What’s new in the District of Columbia for 2026: the federal deductions arrive a year late, and the EITC shrinks

The 2026 DC return will be the first on which the federal deductions enacted in July 2025 count for anything. For 2025 the District said no: the Council voted in December 2025 to keep DC out of the new deductions for tips, overtime, car-loan interest and the $6,000 senior deduction, and the Office of Tax and Revenue’s 2025 D-40 booklet, revised in August 2026, says flatly that the District does not allow them. For 2026, 2027 and 2028 the answer is yes. The Fiscal Year 2027 Budget Support Act of 2026, effective October 2, 2026, conforms DC to all four. The same law pays for it partly by cutting the DC earned income credit from 100% of the federal credit to 85% for the same three years, and by keeping the District’s own standard deduction, indexed from $15,000 single and $30,000 joint, rather than adopting the federal $16,100 and $32,200. The rates did not move. The seven brackets, 4% to 10.75%, are the same for 2026 as for 2025, and the same for a married couple as for a single filer.

Nearly everything below comes from one law, the FY2027 Budget Support Act (D.C. Law 26-189, Act 26-418), and from the Office of Tax and Revenue’s 2025 forms and notices. The Department had not published its 2026 D-40 booklet or its annual October 1 notice of tax changes as of early November 2026, so several 2026 figures below are marked “to come.”

The conformity reversal

The District follows the Internal Revenue Code as it changes, unless the Council votes to decouple from a specific provision. When Congress enacted the deductions for tips (section 224), overtime (section 225), car-loan interest (section 163(h)(4)) and the enhanced senior deduction (section 151(d)(5)(C)) in July 2025, they would have flowed into DC law automatically. The Council stopped them.

December 2025: decoupled for 2025. The Emergency Act (D.C. Act 26-214, December 3, 2025) and the Temporary Act (D.C. Act 26-217, enacted December 20, 2025, later D.C. Law 26-89) decoupled DC from all four deductions and from the higher federal standard deduction, retroactive to January 1, 2025. Congress disapproved the Temporary Act under the Home Rule Act (H.J. Res. 142, signed February 18, 2026, as Public Law 119-78), but the DC Attorney General concluded on February 24, 2026 that the Senate had voted after the 30-day review window closed and that the disapproval changed no one’s 2025 liability. The Department’s position is in its 2025 D-40 booklet, revised August 2026: “The District does not allow the following federal schedule 1-A Additional Deductions,” listing tips, overtime, car-loan interest and the senior deduction. Anyone who claimed them on a 2025 D-40 should expect a notice.

October 2026: conformed for 2026 through 2028. The FY2027 Budget Support Act allows all four deductions for tax years beginning after December 31, 2025. The law is clear about the result and silent about the mechanics. Form D-40 starts from federal adjusted gross income, and all four federal deductions are taken below AGI, on federal Schedule 1-A. For them to reach the DC return, the 2026 D-40 or Schedule I will need a subtraction line that does not exist on the 2025 forms. The Department has not yet shown how it will do this (verify against the 2026 D-40 booklet when posted). Until it does, the safe assumption is that the deduction is real and the form is the open question.

The EITC: 100% to 85%

The DC earned income credit was 100% of the federal credit for 2025. For returns covering a full year beginning after December 31, 2025 and before January 1, 2029, it is 85% of the federal credit. Under current law it returns to 100% for 2029. The credit is still refundable, still open to ITIN filers who compute the federal amount as if they had a Social Security number, and still payable in twelve monthly installments when it reaches $1,200 (the oval on D-40 Line 27). Whether the 85% rate also applies to the District’s separate, enhanced credit for workers without a qualifying child, which had a 2025 maximum of $649, is not stated in the summaries of the law available so far (verify). For a family with three children and the maximum federal credit, the cut is in the neighborhood of $1,200.

The standard deduction: DC’s own, through 2029

Before July 2025 the District simply used the federal standard deduction. When Congress raised the federal figure to $15,750 single and $31,500 joint for 2025, and to $16,100 and $32,200 for 2026, DC chose not to follow. The FY2027 Budget Support Act creates a DC “basic standard deduction” for tax years 2025 through 2029: $15,000 for single, married filing separately and dependent filers, $22,500 for head of household and $30,000 for married filing jointly or a surviving spouse, for 2025, increased each year after by a cost-of-living adjustment. The additional amount for age 65 or blindness still follows the federal rule, $1,600 per condition in 2025, or $2,000 for a single or head-of-household filer. After 2029 the DC figure reverts to the federal one. The 2026 DC amounts are to come. Tax software that defaults to the federal $16,100 or $32,200 on a DC return is wrong, and early-season software may do exactly that.

Two rules around the deduction did not change. You take the DC standard deduction only if you took the federal standard deduction; if you itemized federally you itemize in DC. And DC itemized deductions still exclude state and local income taxes entirely, still allow real estate taxes without the federal $40,000 cap, and are still cut back under the “DC 5% limitation” above a DC AGI threshold the booklet does not print, generally understood as $200,000 (verify).

