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Residents-only wage tax, employer-paid family leave, and SaaS taxed at 6%

Setting up a startup in District of Columbia

DC is a city that taxes like a state, with no layer below it. It taxes corporations at 8.25% through a “franchise tax” that is really an income tax, taxes most SaaS at 6%, and funds paid family leave entirely from employers. It withholds income tax only from DC residents, so a DC office whose staff commute from Maryland and Virginia runs payroll for three jurisdictions.

Areas
6
Setup steps
8
Checked
October 12, 2026
District of Columbia, raised. Point at a neighbor to compare; click to open its guide.

At a glance

Corporate tax
8.25% (min $250, or $1,000)
Tax on wages
4%–10.75% (residents only)
Sales tax
6% (7% postponed)
Economic nexus
$100,000 or 200 sales
Minimum wage
$18.40/hr (from Jul 1, 2026)
UI wage base
$9,000
New-employer UI rate
2.7% (or average rate, if higher)
Paid leave program
Paid Family Leave 0.75% (employer-paid)
Annual report
Biennial — by April 1

2026 figures, each explained with its source on the area’s page. On top of the federal baseline.

Setup, in order

  1. Register the corporation in DC

    Before doing business in DC

    Register as a foreign entity with DLCP and name a DC registered agent.

  2. Get a Basic Business License

    Before operating in DC

    Most business activities need a Basic Business License from DLCP, which requires Clean Hands with OTR.

  3. Register with the Office of Tax and Revenue

    Before the first payroll or sale

    Register on MyTax.DC.gov for the franchise tax, withholding and, if needed, sales and use tax.

  4. Register for UI and Paid Family Leave

    Before the first DC payroll

    Register with DOES for unemployment insurance and the Paid Family Leave tax; post the PFL notice.

  5. Set up withholding by residence

    At each hire

    Withhold for the state each employee lives in; register with Maryland or Virginia as needed.

  6. Report new hires

    Within 20 days of hire

    Report each new hire to the DC Child Support Services Division.

  7. Buy workers’ compensation insurance

    Before the first DC employee starts

    Workers’ compensation insurance is required for DC employees.

  8. File the biennial report

    By April 1 of the year after registering

    File the first biennial report with DLCP, listing owners of more than 10% and controlling persons.

The six areas

Who you register with

Hiring across the border

An employee who lives in one state and works in another is the most common way a startup ends up registered in two. These are District of Columbia’s neighbors.

Common questions

Is DC’s “franchise tax” like Delaware’s?

It is DC’s corporate income tax. Every corporation that carries on business in DC or has DC-source income files Form D-20 and pays 8.25% of its DC taxable income, with a minimum of $250, or $1,000 once DC gross receipts pass $1 million. There is no separate capital or net worth tax.

Is SaaS taxable in DC?

In most cases. DC taxes digital goods, including those accessed by subscription, and data processing and information services, which the statute defines to include the provision of access to computer systems, computerized data storage and manipulation, and any system or application software. Most SaaS falls into one or both categories and is taxed at 6%.

Do we file 1099s with DC?

Only for DC residents. OTR wants copies of federal 1099s reporting $600 or more paid to a DC resident individual, filed by January 31, electronically if there are 25 or more. A contractor living in Maryland or Virginia is reported to the IRS and, if their state asks, to that state.

Can we deduct DC Paid Family Leave from employees?

No. DC’s Paid Family Leave is funded entirely by employers, at 0.75% of each covered employee’s wages, paid quarterly with the wage report. It may not be deducted from a worker’s paycheck.

Is there an annual report in DC?

Every two years. A corporation registered in DC files its first biennial report with DLCP by April 1 of the year after it registered, then every second year. The report lists, among other things, the names and addresses of people who own more than 10%, directly or indirectly, and of anyone who controls the company’s decisions; a report without them leads to revocation of a foreign entity’s registration.

Our DC office staff live in Maryland and Virginia. Do we withhold DC tax?

From DC’s point of view, no. DC withholds income tax only for DC residents. An employee living in Maryland or Virginia who works in a DC office is withheld for their home state, and the DC employer registers with that state for withholding.

Works in your QuickBooks Online or Xero file

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Sources

Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.

General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.