Emergency Legislation Reshapes D.C. Income Taxes
Washington D.C.’s City Council passed emergency legislation this week that officially decouples the local tax code from multiple provisions in the new 2025 Trump tax law. Residents will no longer be able to claim federal tax incentives such as the “no tax on tips” deduction, special overtime pay breaks, or the $6,000 bonus for older adults on their city returns. While these changes will still apply at the federal level, D.C. taxpayers will face a different structure when filing locally.
Impact on Workers, Seniors, and Businesses
The move comes amid ongoing fallout from the record-breaking government shutdown, with city finance officials projecting up to $1 billion in local revenue losses over four years due to federal job cuts. By decoupling, the Council aims to protect city finances and redirect tax savings to expanded local benefits, such as a new $1,000 child tax credit and an enhanced earned income tax credit that matches 100% of the federal amount.
Affected provisions include immediate expensing of R&D costs and special business depreciation allowances. D.C.’s changes follow similar moves by states such as New York, Michigan, and Illinois, all rejecting specific federal tax cuts they believe threaten local budgets.
Temporary But Sweeping Change
The decoupling legislation is set to last at least 90 days, with an additional clause extending the reforms for 225 days before permanent legislative approval is required. City leaders say further updates may follow, reflecting an urgent need to balance budgets in the wake of federal policy changes.
Local Revenue Challenges Ahead
D.C.’s Chief Financial Officer Glen Lee explained that these steps are meant to address the “significant strain” from federal disruptions. The city hopes retained revenue will keep local programs afloat as inflation and human needs rise, but warns even more tough decisions may lie ahead if the economy slows further.