Tax for federal government contractors in DC, Virginia and Maryland

Most small contractors operate as an S corporation, an LLC taxed as a partnership, or a C corporation. The choice affects how owners are paid, where owners file, and which DC tax applies. In DC, corporations, including S corporations, file the corporation franchise tax on Form D-20, while LLCs taxed as partnerships generally file Form D-30. We look at your ownership, growth plans and contract structure before recommending one. See S corporation returns, partnership returns and C corporation returns.

When your employees perform services in a state or in DC, the business usually has a presence there for income tax. Federal protection under P.L. 86-272 covers only the solicitation of orders for tangible goods shipped from outside the state, so it generally does not help a services contractor.

A contractor with work in more than one jurisdiction apportions its income among them under each one’s rules. We map where work is performed, by contract and by employee, so the returns reflect it. More detail is on our multi-state nexus page.

DC taxes most businesses at the entity level. Corporations file Form D-20 and unincorporated businesses file Form D-30, both at 8.25%, with a minimum tax of $250, or $1,000 when DC gross receipts exceed $1 million. Unincorporated businesses with $12,000 or less of gross income, or where more than 80% of gross income comes from the owners’ personal services and capital is not a material income-producing factor, do not owe the D-30 tax. See DC business franchise taxes.

Virginia counties, cities and towns may impose a Business, Professional and Occupational License (BPOL) tax on businesses for the privilege of doing business in the locality. It is generally based on gross receipts and is administered by each locality, so the rates, filing dates and thresholds depend on where your office is. Contractors in Northern Virginia should check with the commissioner of the revenue in each locality where they have an office.

• Maryland does not tax wages of DC, Virginia, Pennsylvania or West Virginia residents who meet its residency conditions under reciprocity agreements.
• Virginia has reciprocity with DC, Maryland, Kentucky, Pennsylvania and West Virginia, subject to conditions such as not living in Virginia for 183 days or more.
• DC nonresidents file Form D-4A with the employer to show DC tax should not be withheld.

Employees working in other states may need different treatment, so we review each employee’s home and work locations when payroll is set up.

For tax years beginning after 2025, a business files Form 1099-NEC for each person it paid at least $2,000 in nonemployee compensation during the year. The form is due January 31. Collect a Form W-9 from each subcontractor before the first payment, so names and taxpayer identification numbers match IRS records.

Your timekeeping, indirect cost pools and unallowable cost tracking feed both the government cost reports and the tax return. We prepare the tax return from the same books and reconcile the two, and we can help with the accounting itself. See government contractor accounting and DCAA incurred cost audits. Our fees are transparent and fair, quoted upfront, in writing.