Local taxpayers in the District of Columbia face a confusing tax filing season after the DC Attorney General disputed the effect of Congress’s recent disapproval of recent tax changes.
Under the District of Columbia Home Rule Act passed by Congress in 1973, most DC laws are subject to congressional disapproval within 30 days. If both houses of Congress pass a disapproval resolution and the President signs it into law, the DC law is blocked. If Congress does not do so within 30 days, the law takes effect. DC’s local government also often passes emergency laws that take effect immediately and temporarily pending a permanent law navigating the disapproval process.
After passage of the One Big Beautiful Bill Act (OBBBA) last July, DC, along with many states, began reviewing the provisions to determine which federal tax changes should also apply to their state and local taxes. Twenty-four states and DC automatically follow any federal tax changes, twenty-one other states follow but require action to update any changes, and just two states (Arkansas and Mississippi) decouple completely from the federal tax code. But only four states (Delaware, Illinois, Michigan, and Pennsylvania) and DC have enacted legislation addressing conformity since last summer.
On November 3, DC Council Chair Phil Mendelson (D) proposed decoupling the DC tax code from several OBBBA federal tax changes, including a $750 increase to the standard deduction, an above-the-line deduction for charitable contributions, new deductions for tips and overtime, a deduction for car loan interest, an enhanced deduction for senior citizens, the child and dependent care credit, business full expensing, and research & experimentation expensing. Officials estimate increased revenues of $179 million in FY 2026 and $593 million over the next four years from the decoupling.
Table 1: DC Revenue Effects of Decoupling from OBBBA Provisions
Decoupled Provision | FY 2026 Revenue Increase | FY 2027 Revenue Increase | FY 2028 Revenue Increase | FY 2029 Revenue Increase | Total Revenue Increase, FY 2026–2029 |
$750 extra standard deduction | $20.3 million | $17.9 million | $18.4 million | $18.8 million | $75.6 million |
Above-the-line charitable deduction | * | * | * | * | $2.1 million |
Deduction from sale of small business stocks | * | * | * | * | $1.5 million |
No tax on tips | $8.7 million | $6.6 million | $7.0 million | $4.5 million | $27.0 million |
No tax on overtime | $28.4 million | $22.3 million | $19.9 million | $7.0 million | $77.8 million |
No tax on car loan interest | $4.6 million | $7.0 million | $8.6 million | $4.6 million | $24.9 million |
No tax on Social Security (extra $6,000 senior deduction) | $13.3 million | $11.8 million | $12.3 million | $9.5 million | $47.0 million |
Child & dependent care credit | $3.2 million | $3.2 million | $3.1 million | $3.1 million | $12.6 million |
Research & experimentation deduction | $46.0 million | $28.1 million | $18.9 million | $10.2 million | $177.2 million |
Full expensing for business equipment | $43.0 million | $48.9 million | $48.3 million | $40.5 million | $184.0 million |
Changes to tax on business interest | $11.1 million | $10.5 million | $9.6 million | $8.9 million | $54.4 million |
Total | $179.2 million | $157.6 million | $147.5 million | $108.8 million | $593.3 million |
Less DC EITC match to 100% | ($17.4 million) | ($17.9 million) | ($18.3 million) | ($18.8 million) | ($72.5 million) |
Less DC child tax credit | 0 | ($55.2 million) | ($55.2 million) | ($56.4 million) | ($166.9 million) |
Total, Final DC Version | $161.8 million | $84.4 million | $73.9 million | $33.6 million | $353.8 million |
*less than $1 million
Source: DC Office of Tax Revenue.
The DC Council acted quickly on Mendelson’s proposal, skipping public hearings and approving an emergency bill (and the accompanying declaration of emergency) the very next day, November 4. The legislation, Act 26-214, is retroactive to the beginning of the tax year (January 1, 2025) to match the OBBBA effective date, and will expire on March 3, 2026. (Emergency laws must expire within a certain time period.) The legislation also increased the Earned Income Tax Credit (EITC) from 85% of the federal level to 100% of the federal level and added a new DC child tax credit of $420 per child. Mayor Muriel Bowser (D) let the law take effect without her signature on December 3.
A longer version of the same law (to expire September 25, 2026) was passed by the DC Council on December 2, and took effect (again without the Mayor’s signature) on December 20. This second law, Act 26-217, was transmitted to Congress on December 30 and is what Congress voted to disapprove in H.J. Res. 142. The House passed the disapproval resolution on February 4, the Senate did so on February 12, and President Trump signed it into law on February 18. The disapproval resolution is short, acknowledging the December 20 passage date, December 30 transmittal date, and February 18 date of its adoption.
