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DC Withholding Tax

Does the Certificate of non-residence for DC overrule the DC-4? If the employee writes Exempt on the DC-4, what are the implications to the employer if you know they are not exempt for FIT purposes? It just seems strange the DC form references Federal elections.

Comments

  • I am not familiar with the DC forms or DC rules. I can say that nothing DC does or says has ANY effect on IRS rules including federal withholding. DC rules effect DC only. It does not matter the form says.

    Not the question, but I have had employees Photoshop the W-4 to say that they are "sovereign", that their wages cannot be withheld or reported to the government, and if the employer fails to follow these rules, then the employer's personnel responsible will be fined and/or jailed.

    It does not matter what a meaningless form says. The person creating the form cannot authorize actions they never controlled in the first place. This includes loony-tune employees and it includes DC. Any form created by DC affects only DC specific matters.

  • Only residents of DC are subject to DC income tax.-
    A non-resident should fill out a D-4A - the D-4A is sort of a "D-4 EZ" for non-residents

    Who must file a Form D-4A?
    If you are not a resident of DC you must file a Form D-4A with your employer to establish that you are not subject to DC income tax withholding. You qualify as a nonresident if:
    • Your permanent residence is outside DC during all of
    the tax year and you do not reside in DC for 183 days or
    more in the tax year.
    • You are a service member’s spouse.
    Employees who are residents of DC should file a Form D-4, DC Withholding Allowance Certificate.

    The D-4 just happens to have a check box provision for non-residents to claim exemption from DC tax just in case they don't know about the D-4A - there is also a special form for non residents to claim a refund of withheld tax rather than having to file an entire DC income tax return - so it seems that employers frequently withhold DC tax for non residents who are not subject to tax.

    The reference to the exemption from tax on the federal W-4 is part of the requirement for a RESIDENT of DC to to qualify for exemption from DC WITHHOLDING (not tax). That is, for a DC resident to claim exemption from withholding of DC tax, the employee did not owe any DC income tax for the immediately preceding calendar year and had a right to a full refund of all DC income tax withheld for that year and for the current calendar year does not expect to owe any DC income tax and expects a full refund of all DC income tax withheld. In addition, the employee must qualify for exempt status on federal Form W-4.

    To qualify for exempt status (again, exempt from withholding, not exempt from tax) on the federal W-4, the employee did not owe any federal income tax for the immediately preceding calendar year and had a right to a full refund of all federal income tax withheld for that year and, for the current calendar year, does not expect to owe any federal income tax and expects a full refund of all federal income tax withheld.

    Some states have similar requirements for exemption from withholding. For example, Illinois also requires that an employee be able to claim exemption from federal income tax withholding in order to claim exemption from Illinois withholding. Illinois non residents who are residents of a state with which IL has a reciprocal agreements (e.g. Wisconsin) may file an IL-W-5-NR Employee’s Statement of Nonresidence in Illinois to claim exemption from IL withholding due to the reciprocal agreement. Whether the employee can claim exemption from federal withholding has nothing to do with the exemption from IL tax on wages earned in IL under the reciprocal agreement.

    In the case of DC, the distinction between the non-resident exemption and the resident exemption is that the non-resident is exempt from DC tax (and therefore exempt from withholding) while the resident is subject to DC tax, but qualifies for exemption from withholding (due to low taxable income). A DC non resident does not have to be exempt from federal income tax withholding to claim exemption from DC tax because a non resident of DC is exempt from DC tax regardless of whether the non resident can claim exempt from federal tax withholding. The reference to federal exempt status on the D-4 only applies to residents of DC who are claiming exemption from DC withholding.

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