individual whose legal domicile is in that state, or an individual who maintains and personally occupies a residence in that state for a total of 183 or more days during the taxable year. The state instruction booklets further explain the filing requirements, including rules applicable to part-year residents and nonresidents.
The table headed "Local State Filing Instructions" lists the appropriate tax form to use for each purpose and provides other information, including filing dates and phone numbers to call for help.
General Rules Some rules are common to all three jurisdictions. Here are the most important guidelines:
Combined separate filing: The District, Maryland and Virginia all provide a special filing status for married taxpayers, known as combined separate filing, which is generally beneficial when both spouses have taxable income.
Combined separate filers, that is, each spouse, report income and compute tax separate from each other on a single return. Each spouse's separate taxable income benefits from graduated tax rates, resulting in lower overall tax.
Common additions and subtractions: An addition to federal AGI common to all three local jurisdictions is all or part of a lump-sum pension plan distribution reported on federal Form 4972 filed with federal Form 1040.
All three jurisdictions generally provide subtractions from federal AGI for state income tax refunds, Social Security benefits and interest income on U.S. government obligations to the extent such amounts are counted in calculating federal AGI.
Standard or itemized deductions: District, Maryland and Virginia taxpayers who use the federal standard deduction must likewise use the state standard deduction.
If you itemize deductions on your federal return, in Maryland you may choose either to itemize or to take the local standard deduction. In the District and Virginia, you must itemize.
Other deductions: For dependent care expenses, Maryland and Virginia allow a deduction for the federally qualified expenses used to calculate the federal child care credit. The District has no deduction, but instead allows a credit equal to 32 percent of the federal dependent care credit.
Estimated Tax Maryland, Virginia and the District all have "pay-as-you-go" tax systems. Thus, state income tax is normally withheld from wages so you must, with respect to tax on other income in excess of specified minimal limits, make estimated quarterly payments.
Military Personnel If you are a legal resident of the District, Maryland or Virginia, you don't lose that resident status when living elsewhere because of a military 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, reporting all income including military pay.
Conversely, if you are a legal resident of another state you are not subject to income tax in any of the three jurisdictions solely because you are assigned to military duty there.
In all three jurisdictions, however, a nonmilitary spouse of a member of the armed forces is considered a resident or nonresident according to the general rules of each state, without regard to the military status of the other partner.
So if you're living in the area because of your spouse's military assignment here and you worked locally during the year, you may be subject to state income tax even though you claim legal residence in another state.
The District What's New Changes were slight in the District for 1990. The personal exemption was increased from $1,160 to $1,270; the low-income credit has increased; and a new filing status, "dependent taxpayer," has been added to the D-40, to clarify the rule that taxpayers who can be claimed as a dependent on someone else's return are not entitled to claim their own personal exemption. This is not a change in the law but rather an improvement of the tax form.
Federal Employees Because of the special relationship between the District and the federal government, there are provisions in the D.C. tax laws not found in any of the 50 states.
Taxpayers in these four categories of federal government service, who did not maintain a permanent home in the District at any time during 1990, are exempt from District income tax:
An elective officer.
An officer of the executive branch appointed by the president, confirmed by the Senate, serving at the pleasure of the president.
A justice of the U.S. Supreme Court.
An employee on the personal staff of an elected member of the legislative branch who is a bona fide resident of the same state as the elected officer.
Foreign service officers residing in the District, once not required to file, are no longer exempt.
Nonresidents The District does not have a nonresident individual filing requirement. If you were not a resident of the District during 1990 but D.C. tax was withheld from your pay, you must file Form D-40B to request a refund of the amount withheld.
Other Taxpayers The explanations that follow are for users of the long Form D-40. If you are eligible and elect to use the D-40EZ, the instructions on the form should be adequate.
Filing Status You have a choice of five filing categories on the D-40. The first four are essentially the same as their counterparts on the federal return: single, head of household, married filing jointly, and married filing separately.
The fifth status permits a married couple to file separate returns on the same form. Combined separate filing is usually the better method if both spouses had taxable income. You may want to work out the numbers both ways -- joint and combined separate -- then pick the method that comes up with the smaller total tax.
If you filed as a qualifying widow or widower, with dependent child on your federal return, you may file as head of household in the District.
