What actually happens
An employee who lives in New Mexico and performs work in District of Columbia sits in two tax systems at once. The residence state claims the right to tax all of a resident's income wherever earned; the work state claims the right to tax income sourced within its borders. District of Columbia and New Mexico resolved that overlap by agreement: the work state gives up its claim on commuters' wages entirely.
The certificate is not optional
Reciprocity does not apply automatically because the employee's address is in New Mexico. It applies when the employee gives you a signed D-4A (Certificate of Nonresidence in the District of Columbia). Until that form is in your hands you are required to withhold District of Columbia tax, and an auditor will ask to see it. The form stays in your records; it is not filed with the state.
Download D-4A from District of Columbia
Unemployment insurance goes to one state only
Income tax can be split between states. Unemployment insurance cannot. Under the localization test used by every state, an employee whose services are performed entirely in District of Columbia is covered by District of Columbia for unemployment purposes, and all wages are reported there — regardless of where they live, where you are headquartered, or which state's income tax you withhold. District of Columbia's 2026 taxable wage base is $9,000. The four-factor test in order.
What you have to register for
| Obligation | State | Agency |
|---|---|---|
| Income tax withholding | New Mexico | New Mexico Taxation and Revenue Department |
| Unemployment insurance | District of Columbia | DC Department of Employment Services (DOES) |
| Paid family & medical leave | District of Columbia | The DC Paid Family Leave tax is 0.75% of covered wages for 2026 and is 100% EMPLOYER-funded - there is no employee contribution. |
Frequently asked
Do District of Columbia and New Mexico have a reciprocal tax agreement?
Yes. District of Columbia exempts New Mexico residents from District of Columbia income tax withholding on wages, provided the employee files D-4A with their employer. Without that form on file the employer must still withhold District of Columbia tax.
Which state's income tax should be withheld?
New Mexico. Under the agreement the wages are taxable only by the state of residence, so you withhold New Mexico tax and stop withholding District of Columbia tax once the certificate is filed.
Which state gets the unemployment insurance wages?
District of Columbia. Unemployment coverage is never split between states for a single job. The localization test assigns the whole job to the state where services are performed, which here is District of Columbia, regardless of residence or where the employer is headquartered.