The same law formally repealed D.C. Code § 47-1806.02, the personal exemption section. The District had already stopped allowing personal and dependent exemptions on the D-40; the repeal cleans up the code rather than changing anyone’s return.

Charitable deduction for non-itemizers: added back

Federal law allows a deduction of up to $1,000 single and $2,000 joint for cash gifts by people who do not itemize, starting with 2026, under section 170(p). The District does not. For tax years 2025 through 2029, a DC filer who does not itemize must add any amount deducted under section 170(p) back to DC income. Because the federal deduction is taken below AGI, the add-back is what makes it a non-event in DC; without it the deduction would have slipped through. See The charitable deduction for non-itemizers for the federal rule.

Business owners: the exclusion becomes a credit

Through 2025, a DC resident who owned part of an unincorporated business or S corporation that paid the District’s franchise tax excluded that share of income from the D-40, so it was not taxed twice. Beginning with tax years after December 31, 2025, the exclusion ends and a nonrefundable credit takes its place: the owner’s pro rata share of franchise tax the entity actually paid, limited to the owner’s DC income tax. The entity must have filed and paid in full. For most owners the arithmetic is similar; for an owner whose share of franchise tax exceeds their personal DC tax, the credit is capped where the exclusion was not.

What did not change

• The rates. 4% on the first $10,000 of DC taxable income, 6% to $40,000, 6.5% to $60,000, 8.5% to $250,000, 9.25% to $500,000, 9.75% to $1,000,000 and 10.75% above. Not indexed, and identical for every filing status.
• Social Security is still subtracted in full on D-40 Line 10. Pensions, IRAs, 401(k)s and military retired pay are still taxed in full. See The District for retirees.
• Nonresidents still owe DC nothing. A Maryland or Virginia commuter pays only the home state. See Moving to or from the District.
• The child and dependent care credit stays at 32% of the federal credit on the 2025 form (D-40 Line 21); the Temporary Act had cut it to 24.25%, and that cut is not in the FY2027 law (verify 2026).
• Bonus depreciation, section 179 above the DC limit, section 174A research expensing, the section 163(j) interest change and section 168(n) production property: all still decoupled, with the add-backs on Schedule I, Calculation A.
• The general sales tax stays at 6%. The scheduled increase to 7% was pushed back a year, to October 1, 2027.

The child tax credit: still none, after three tries

The District enacted a $420 child tax credit in 2024, repealed it effective September 30, 2024 before it paid out, and the December 2025 Temporary Act wrote a version back into the code. The D.C. Code website still displays § 47-1806.17 with a $420 credit for children under 6, phased out above $160,000 single and $240,000 joint, because the Temporary Act’s 225-day amendment was in force when the page was last updated. The Department’s October 1, 2025 notice lists the credit as repealed, the 2025 Form D-40 has no line for it, and the FY2027 Budget Support Act does not restore it. The working assumption for the 2026 return is no DC child tax credit (verify). See Credits and breaks for District families.

Smaller items

Estate tax. The exclusion for deaths in 2026 is $4,988,400, per the Department’s October 1, 2025 notice. The 2027 figure is to come.

Qualified small business stock. Gain excluded federally under section 1202 on a sale on or after December 3, 2025 is added back on Schedule I for 2025. How much of it is added back for 2026, all of it or only the July 2025 federal expansion, is a question for the 2026 Schedule I instructions (verify).

EV charger credit. Starting with tax year 2027, not 2026, a DC resident who installs a charging station at home can claim 50% of the cost, up to $1,000. The alternative fuel vehicle conversion credit, 50% up to $19,000, runs through 2035.

Refund appeals. A denied refund claim can now be appealed to D.C. Superior Court within six months of the denial, retroactive to July 2022.

No ballot measure. There was no tax question on the District’s November 3, 2026 ballot.

What to expect on the 2026 return

• Tipped and hourly workers: a new subtraction for tips and overtime, worth 6% to 8.5% of the amount for most households, in a form the Department has not yet shown.
• Filers 65 and older: the $6,000 per person senior deduction counts in DC for the first time, again through a mechanism to come. A married couple both over 65 at the 8.5% rate saves $1,020.
• Low-income families: a DC EITC 15% smaller than the federal credit.
• Everyone taking the standard deduction: a DC figure slightly above $15,000 / $22,500 / $30,000, not the federal $16,100 / $24,150 / $32,200.
• Non-itemizers who gave to charity: an add-back of the federal $1,000 / $2,000 deduction.
• Owners of DC unincorporated businesses and S corporations: a credit on Schedule U in place of the old exclusion.
• Anyone who claimed the federal deductions on a 2025 DC return: a notice, and a decision about whether to amend.