Exemptions Unlike the federal return, the District allows additional exemptions for age and blindness. You are also entitled to one exemption for each dependent claimed on your federal return. On a combined separate return, you may allocate these dependency exemptions to either spouse as you wish.
The value of each personal exemption has gone up from last year's $1,160 to $1,270. If you're filing a part-year return, prorate your exemptions according to the number of months of residency.
The District requires you provide the full name, relationship and Social Security number of each dependent claimed on your return.
If you can be claimed as a dependent on someone else's return, as a status (F) Dependent Taxpayer you may not claim an exemption on your own return.
Additional Information If you were a resident of the District for less than the full year, enter your dates of residency and the number of months you were a resident of the District.
If this return includes a deceased taxpayer, enter the date of death on the front of Form D-40. Attach a copy of the death certificate to the return and, if a refund is due, Form FR-147, "Statement of Person Claiming Refund Due a Deceased Taxpayer."
Part I: Federal Return Income and Adjustments On lines 28 through 43, transfer the amounts, line by line, for the various types of income exactly as they appear on your federal return. Do not make changes here to the federal figures. Any modifications will be taken care of in Part II.
If you filed a joint federal return and are filing combined separate returns on a single D-40, enter income items in columns A and B as if you had filed separate federal returns. Although the total for each line doesn't appear on your District return, the line-item sum of columns A and B must equal the amount for the corresponding line on the federal return.
Line 42 of the D.C. return refers to the adjustments to income made on the front of your federal return.
Part II: Modifications To Federal AGI Additions: Additions to federal income for District tax purposes are listed on page 3 of the D.C. instruction booklet.
Briefly, any federal adjustments to gross income (line 42, Form D-40) paid while a nonresident must be added back.
D.C. franchise tax deducted on your federal return must be added back. Retirement plan distributions treated specially on the federal return must be added back; and if you are a so-called S Corporation shareholder, some deductions may have to be added back.
Subtractions: In general, the instructions and Form D-40 line descriptions provide adequate information to allow you to modify your income to comply with D.C. law.
It is here that you subtract state income tax refunds, federally taxable Social Security benefits, certain disability income, income taxed on a D.C. franchise or fiduciary return, and items discussed below.
Interest on U.S. obligations: Interest received on obligations of the United States or its agencies is not taxable by the District. Interest on obligations guaranteed, but not issued, by the U.S. government is not exempt.
Nonresident income: This includes all income -- wages, interest, dividends or capital gains -- during your period of nonresidence.
Interest and dividend income of a child: If you included the investment income of a child on your federal return using Form 8814, enter the amount.
Pension or annuity exclusion: If you were 62 or older on Dec. 31 and received taxable military retirement pay, pension or annuity income or survivor benefits from the D.C. or federal government, you may exclude those payments to a maximum of $3,000. On a combined separate return, the exclusion is figured separately for each spouse.
Deductions If you itemized deductions on your federal return, do the same on your District return, and fill in Part III of Form D-40; otherwise, use the standard deduction.
Line 6 on page 1 of the D-40 is incorrect. Filing status (F) Dependent Taxpayers, may claim the $2,000 standard deduction as stated in the instructions. Form D-40EZ correctly shows the $2,000 amount.
Tax Credits If you were required to pay tax to another state on income earned in that state during a period when you were a D.C. resident, you may be able to claim a credit on line 12 of Form D-40 against your D.C. tax liability for all or part of the "foreign" tax paid.
If you take a child and dependent care credit on your federal return, and you are filing a joint or combined separate D.C. return, multiply the federal credit amount from Form 2441 by 32 percent to determine your District credit reportable on line 13 of Form D-40.
The District has a low-income credit, for taxpayers who have zero federal income tax liability because their gross income is less than the total of their federal personal exemptions and standard deduction.
The D.C. personal exemption and standard deduction are lower, and can result in taxable income.
Property Tax Credit D.C. residents who owned or rented their homes for the full 12 months of 1990, and who had household gross income of $20,000 or less for the year, may qualify for a property tax credit. The requirements for eligibility are found on pages 6 and 7 of the instruction booklet.
Use Schedule H, Form D-40, to calculate the credit, then carry the amount of the credit to line 20 of Form D-40.
If you have no D.C. income tax liability and do not file Form D-40, you may still claim the property tax credit by filing Schedule H by itself, and you will receive a cash payment from the District for the amount of the credit.