Updated October 5, 2026. Quick answer: Yes. The District taxes interest and dividends as part of District gross income on rates from 4% to 10.75%, and the 2025 booklet says “Interest earned from bonds issued by other states is now taxable” in the District. Interest on U.S. obligations is subtracted.
The same question for trust income: does District of Columbia tax trust income.
How District of Columbia treats dividends and interest
| Item | What the documents say |
|---|---|
| Treatment | Taxed on the graduated schedule |
| Rates | 4% of taxable income up to $10,000, then $400 plus 6% of the excess over $10,000, up to “$91,525, plus 10.75% of the excess over $1,000,000”, for “taxable years beginning after December 31, 2021” |
| Other states’ bonds | “Interest on the obligations of other states and their political subdivisions” is included in District gross income, a change flagged for 2025 |
| District bonds | “Interest earned on obligations of the District or a territory” of the United States remains exempt, as do obligations issued by DC Water, WMATA and the DC Housing Finance Agency |
| U.S. obligations | Schedule I subtracts “Interest and dividend income on obligations or securities of the United States,” with a detailed statement of the payors |
| Mutual funds | The booklet prints no separate pass-through rule for mutual fund dividends on U.S. obligations |
A $20,000 example
Taxable dividends and interest of $20,000 taxed wholly at the lowest rate, 4%, would add $800; taxed wholly at the top rate, 10.75%, $2,150. Your total taxable income decides the bracket.
What changes in 2026
The documents print no 2026 change. The 2025 booklet lists one change for tax year 2025: interest on out-of-state municipal bonds is now taxable in the District.
Federal rules
The state’s treatment sits on top of the federal one. Qualified dividends and ordinary dividends are sorted out on the Form 1099-DIV, as the site explains in Box 1a and 1b: ordinary versus qualified dividends, and interest is reported as covered in 1099-INT Box 1. The IRS explains the federal side in Topic no. 403, Interest Received and Topic no. 404, Dividends.
Related: whether District of Columbia taxes capital gains, whether the District taxes annuity income, dividends and interest tax by state, and how tax-exempt interest is reported.
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Answer againSources
- 2025 D-40 Individual Income Tax Booklet: https://otr.cfo.dc.gov/sites/default/files/dc/sites/otr/publication/attachments/2025_D-40_Booklet.pdf
- D.C. Code section 47-1806.03, Tax on residents and nonresidents, imposition and rates: https://code.dccouncil.gov/us/dc/council/code/sections/47-1806.03
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.