What District of Columbia residents actually pay
District of Columbia taxes ordinary income at a top marginal rate of 10.75%. RSU settlement value, NSO exercise spread, and ESPP discount income all count as ordinary wages for this purpose and flow through the state's normal brackets.
Top bracket kicks in at $1M.
Ordinary income at exercise
NSO spread (FMV minus strike at exercise, times shares) is ordinary wage income in the year of exercise. District of Columbia taxes it at up to 10.75%, stacked on your base wages. Federal supplemental withholding applies at 22% (or 37%), just like RSUs.
Cash outlay vs tax
NSO exercise requires cash for the strike price plus tax withholding. Cashless exercise (same-day sell) nets out the cash requirement but converts the full spread to ordinary income in the exercise year. Early exercise with 83(b) is available on pre-vesting NSOs at some companies; it starts the long-term capital gain clock on the full share value going forward.
Interaction with later sales
After exercise, your basis equals strike plus spread (the amount taxed as ordinary). Further price appreciation is capital gain on sale, split long-term vs short-term at the one-year mark. For District of Columbia residents, this is where the state savings from holding (limited, since District of Columbia taxes LTCG as ordinary) matter most.
Frequently asked
- Does District of Columbia tax RSU income the same as wages?
- Yes. District of Columbia treats RSU ordinary income as wages, taxable at the state's top marginal rate of 10.75%. Supplemental-wage federal withholding (22%, or 37% above $1M YTD) does not adjust for state withholding, so you often owe extra at filing.
- What happens if I exercise ISOs while living in District of Columbia?
- District of Columbia does not run a separate state AMT, so only federal AMT applies. You still need to model the bargain element carefully if you plan a cashless exercise-and-sell.
- I moved to District of Columbia from another state. Who taxes my vesting RSUs?
- Most high-tax states (CA, NY, MA) source RSU ordinary income to workdays between grant and vest. If your grant pre-dates your District of Columbia move, expect the old state to tax the portion of each tranche attributable to workdays earned there. District of Columbia taxes the remainder.
- Can I reduce District of Columbia taxes by timing my RSU sales?
- District of Columbia taxes long-term capital gains at the same rate as ordinary income, so timing alone does not produce a state savings — only federal. Holding for 12 months still halves the federal rate on gains above basis.
Related
- RSU taxes — District of Columbia
- ISO exercises and AMT — District of Columbia
- Capital gains tax — District of Columbia
- QSBS — District of Columbia
- Moving to or from District of Columbia with unvested equity: trailing nexus rules — District of Columbia
- RSU vesting schedules — District of Columbia
- ESPP taxation — District of Columbia
- 401(k) and retirement accounts — District of Columbia
- Leaving District of Columbia: how to cleanly break residency before a liquidity event — District of Columbia
- District of Columbia equity-comp overview