Maryland-Virginia-DC Reciprocity: Withholding Rules for Capital Region Workers

The Washington-Baltimore capital region is the most active reciprocity corridor in the country. Hundreds of thousands of workers cross the Maryland, Virginia, and District of Columbia borders each workday, and the tax rules that govern their paychecks are layered: bilateral reciprocity agreements between the states, a federal prohibition on a DC commuter tax, and Maryland's unusual county-level income tax. Getting withholding right in this region matters more than almost anywhere else, because the rate differential between jurisdictions can exceed two percentage points.

This guide explains how the Capital Region reciprocity network fits together, which form to file for each crossing, and how the Maryland county tax, Virginia out-of-state credit, and DC commuter-tax prohibition interact. We cite the Maryland Comptroller, the Virginia Department of Taxation, the DC Office of Tax and Revenue, and the federal statute that prohibits a DC commuter tax throughout. Use the worked examples to verify your own situation, then run the numbers through our calculator.

The Capital Region reciprocity network

The Capital Region reciprocity network is anchored by three bilateral agreements: Maryland and Virginia, Maryland and the District of Columbia, and Virginia and the District of Columbia. Layered on top are Maryland's additional agreements with West Virginia and Pennsylvania, which extend the same rules to those commuters. The effect is that a resident of any of the three core jurisdictions — Maryland, Virginia, or DC — who commutes to another of the three pays income tax only to their state of residence.

The network is reinforced by the federal prohibition on a DC commuter tax, codified in the District of Columbia Revenue Act of 1974 and reaffirmed in subsequent appropriations riders. This prohibition is not a reciprocity agreement; it is a federal law that strips DC of the power to tax non-resident wages at all. The practical effect is identical to reciprocity — DC residents working in Maryland or Virginia are taxed only by DC, and Maryland or Virginia residents working in DC are taxed only by their home state — but the legal basis is different.

West Virginia and Pennsylvania round out Maryland's reciprocity partners. A Maryland resident who commutes to West Virginia or eastern Pennsylvania files Form MW507 and is taxed only by Maryland. A West Virginia or Pennsylvania resident working in Maryland files the equivalent exemption form from their home state and is taxed only by their home state.

How each agreement works in practice

The Maryland-Virginia reciprocity agreement, originally signed in 1969 and most recently reaffirmed in the Maryland Tax-General Article, allows a Virginia resident working in Maryland to claim exemption from Maryland withholding by filing Virginia Form VA-4 with the Maryland employer. Conversely, a Maryland resident working in Virginia files Maryland Form MW507 with the Virginia employer. In both cases, the work state withholds nothing, and the residence state withholds under its normal rules.

The Maryland-DC reciprocity operates similarly. A Maryland resident working in DC files Form MW507 with the DC employer and is taxed only by Maryland. A DC resident working in Maryland files Form D-4A (the DC withholding exemption certificate) with the Maryland employer, claiming exemption from Maryland withholding. Because DC cannot tax non-residents under federal law, this is functionally a clean single-tax arrangement.

The Virginia-DC reciprocity is the simplest of the three. A Virginia resident working in DC files Form VA-4 with the DC employer. DC does not withhold any income tax because the federal commuter-tax prohibition already prevents it from taxing non-residents. A DC resident working in Virginia files Form D-4A with the Virginia employer, claiming exemption from Virginia withholding under reciprocity.

For West Virginia crossings, Maryland residents file MW507 with West Virginia employers, and West Virginia residents working in Maryland file West Virginia's Form WV/IT-104 R with the Maryland employer. Pennsylvania residents working in Maryland file Form REV-419; Maryland residents working in Pennsylvania file MW507.

The exemption forms

The four most common exemption forms in the Capital Region are the Maryland MW507, the Virginia VA-4, the DC D-4A, and the West Virginia WV/IT-104 R. Each form has a similar structure: name, address, Social Security number, certification of residency, and a signature under penalty of perjury. The form must be filed with the employer's payroll department, not with the state directly, and the employer must retain the form on file.

The Maryland MW507 is filed by Maryland residents to claim exemption from another state's withholding, or by non-residents working in Maryland to claim exemption from Maryland withholding. The form includes a line for the partner state, and the Comptroller of Maryland publishes a list of qualifying states on the reverse. Employees must file a new MW507 each year only if they wish to continue the exemption or if their circumstances change.

