DC to Continue Filing Season, Ignore Congress’ Decoupling Rebuke

Taxpayers in Washington, DC, should file their taxes as if the city’s tax code deviations from federal law are in effect, the city’s top financial official said.

But district CFO Glen Lee also said in a letter Wednesday that the risk of litigation or other factors means he cannot report how much revenue will be raised through DC’s action to decouple from parts of last year’s federal tax law.

Congress voted last month on a resolution to force the city to re-align with about a dozen tax provisions from last year’s GOP tax-and-spending law that the DC Council voted last December to omit from the local tax code. Those included deductions on tipped and overtime income for individuals, as well as several business tax breaks.

The 1973 Home Rule Act gives Congress the power to block local laws. But local officials argued that the Senate’s Feb. 12 action sending the resolution for President Donald Trump’s signature came too late. City officials, including Lee, also warned that repealing the DC law would send the city’s filing season into a tailspin, forcing it to extend deadlines into the fall.

The issue boils down to when the Home Rule Act’s 30-day review clock starts. City officials start counting when the council transmits legislation to Congress, but Congress doesn’t start its clock until the second chamber publishes notice of the law it in the record.

A court has never weighed in on the issue. But litigation is possible, and could come from not only federal or city officials, but even aggrieved taxpayers.

Lee wrote to DC Mayor Muriel Bowser (D) that “neither the emergency nor the temporary legislation passed by Council impact tax obligations after tax year 2025,” meaning the district’s decoupling measure is only in effect for the current filing season and that the Office of Tax and Revenue will continue processing returns based on that law.

The district will administer taxes in future years in a manner consistent with the GOP tax law, Lee said.

Bowser told Lee in a Feb. 27 letter that his office’s February revenue estimate did not include impact of the decoupling law, impacting her budget planning. Lee said Wednesday he still can’t include that money, following his office’s policies.

“There is considerable risk and uncertainty, from litigation or other actions, to the revenues associated with the District’s decoupling legislation. Consistent with the OCFO’s ongoing practice related to uncertain revenue collections, the OCFO will continue to defer including decoupling revenues from the revenue estimates,” Lee wrote.