Virginia and the District of Columbia (D.C.) have a tax reciprocity agreement that prevents double taxation for cross-border workers. This agreement covers wages and salaries but not self-employment, rentals, or investments. Essentially:
- D.C. residents working in Virginia are exempt from Virginia income tax
- Virginia residents working in D.C. are exempt from D.C. income tax
What forms do new hires need if they live in D.C. but work in Virginia?
- Form I-9 (Employment Eligibility Verification): This document confirms the new hire’s identity and work authorization.
- Form W-4 (Federal Withholding): This document determines federal income tax withholdings.
- Form VA-4: This document serves as both the Virginia withholding form and the exemption certificate. The lower half of the first page serves as the employee’s Virginia income tax withholding exemption certificate. Check line 3 which says: “I certify that I am not subject to Virginia withholding. l meet the conditions set forth in the instructions.”
- Form D-4 (D.C. Withholding): This document replaces Virginia’s income tax withholding with D.C.’s resident income tax withholding.
What about vice versa? What forms do new hires need if they live in Virginia but work in D.C.?
- They still have to fill out Form I-9 and Form W-4.
- And they must fill out Form VA-4 for Virginia’s income tax withholding.
- However, they must fill out Form D-4A (Certificate of Nonresidence) instead of Form D-4. This document ensures the new hire is exempt from D.C.’s income tax withholding on wages.
Remember: Employers must report new hires to the state within 20 days of their first paid day.
What if there is an error?
If a Virginia resident is subjected to D.C.’s income tax withholding then the employee must file a nonresident refund return. In this case, since they were subjected to D.C.’s tax, the employee must file Form D-40B (Nonresident Request for Refund) with the D.C. Office of Tax and Revenue to get that D.C. tax refunded.
For vice versa (D.C. subjected to Virginia’s Tax), the employee must file Form 763 (Nonresident Return) to claim a refund of Virginia withholding.
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Disclaimer: This blog post is for informational purposes only and should not be construed as legal advice. Always consult the official resources and seek legal counsel if necessary for complete and accurate information regarding specific regulations and practices.
