Key figures
District of Columbia advisory
2026, with sources
A city that is also a state
DC has its own income tax, sales tax, unemployment insurance and paid leave program, administered by the Office of Tax and Revenue and the Department of Employment Services, and no further layer of county or city taxes below them. A company with a DC office deals with one jurisdiction, but often with three for payroll, because most of its staff are likely to live in Maryland or Virginia.
DC only taxes the wages of its residents. A startup with a DC office whose team lives in the suburbs withholds Maryland or Virginia tax, not DC tax, for those people, and still pays DC unemployment insurance and the DC Paid Family Leave tax because they work in DC.
Software sold into DC
DC taxes digital goods, including those accessed by subscription, and data processing and information services, whose statutory definition includes the provision of access to computer systems and any system or application programming or software. That puts most SaaS sold to DC customers in the sales tax base at 6%. A software company with DC customers but no DC presence registers once its DC sales pass $100,000 or 200 transactions.
An example: a two-person SaaS startup in Virginia with 250 DC subscribers on $20-a-month plans passes the 200-transaction threshold even though its DC revenue is $60,000, and must register with OTR and collect DC sales tax.
Where founders go wrong
Most DC mistakes come from treating DC like a city inside a state rather than a jurisdiction of its own.
- Withholding DC tax for employees who live in Maryland or Virginia.
- Deducting the Paid Family Leave tax from paychecks; it is employer-only.
- Treating SaaS as exempt in DC.
- Forgetting the minimum franchise tax in a loss year.
- Missing the biennial report, which can lead to revocation of the registration.
The federal baseline
This page covers what District of Columbia adds. The federal rules underneath it apply here too.
Common questions
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.
What does a DC employee cost on top of salary, in DC taxes?
Mostly employer cost. DC’s Paid Family Leave is funded entirely by employers at 0.75% of covered employees’ wages, which can’t be deducted from pay. Unemployment insurance runs on the first $9,000 of wages at 2.7% or more for a new employer.
Advisory next door
- MDMaryland advisoryMaryland’s R&D credit is 10% over a base and refundable for small businesses. Biotech investors get a refundable credit, and FAMLI adds a payroll cost from January 2027.
- VAVirginia advisoryVirginia’s R&D credit is refundable but small and capped. The bigger planning items are scheduled minimum wage increases through 2028 and a new paid family leave program collecting from April 2028.
Founder guides on this
- ComplianceFirst-year compliance calendar for a Delaware C-corpDelaware franchise tax, 1099s, the federal return, payroll filings, state annual reports and sales tax: the deadlines a young C-corp misses most, by month.
- Sales taxSales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
More of the District of Columbia guide
- AccountingAccounting and state tax in District of ColumbiaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in District of ColumbiaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in District of ColumbiaPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in District of ColumbiaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in District of ColumbiaRegistering to do business, annual reports, franchise tax and the filing calendar
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
- DC Office of Tax and Revenue — Other Business Taxes FAQs (employer withholding)
- DC Code § 47-1806.03 — Individual income tax rates
- DC Paid Family Leave — PFL Tax Rate Change FAQ
- DC Office of Tax and Revenue — Notice of Oct. 1, 2025, Tax Changes
- DC Code § 47-1807.02 — Corporate franchise tax rate and minimum tax
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.