Congress and DC Tax Standoff Leaves Local Filing Season in Limbo

Filing taxes in the nation’s capital was once as mundane and predictable as anywhere else.

But the US Senate’s action Feb. 12 to thwart a Washington, DC, measure that decoupled the city from portions of President Donald Trump’s signature 2025 tax law has thrown a wrench into the filing season that opened Jan. 26. Republican lawmakers voted to essentially require the district to change more than a dozen provisions in its tax code to align with the federal law enacted last July.

The resolution (H.J. Res 142), which Trump is expected to sign, is made possible by the 1973 District of Columbia Home Rule Act, which allows Congress to disapprove of the city’s laws. DC officials contend the Senate’s vote occurred beyond the act’s 30-day review period, raising the possibility of a legal battle, all while taxpayers—who normally expect certainty—face a confusing filing season.

“This is uncharted territory—we’ve never been down this path before,” said Scott Roberti, managing director and state policy services leader for Ernst & Young LLP.

More than two weeks into filing season, Roberti said he’s fielded questions from clients by focusing on the facts of the situation, the timeline of DC’s decoupling law in December, what exactly that law did, and the current situation.

“I’m not making a definitive statement on what to do right now, because I’m not sure anybody knows exactly what to do,” Roberti said. “The end of the first quarter is still a month-and-a-half away, so let’s hold off. But six weeks is going to fly by. Will we have a resolution in six weeks?”

Filing Season Remains Open

The district’s law (Act A26-0214) became effective Dec. 3, severing the local tax code from the federal law’s personal deductions on tipped and overtime income and several benefits for corporate taxpayers ahead of the 2026 filing season.

If DC is required to conform to those, however, it will have to revise its tax forms and delay filing deadlines into the fall, DC Chief Financial Officer Glen Lee warned last week. The administrative changes alone would cost the district’s general fund millions of dollars in additional expenses, Lee said.

Eric Balliet, a spokesperson for Lee, said Thursday those estimates still stand.

The district’s financial office “understands that the DC Attorney General is reviewing the legal effect of today’s Senate vote to disapprove recent District tax legislation,” Balliet said in a statement.

“Currently, the District’s tax filing season remains open and the Office of Tax and Revenue continues to process returns under the current District law,” Balliet said.

DC’s corporate tax form would see some of the biggest changes, said Charlie Kearns, a partner focusing on state and local tax issues at Eversheds Sutherland. The district would have to adhere to GOP tax law provisions that reinstate 100% bonus depreciation and immediate expensing of research investments the year they’ve incurred, he said.

‘Gonna Be Difficult’

The revamp of the forms would be matched by an immense effort to communicate the changes to taxpayers and practitioners over webinars, emails, and airwaves.

“It’s gonna be a lot of work for OTR in the next couple months,” Kearns said. “Having to deal with this on such a short-term basis is gonna be difficult.”

For now, one thing seems certain: The hyper-partisan national spotlight has been cast on normally routine state tax code decisions that rarely get much attention. The Senate’s vote is a signal to taxpayers that conformity questions are now a hot-button issue worthy of Congress’ attention, Kearns said.

Treasury Secretary Scott Bessent in December excoriated Democratic-led states that decoupled parts of their tax code from the GOP tax law. Bessent said the Trump administration “will not stand idly by” as states made those decisions.

For taxpayers and investors who have assumed the district’s tax code changes were largely final, that can create a challenging environment, Roberti said.

“Our clients want to have that certainty and predictability,” Roberti said. “When you have this sort of sea change happening very quickly—especially when the pendulum swings from one side to another—it just makes it very difficult to make not just tax decisions but investment decisions.”