Where You Live and Where You Work: DC, Maryland and Virginia Tax Residency

I live in Maryland. I could work in Virginia and take a meeting in DC the same afternoon. So can you. Three jurisdictions, three different sets of tax rules, and one person standing in the middle.

The answer to “who taxes me” does not come from where you feel at home. It comes from documented facts. This guide walks through them.

Questions I help executives answer

01 “I live in Maryland and work in Virginia. Who taxes my wages?”

Reciprocity decides wages. A Maryland resident working in Virginia generally pays tax on those wages to Maryland only. DC does not tax the wages of nonresidents who work in the District. Maryland residents also pay a county or city income tax, so the home address matters.

1. Confirm where you are domiciled.
2. Give your employer the withholding or exemption form for that state.
3. Check your first paystub to see that withholding matches.

The exception is income that is not wages. Business income, rental income, equity compensation and pass-through income follow separate sourcing rules.

02 “What actually makes me a resident?”

Two tests decide it. Domicile is your permanent home, the place you intend to return to. You can have only one. Statutory residency applies when you keep a permanent place to live in a state and spend more than a set number of days there, commonly 183.

1. Name your domicile.
2. Make the records agree: driver’s license, vehicle registration, voter registration, the address on your return and any homestead credit.
3. Keep a calendar of days in each jurisdiction, every year.

The harder part is that you can be domiciled in one place and a statutory resident of another. In that case both can tax all of your income.

03 “We are moving in July. How does the year split?”

A move makes you a part-year resident in two places, and each return covers only its own months.

1. Write down the date you changed domicile.
2. Split salary by the dates you earned it.
3. Assign the bonus and any vest to the period the work was performed, not the day it paid.
4. File a part-year return for each jurisdiction.

The exception is a vest that spans the move. Sourcing depends on the grant period and each state’s rules, so ask your CPA before you file.

04 “I keep a second home. Does that matter?”

Yes. A home you keep in one jurisdiction while renting in another can create statutory residency without a move. Count the days spent in each place. If the count passes the state’s threshold and you keep a permanent place to live there, you are a statutory resident. Remote work adds a related issue, because days worked from a home office can create a filing obligation.

05 “Does residency change my estate plan?”

Your domicile decides which estate or inheritance tax applies and which court handles probate. Maryland has both an estate tax and an inheritance tax. Virginia has neither. DC has an estate tax.

1. Confirm domicile before you sign documents.
2. Have the will, trust and beneficiary forms reviewed for that state.
3. Redo them after any move.

Settle it before the event

Settle residency before you sell a business, exercise options or take a large bonus. A move after the event does not change which state taxes it. State law changes, so check the details with a CPA who files multi-state returns. I work alongside your tax professional to line up the planning around that filing.

Securities and Advisory services offered through LPL Financial, a registered investment advisor. Member FINRA / SIPC. The financial professionals associated with RPM Financial Group may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.