Tax juggling on Capitol Hill
Innocent spouse tax options, extra time

D.C. enacts new tax on high earners

Don't panic all your readers in the rest of the country. Obama's proposed millionaires' tax is nowhere near being law.

The D.C. in this case is the specific geographic area known as the District of Columbia.

That city's council, by a 7-to-6 vote, agreed Tuesday, Sept. 20, to hike the income tax rate from 8.5 percent to 8.95 percent on District of Columbia residents who earn more than $350,000 a year.

The previous top rate applied to Washington, D.C. residents who earned $40,000 or more.

The new rate will affect about 6,000 District residents. But they can take comfort in knowing that it is just temporary. The 8.95 percent rate will sunset in four years.

The Fiscal Policy Institute estimates that the new income tax rate in the nation's capital will add $675 to the yearly tax bill of a resident making $500,000.

And supporters of the higher rate also point out that the new top tax rate is still lower than the 9.5 percent top rate that was repealed in the early 2000s.

The higher income tax rate also saves some tax dollars for District residents who own municipal bonds.

Once D.C. Mayor Vincent C. Gray signs the income tax rate increase into law, which he is expected to do, the city council will delay implementation of the its previously passed new tax on proceeds of out-of-state bonds.

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