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B 26-0324

Pass-Through Entities Income Tax and Tax Credit on Certain S Corporations and Partnerships Amendment Act of 2025

26th Council Period (2025-2026) Introduced by Phil Mendelson

DC bill imposes new income tax on S corporations and partnerships, shifting taxation from individual owners to entity level with accompanying tax credits.

Public Hearing on B26-0324
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WeVote Research Nonpartisan
Bill Summary · B 26-0324

Legislative bill overview

Bill B 26-0324 would impose a new income tax on pass-through entities (S corporations and partnerships) in the District of Columbia, allowing these business structures to pay tax at the entity level rather than having all income pass through to individual owners' personal returns. The bill also appears to create new tax credits related to these entities. This represents a significant shift in how certain DC businesses are taxed.

Why is this important

Currently, S corporations and partnerships in DC are "pass-through" entities where income flows to owners' individual tax returns. This bill would allow these entities to pay income tax directly, potentially affecting business formation decisions, owner tax burdens, and DC's overall tax revenue. The outcome could influence whether small business owners and investors choose to operate in or relocate from the District.

Potential points of contention

  • Competitiveness concerns: Businesses may argue the new entity-level tax makes DC less competitive compared to nearby Maryland and Virginia, which don't impose similar taxes on pass-through entities
  • Double taxation risk: Owners may face concerns about taxation at both the entity and individual level if income distributions are taxed again
  • Small business impact: Smaller S corps and partnerships may lack economies of scale to absorb the new tax burden, while larger entities might benefit from rate optimization strategies

Compiled from official sources — confirm details with the bill’s official record.

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