Quick answer: If you only earn wages, living in one part of the DMV and working in another usually means filing just one state return, thanks to reciprocity between Virginia, DC and Maryland. Business income, rental property, moving during the year or spending more than 183 days working in Maryland or Virginia can change that and add a second return.
Crossing the Potomac or the Maryland line for work is normal here. The tax rules behind it are less obvious, and a wrong box on a W-4 can mean tax withheld for the wrong state all year.
Who taxes your wages: the DMV reciprocity grid
Virginia, DC and Maryland have agreements that let commuters pay income tax only where they live, as long as they meet a few conditions.
- The 183 day test applies between Virginia and Maryland. You must be in the other state 183 days or fewer, keep no home or apartment there and earn only wages there.
- The daily commute test applies to DC residents working in Virginia.
- DC cannot tax nonresident wages at all, so Virginia and Maryland residents working in DC never owe DC income tax on their pay.
Fixing withholding for the wrong state
Most multi state problems start with payroll. If your employer withholds for the wrong place, you pay all year and then wait for a refund.
| Your situation | Give your employer | If the wrong state was already withheld |
|---|---|---|
| Live in Virginia, work in DC | DC Form D-4A (certificate of nonresidence) and Virginia Form VA-4 | File DC Form D-40B to request a refund |
| Live in Virginia, work in Maryland | Maryland Form MW507 claiming the exemption, plus Virginia Form VA-4 | File a Maryland nonresident return to get it back |
| Live in Maryland or DC, work in Virginia | Virginia Form VA-4 each year to certify the exemption | File Virginia Form 763-S to request a refund |
Tip: If your employer will not withhold for your home state, make quarterly estimated payments to it so you do not owe a lump sum and penalties in April. See our guide to quarterly estimated taxes.
Business and self employment income
Key point: Reciprocity covers wages and salary only. Business, rental and other income is generally taxed where it is earned, and your home state then gives you a credit.
- A Virginia consultant who does work for clients in Maryland may need to file a Maryland nonresident return (Form 505) for that income
- Maryland also charges nonresidents a special nonresident tax in place of county income tax
- S corp and partnership owners may need state returns wherever the business has income. Check the state sections of your K-1. Our guide on what a K-1 is explains how to read it
The DC unincorporated business franchise tax
DC does not tax nonresidents on wages, but it does tax unincorporated businesses. This surprises many Virginia owners who work with DC clients.
- Applies to unincorporated businesses, like many LLCs and partnerships, with more than $12,000 of DC gross receipts
- It is figured on DC taxable income, with a minimum tax even in low profit years
- A 30% salary allowance for owners and a $5,000 exemption reduce taxable income
- Businesses that earn more than 80% of their income from the owners' personal services, with capital not a material factor, may be exempt
Corporations, including S corps, file the DC corporate franchise tax return instead.
Rental property in another jurisdiction
- Maryland rental, Virginia owner: file a Maryland nonresident return and claim a credit in Virginia
- DC rental: rents above $12,000 a year can bring the property into the DC unincorporated business franchise tax
- Virginia rental, DC or Maryland owner: file a Virginia nonresident return (Form 763)
Rental owners also need their federal Schedule E right first. Read our Schedule E guide for rental owners.
Moving within the DMV during the year
If you moved between Virginia, DC and Maryland, you usually file a part year return in each place.
| Jurisdiction | Part year return |
|---|---|
| Virginia | Form 760PY |
| DC | Form D-40, marked as a part year resident |
| Maryland | Form 502, with your dates of residence |
- Write down your exact move date. It decides which return each paycheck and bill belongs on
- Update withholding with your employer the week you move
- Virginia can treat you as a resident if you keep a home here for more than 183 days in the year, even if your legal home is elsewhere
Remote and hybrid work
Wages are generally sourced to where you physically do the work. Inside the DMV, reciprocity still applies on remote days, so most commuters see no change.
Employers have more to think about. A Virginia company with an employee working from home in Maryland may need to register for Maryland withholding. Our payroll services set up each employee with the right state from day one.
How to avoid paying tax twice
When two places tax the same income, your home state usually gives a credit. In Virginia that is Schedule OSC.
- Prepare the other state's nonresident return first
- Complete a separate Schedule OSC for each state
- Attach a copy of each other state's return to your Virginia return. W-2s and K-1s alone are not accepted as proof
Watch out: You cannot claim the Virginia credit for DC tax on wages, because DC should not have taxed them. Request the refund from DC with Form D-40B instead.
What to gather before tax time
- Every W-2, including all state boxes
- K-1s with their state schedules
- Exact move dates, if you moved
- A simple log of days worked in each state, if you split time
- Prior year returns from every state you filed in
- Rental income and expense records by property
DMV multi state tax FAQs
Do I have to file a DC return if I live in Virginia and work in DC?
Not for wages. DC cannot tax the wages of people who live outside DC, so you file only in Virginia. If your employer withheld DC tax, file Form D-40B to get it back and give your employer Form D-4A.
I live in Virginia and work in Maryland. Do I pay Maryland tax?
Usually not on wages, as long as you spend 183 days or fewer in Maryland, keep no home there and earn only wages from Maryland. If you do not meet those tests, you file a Maryland nonresident return and claim a credit on your Virginia return.
I moved from DC to Virginia this year. How many returns do I file?
Usually two part year returns: a DC Form D-40 for the months you lived in DC and a Virginia Form 760PY for the months you lived in Virginia. Each one taxes the income you earned while you lived there.
What is Virginia Schedule OSC?
Schedule OSC is how Virginia residents claim a credit for income tax paid to another state on the same income, so it is not taxed twice. You attach a copy of the other state's return and complete a separate schedule for each state.
What is the DC unincorporated business franchise tax?
It is a DC tax on unincorporated businesses, such as many LLCs and partnerships, with more than $12,000 of DC gross receipts. It is figured on DC taxable income with a minimum tax, and businesses that earn more than 80% of their income from the owners' personal services may be exempt.
I own a rental in Maryland but live in Virginia. Do I file in Maryland?
Yes. Rental income is not covered by reciprocity, so you file a Maryland nonresident return for the rental and claim a credit for the Maryland tax on your Virginia return.
Can one preparer handle my Virginia, DC and Maryland returns?
Yes. We prepare all DMV returns together so income is split correctly and credits are claimed on the right return.
One team for every DMV return
We prepare Virginia, DC and Maryland returns together for individuals and businesses across the region. See our individual tax preparation and state and local tax services, or find your area on our areas we serve page.
This article is general information and not tax advice for your situation. Tax rules change, so talk with a qualified professional before making decisions.
