Dear PoP – Could I Have to Pay Two Income Taxes?

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“Dear PoP,

I am having a tax nightmare. I live in DC and telecommute to a business in Virginia every day. I go to a meeting in Virginia about once a month on average. That’s it. I read on the Virginia tax website that if I actually DRIVE to an office in Virginia every day then I am exempt from Virginia withholding. Except I don’t do that. The fact that they specifically mention that you have to commute over is kinda scaring me (I can’t just start going to the office to solve this problem, it’s 3 hours away). I also can’t find any rules that state DC would credit me in the case that I actually have to pay Virginia taxes. I can’t have to pay full income taxes to two states, can I?”

Is there an accountant in the house? Could it be possible that you’d have to pay income tax for two states. I thought you pay income tax for where you live? Anyone deal with a situation like this before?

28 Comment

  • If you are an employee, you reside in DC and work in VA, you do not have to file a nonresident VA return, only DC (presumably the state tax being withheld from your paycheck).

    If you’re not an employee, it may be more complicated.

    • I thought the reciprocity only applied to counties and cities in Northern Virginia for DC residents. I could be wrong though. Three hours away doesn’t sound like it’s in Northern Virginia, that’s all.

    • Hi, question-asker here.

      I work from home in DC for a company based in Virginia.

      So I technically don’t work in Virginia (or technically I do? I think that’s part of what I need to know).

      And they are withholding Virginia taxes from my check.

      The Virginia tax website only states that if you “commute from DC to VA daily” you are exempt.

      Hence my total confusion.

      Thanks for taking the time to think about this!

      • Where you work doesn’t matter, DC/MD/VA have reciprocity agreements, whereby you pay income tax based on where you live (as an employee). Partners/member’s/shareholder’s and the self-employed are treated differently, but it sounds like you’re an employee. Your company should be withholding DC taxes, so you should get that corrected for the remainder of the year. Your payroll dept can reclass the VA withholding to DC and remit the proper amount so you have an accurate withholding when you get your W-2.

        If you are just filing your 2009 tax return, 3 days before the deadline, you should be freaking out! Actually, you can claim a credit in DC for taxes paid to VA and file both returns. Otherwise, DC will charge you penalties and interest for underpayment of taxes since, you didn’t have any withholding.

        • ah

          Yeah, your employer is messing up. Happened to my wife and we didn’t catch it until filing taxes. Got it squared away.

  • You do not have to pay VA tax. Seriously. Chill out.

    • + a million

      If you’re still not sure, I recommend you speak to an actual accountant instead of sending a panicked email to a neighborhood blog. I wouldn’t rely on anyone here to give me reliable tax advice, especially without knowing the full details of my situation. Also, have you tried calling the VA Tax Dept.? They may be able to answer your question.

      • Or speak with your HR or someone in your company who’s also telecommutes from another state.

      • I’m not really panicking and I just thought someone else might work from home for an out of state company and thus know the answer.

        Also, I think my accountant did it wrong because he has me paying both. 🙁


        • your accountant should be fired. Seriously. A copetent accountant can get you a refund for past overpayments. I use Martin & Wall PC (no, I am not affiliated). I am in the same boat as you and this was never an issue.

          • ah

            Agree. Before you fire em, demand that they prepare amended returns, for free, to recover your Va. overpayments.

      • This sounds like good advice to me. I had a similar issue (minus the telecommute) a long time ago, and it was solved as easily as called my HR department and telling them to withhold DC taxes, instead of Virginia, because I resided in DC. For this year, however, you may have to correct the error of them withholding for the wrong “state” — another reason to call an accountant or a tax attorney.

  • Get in touch with these wonderful people:

    They’ll answer your question for free. I love them.

  • You pay your income taxes to the state in which you are domiciled. That is, where your income “comes in” to you, not where you happen to go to a meeting, or where your company is located.

  • I live in DC and work in MD. I got really concerned when i went to do my taxes this year. If I remember correctly, I either did not have to do MD taxes, or I filled them out and submitted them but had to pay nothing. I do remember that this was made simpler by the fact that my withholding was done in DC rather than MD. so you probably want to make sure that your employer is withholding in the jurisdiction you live in rather than where you work. But yeah, as others have pointed out, it is best to talk to a professional (and report back for those of us in similar situations).

    • I work in MD and live in DC; I only fill out DC tax forms. When I lived in MD and worked in VA, I only paid MD taxes.

      It’s not that complicated.

  • I live in DC but work in MD, and I pay DC tax but not Maryland. I think the tax is supposed to be based on where you live… hence the predicament DC finds itself in, where the majority of employees in DC reside and pay taxes in VA or MD.

  • You are exempt from both paying VA taxes and from filing any VA tax form for exemption from VA taxes b.c. you are a resident of DC. Your employer should only be withholding DC taxes.

  • You have to fill out a special form (which can be found on the Virginia Web site) that stops the Virginia withholding. And you must start having taxes withheld by the District of Columbia ASAP, or you risk getting some pretty good fines for failure to withhold, which I found out the hard way.

    You’ll also have to file partial year returns in each state before the full FY in which you have your tax withholding sorted out.

    It might make sense to have an accountant take care of all this. They’re going to charge you way more than it seems worth, but at least they should get it right the first time.

  • You don’t have to pay the tax twice.

    I understand where you’re getting hung up here–the exemption for nonresidents earning income in Virginia from paying state income tax applies to a person “who commutes daily to work in Virginia from Kentucky or the District of Columbia.” You don’t commute daily, so you’re worried about whether you qualify for this.

    I think there’s a strong argument that someone in your position doesn’t have to pay VA income tax. That’s something you’d have to talk to a GOOD accountant about. (If your accountant has you paying income tax twice, time to find a new one).

    But even if you do have to pay VA income tax, you can get a credit on your DC income tax for the amount of VA income tax paid on your wage/salary income. It’s very clearly explained in the D-40 instructions, available on the DC Office of Tax and Revenue website.

  • You should be fine with just one return, in DC>

  • My husband lives in Virigina and works from home for a company in California. He is an employee not a contractor, etc Since his company has telecommuting employees throughout the country I’m assuming (hoping?) they know what they are doing. He pays only Virigina taxes. He doesn’t pay California taxes nor does he have to file any sort of tax forms with California even though that is where his employer is located. Seems like it would be same for your telecommuting situation – you pay taxes where you live.

  • Bummer because DC taxes are higher.

  • True. But if Question-Asker owns, zhe is paying lower property taxes, so maybe it all works out.

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