The Virginia VA-4 is Virginia's standard employee withholding certificate, used by both residents and non-residents. Non-residents claiming reciprocity check the appropriate box on line 7 and identify their state of residence. The Virginia Department of Taxation requires that the form be filed within 10 days of beginning employment. The DC D-4A is the District's withholding exemption certificate and follows a similar format. The West Virginia WV/IT-104 R is the reciprocity-specific form for West Virginia; unlike Virginia's form, it is dedicated to reciprocity claims rather than serving as a general withholding certificate.

The Maryland county tax complication

Maryland's income tax is split into a state component and a local component levied by the county (or Baltimore City) of residence. The state component uses graduated brackets topping out at 4.75% in 2025, while the local component is a flat rate set by each jurisdiction between 2.25% and 3.20%. Combined, the top effective Maryland rate can approach 7.95% before credits.

The local tax applies only to Maryland residents. A Virginia or DC resident working in Maryland under reciprocity does not owe Maryland county tax. However, a Maryland resident commuting to Virginia or DC under reciprocity does owe the county tax on those wages, and the Maryland employer (or the reciprocity arrangement with the out-of-state employer) must withhold it. This is the most common point of confusion for capital region workers and payroll departments alike.

In practice, when a Maryland resident files Form MW507 with a Virginia or DC employer, the employer should set up Maryland state and local withholding on the employee's record. Some out-of-state employers do not have Maryland payroll registration, in which case the employee may need to make estimated payments to cover the Maryland county tax. The Maryland Comptroller's online estimated tax system handles this; failure to make the payments triggers underpayment penalties at year-end.

Virginia's out-of-state tax credit

Virginia offers a credit to residents who pay income tax to other states on wages sourced there. The credit is calculated on Virginia Schedule OSC and is equal to the lesser of the tax paid to the other state or the Virginia tax on that same income. The credit is meaningful for Virginia residents who work in states without reciprocity — say, North Carolina or New York — but is irrelevant inside the Capital Region reciprocity network, because no other-state tax is paid in the first place.

The credit interacts with reciprocity in one important way: if a Virginia resident works part of the year in a non-reciprocity state and then moves to a Capital Region job, the credit applies only to wages sourced to the non-reciprocity state. The reciprocity wages remain solely taxed by Virginia. Workers with hybrid arrangements should keep careful records of where each workday was performed.

Virginia also differentiates between residents, part-year residents, and non-residents for filing purposes. A Virginia resident who commutes to DC under reciprocity files Form 760 (the resident return) reporting all wages, including those earned in DC. There is no separate non-resident return to file because DC never taxed the wages. A part-year Virginia resident files Form 760-PY and apportions income by residency period.

DC's unique position

The District of Columbia occupies a unique position in American tax law because it is a federal district, not a state. Congress has repeatedly prohibited DC from taxing non-resident income through the annual appropriations process, most directly in the District of Columbia Revenue Act of 1974. The prohibition is sometimes called the "commuter tax ban" and applies to all wages earned by non-residents in DC, regardless of their state of residence.

This means the Virginia-Maryland-DC reciprocity agreements are partly redundant with the federal commuter-tax ban. A Maryland resident working in DC needs to file MW507 with the DC employer to confirm exemption, but even without the form, DC could not legally tax the wages. The form is still important because it signals to the payroll system that no DC withholding should occur, and it shifts responsibility to the employee to ensure Maryland withholding is in place.

DC residents, by contrast, pay DC income tax on all wages regardless of where earned. A DC resident working in Maryland files D-4A with the Maryland employer to claim exemption from Maryland withholding, and the DC employer (if different) withholds DC tax. If the Maryland employer has no DC payroll capability, the DC resident may need to make DC estimated tax payments to cover the liability. The DC Office of Tax and Revenue publishes Form D-40ES for this purpose.

Worked examples

Example 1: Virginia resident working in DC. A software engineer lives in Arlington, Virginia, and works for a DC employer. On her first day, she files Form VA-4 with the DC employer and checks the reciprocity box. The employer withholds no DC income tax. The employer also withholds Virginia income tax based on her VA-4 entries — or, if the employer has no Virginia payroll registration, she makes quarterly Virginia estimated payments. At year-end, she receives a W-2 showing zero DC withholding and reports the full wages on her Virginia Form 760. She owes no DC tax.