On February 24, the DC Attorney General issued an opinion that gives reasons why the disapproval resolution does not change the DC tax code for this filing season:
- Because Congress did not disapprove Act 26-214, the emergency bill, it is still in effect until its expiration on March 3, 2026. This bill was retroactive to January 1, 2025, and therefore its provisions apply to the 2025 tax year and the 2026 tax filing season.
- Congress’s action does not affect the 2025 tax year or the 2026 tax filing season, because Congress’s disapproval resolution did not state it applied retroactively.
- Transmission, which starts the 30-day disapproval clock, occurred on December 30, 2025. This clock ran out on February 11, 2026. The House passed the disapproval resolution on February 4, the Senate on February 12, and the President signed on February 18. Therefore, the disapproval resolution does not prevent Act 26-217 from taking effect on February 12.
This is no small matter:
- Nearly 90% of taxpayers take the standard deduction, which is either $15,750 (if Congress is right) or $15,000 (if DC is right).
- The local child tax credit is either $0 (if Congress is right) or $420 per child (if DC is right).
- Purchases of new business equipment can either be deducted 100% (if Congress is right) or 5% to 33%, depending on what the equipment is (if DC is right).
- Research and experimentation expenses are deductible at 100% (if Congress is right) or just 20% (if DC is right).
DC’s actions also put it as the most extreme of the decoupling actions taken by states since last summer, although more states are expected to act this year. Michigan decoupled from three provisions in October, Pennsylvania decoupled from one provision in November, Delaware decoupled from one provision fully (and one provision retroactively only) also in November, and Illinois decoupled from one provision in December. The DC action decouples from eleven provisions. While there are many OBBBA provisions DC did not decouple from, these eleven are the higher-profile or higher-impact changes. The number of states adopting conformity laws to couple or decouple from the federal tax provisions “fell short of practitioners’ expectations,” according to a special report by Bloomberg Tax collecting surveys of actions taken by state tax departments, and more state legislatures are expected to act in 2026.
Table 2: State Enactments on OBBBA Conformity Compared to DC’s Decoupling Law
State | Decoupling Action |
Delaware | H.B. 255 (enacted Nov. 19, 2025) decouples from research and experimentation expensing for 2022, 2023, and 2024, but conforms for 2025 and after; and decouples from full expensing for 2025 through 2030. |
Illinois | S.B. 1911 (enacted Dec. 12, 2025) decouples from full expensing for 2026 and after. |
Michigan | H.B. 4961 (enacted Oct. 8, 2025) decouples from full expensing; research and experimentation expensing; small business property expensing; and the business interest limitation for 2025 and after. |
Pennsylvania | Act 145/H.B. 416 (enacted Nov. 12, 2025) decouples from research and experimentation expensing for 2025 and after. |
District of Columbia | Act 26-214 (enacted Dec. 3, 2025) & Act 26-217 (enacted Dec. 20, 2025, disapproved by Congress Feb. 18, 2026) decouples from the $750 additional standard deduction; above-the line charitable deduction; small business stock sale deduction; no tax on tips; no tax on overtime; no tax on car loan interest; additional senior deduction; child and dependent care credit; research and experimentation expensing; full expensing; changes to business tax interest, all for 2025 and after. |
Source: NTUF review of state legislation.
For DC taxpayers, the impacts are serious. The DC Chief Financial Officer says the dispute may push tax filing deadlines to September and disrupt $400 million in cash flow for the District government. Around 60,000 residents and 1,000 businesses—about 20% of the total—have already filed their tax return. Residents can continue filing their taxes, but the DC Office of Tax and Revenue (OTR) has not yet provided guidance on how taxpayers should navigate the uncertain legal environment.
At the DC Council, Council Chair Mendelson acknowledged that some of his colleagues are nervous about the risks of a prolonged conflict with Congress, so it is possible that DC recouples to some or all of the OBBBA provisions from tax year 2026 onward, as a bit of compromise. (Mendelson’s original bill was itself temporary, expiring in September to allow rules for the 2026 tax year to be revisited.) Updated revenue estimates are expected on February 27. Given how many taxpayers are impacted, litigation may well happen too, to address the Attorney General’s claims.
Leaders should resolve this dispute because, otherwise, taxpayers will be left unsure what they should do. DC OTR should also provide public assurance that taxpayers will be provided prompt refunds if the ultimate resolution of the conflict is in their favor. Taxpayers at all income levels as well as business owners deserve certainty from the local tax code.