Congress’ DC Decoupling Vote Hurts Vulnerable Taxpayers the Most

Each filing season, students and other volunteers at the IRS Volunteer Income Tax Assistance, or VITA, program at Howard University prepare hundreds of federal and Washington, DC, income tax returns.

DC residents filing returns this season are now being told that because of an act of Congress, DC tax refunds might be delayed by at least six weeks. For many of the households that VITA serves, refunds aren’t discretionary income; they’re essential for rent, utilities, childcare, food, and transportation.

The DC government moved to decouple from key provisions of the massive federal tax package signed into law July 4. But this month, Congress passed a joint resolution to nullify the DC decoupling legislation.

Unlike any state, DC operates under a unique constitutional and statutory framework where Congress has the authority to review and overturn any DC law. This resolution didn’t simply express congressional disagreement; it has transformed the filing season into a lesson in instability, confusion, and administrative strain.

What began as a local tax policy choice has escalated into a broader confrontation between the DC Council and Congress, and it has immediate consequences for taxpayers.

If President Donald Trump signs the congressional repeal, DC could be forced to abandon its decoupled regime retroactively to conform. That would likely require the DC Office of Tax and Revenue to halt processing, reprogram systems, and instruct taxpayers who have already filed to amend and refile their DC returns.

Delays create cascading financial stress, particularly when federal refunds arrive sooner and taxpayers reasonably expect their DC refunds to follow.

Compounding the frustration is that DC’s decoupling disallows or limits deductions that taxpayers explicitly can claim on their federal returns, including deductions for qualified tips, overtime compensation, the $6,000 deduction for seniors, and accelerated depreciation expenses.

Explaining why a taxpayer’s federal taxable income is lower and refund higher, while their DC taxable income is significantly higher and refund lower, requires time, patience, and trust. For example, a senior citizen whose only source of income is Social Security might have negative federal income after claiming the $6,000 deduction for seniors but may owe DC taxes because the deduction would be added back to calculate DC taxable income.

The DC chief financial officer made clear that decoupling was driven by revenue concerns. The CFO’s Fiscal Impact Statement projected that decoupling from select provisions would increase DC revenue by approximately $179 million in fiscal 2026 and $593 million over fiscal 2026 through fiscal 2029.

Losing that projected revenue could harm DC budget stability, hurt credit ratings, and decrease funding for services.

These figures matter from a macro-budget perspective. US Sen. Angela Alsobrooks (D-Md.) warned that nullifying DC’s tax decoupling would strip the city of critical revenue needed to sustain the child tax credit and enhanced earned income tax credit, undermining “DC’s admirable and groundbreaking efforts to address child poverty and provide a boost to low-income residents.”

She further cautioned that the fallout wouldn’t stop at DC’s borders and would create a cascading economic impact on businesses in surrounding jurisdictions, including in Maryland.

For DC taxpayers expecting refunds, the uncertainty is immediate and destabilizing. When tax rules change mid-season, financial planning collapses for families already operating with little margin for error.

For the DC government, the reversal of decoupling threatens hundreds of millions of dollars in projected revenues, weakening budget certainty and raising concerns about long-term fiscal stability and DC’s credit profile. Abrupt revenue losses force difficult tradeoffs, placing pressure on funding for core services and anti-poverty programs precisely when economic predictability is most needed.

For VITA tax sites, the chaos is operational and reputational. Volunteers must be retrained, returns already filed may require amending, and taxpayer confidence in free tax preparation programs is eroded through no fault of the preparers. VITA administrators are left managing compliance crises in real time, diverting scarce resources away from service delivery and toward damage control.

The Howard University VITA site on Feb. 16 implemented a protocol pending the resolution of this conflict between DC and Congress. We will continue to file federal returns, but VITA’s current strategy is to hold DC returns for certain taxpayers to avoid the burden of potentially amending these returns.

If the DC law is nullified, seniors referenced above would be entitled to the $6,000 enhanced deduction, thereby reducing their DC taxable income and tax liability.

Tax policy must be stable, transparent, and timely. Tax compliance works best when the rules are clear, fixed and predictable—before filing begins—not rewritten after taxpayers, governments, and tax preparers have already relied on them in good faith.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Jean Wells is the tax faculty supervisor of the IRS VITA program at Howard University and a former manager in Deloitte’s Washington National Tax Policy group.

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