Example 2: Maryland resident working in Virginia. A nurse lives in Montgomery County, Maryland, and commutes to a hospital in Fairfax, Virginia. She files Form MW507 with the Virginia employer, claiming exemption from Virginia withholding. The Virginia employer withholds no Virginia state tax but should withhold Maryland state and Montgomery County local tax — 4.75% state plus 3.00% Montgomery County in 2025. If the Virginia employer lacks Maryland payroll registration, the nurse makes Maryland estimated payments covering both state and county tax. At year-end, she files Maryland Form 502 and reports all wages; she does not file a Virginia return.

Example 3: DC resident working in Maryland. A teacher lives in the District and commutes to a school in Prince George's County, Maryland. He files Form D-4A with the Maryland employer, claiming exemption from Maryland withholding under reciprocity. The Maryland employer withholds no Maryland state or county tax. DC tax is withheld through the employer's DC payroll registration, or the teacher makes DC estimated payments. At year-end, he files DC Form D-40 and reports all wages; he does not file a Maryland return. Because the federal commuter-tax ban prevents DC from taxing non-residents, the mirror situation (Maryland resident working in DC) is even simpler — no D-4A is strictly required, though filing one provides documentary protection.

Remote work and the Capital Region

The pandemic forced a temporary rewriting of the rules. In 2020 and 2021, several states issued guidance suspending the physical-presence sourcing requirement for telework, but Virginia, Maryland, and DC all reverted to the standard sourcing framework by mid-2022. As of 2025, the rule is straightforward: wages are sourced to the state where the work is physically performed, and reciprocity applies when the worker lives in one state and performs the work there for an employer located in another.

A Virginia resident who works from home in Arlington for a DC employer owes tax only to Virginia. A Maryland resident teleworking for a Virginia employer owes tax only to Maryland. A DC resident teleworking for a Maryland employer owes tax only to DC. Hybrid arrangements — three days at home, two days in the office across the border — should be apportioned, though most Capital Region employers handle this informally by treating the residence state as the default withholding jurisdiction.

One open question concerns workers who relocated out of the region during the pandemic and never returned. If a former Virginia resident now lives in North Carolina and teleworks for a DC employer, the rules of North Carolina and DC apply — Virginia's reciprocity is irrelevant because the worker is no longer a Virginia resident. These workers should file a Virginia part-year return for the year of the move and update their W-4 to reflect the new state of residence.

Common mistakes

The most frequent mistake is forgetting to file the MW507, VA-4, or D-4A on the first day of a new job. Without the form, the employer defaults to withholding work-state tax, and the worker must file a non-resident return at year-end to claim a refund. The Maryland Comptroller reports that thousands of these refund claims are filed each year, and the processing delay can stretch into summer.

A second common mistake is treating the Maryland county tax as if it were covered by reciprocity. It is not. Maryland residents owe county tax on all wages, including those earned in Virginia or DC under reciprocity. Workers who fail to set up Maryland county withholding or estimated payments routinely owe surprise balances due in April, plus underpayment interest.

Third is failing to update the exemption form after a move. A Maryland resident who relocates to Virginia must file Form VA-4 with the employer within 10 days; a stale MW507 on file means the employer continues withholding Maryland tax on a non-resident, which is incorrect in both directions. Fourth is assuming DC can tax non-residents — it cannot, by federal law, but some employers withhold DC tax on out-of-state workers out of caution. The employee must file a DC non-resident return (Form D-40B) to recover the incorrectly withheld amounts.

What to do next

Pull your most recent pay stub and identify which states have income tax withheld. If you are a Capital Region commuter and see withholding for a state where you do not reside, confirm reciprocity applies and file the appropriate exemption form with your employer. Maryland residents should verify that county tax is being withheld in addition to state tax. Virginia residents should confirm that no other-state tax is being withheld and that no Schedule OSC credit is needed. DC residents should verify DC withholding is in place and that no Maryland or Virginia tax is being withheld. Run your numbers through our calculator to project your full-year liability, then adjust your W-4 or estimated payments to close any gap before year-end.