The tax authorities in Washington DC use marginal tax brackets to calculate income taxes. This is used for both federal and state income taxes. The system of marginal tax brackets is progressive, and as the taxable income increases, so does the amount of applicable tax. It applies to personal and corporate income taxes. Marginal tax is basically the amount of tax collected on every single dollar that you earn, and is calculated by adding up the amount of money you have earned from the beginning of the financial year to the minute you earn the dollar.
State income tax in Washington DC has a maximal marginal tax rate of 8.95%. Rather than one wide bracket, this is divided into four brackets. This puts Washington DC in the top ten highest states in the US. Some state tax regulations will differ from federal regulations, even on the same tax, so it is important to be aware of both state and federal legislation.
Tax deductions for state taxes in Washington DC are available to qualifying companies or individuals. They mainly consist of expenses that are taken off your gross income before tax is applied. You must claim these within a timescale in order for your taxable income to be accurately calculated. Not all federal income deductions apply in all US states, and Washington DC does not offer a standard deduction. Washington DC also does not offer personal exemptions or dependent deductions. Some itemized deductions may be considered, but these are limited and dependent upon conditions such as the type of deduction, and income level.
Sales Tax in Washington DC is a major aspect of taxation and is arguably one of the most beneficial areas of taxation in the state. Sales Tax applies at a rate of 6% on the retail sale of personal property. Companies that will incur this tax will be those buying, selling or using personal property in Washington DC. There are higher rates of Sales Tax which are applicable to certain items, including restaurant meals, alcoholic drinks, hotel rooms, etc. Credits are available for companies who have already paid Sales Tax in another state.
The following services may incur Sales Tax, although this does vary with supplier, and many services do not qualify for Sales Tax. Clothing alterations, laundering, telecommunications, employment services, deliveries, real property maintenance services. Exemptions from Sales Tax are dependent on the type of product, the transaction type, and the type and nature of the organisation making the purchase. Resale purchases are also exempt. A resale exemption certificate may be required to obtain this exemption. This certificate should include the buyer and seller’s registration number in the District of Columbia, the name and address of both the buyer and seller, and a description of the type of property purchased.