For years Washington, D.C. has been known for its politicians, power brokers and bureaucrats. However, the startup storm has made its way to Washington with a breed of movers and shakers unlike any it has seen before.
The city may be reluctant to embrace change, but Washington has a unique and beneficial proximity to policymakers.
Jeff Reid, founding director of Georgetown University’s Entrepreneurship Initiative, explained that “Being risk-averse is part of the history here [in Washington, and it still is] a part of the fabric. But it’s changing.”
As recently as 2014, Washington D.C. went from having a “stealth” startup scene to one of the most vibrant in the country. Major tech giants, such as Facebook and Google, have long-since been busy when it comes to policy, working with influential K Street lobbyists to play the game of influence.
Washington D.C. is now attracting entrepreneurs in much the same way that it exerted a gravitational force over lawyers, lobbyists and career politicoes for decades. Today, Washington is a part of a thriving tech scene.
The nation’s capital and surrounding metro area claim 79 tech employees for every 1,000 jobs. This number is far above the national average of 18 tech opportunities for every 1,000 jobs, which puts Washington, D.C. at #7 on a list of the Best Places for Tech Jobs in 2017.
Not far from the corridors of power, groups of entrepreneurs have been quietly working to establish themselves. Naturally, this attracts supporting players from service providers to co-working spaces and government initiatives, giving Washington D.C. the critical mass necessary to be an ideal launching place for your business.
There are many advantages to setting up shop in the nation’s capital:
Washington D.C. is a great city for those in the education, defense, legal, policy, environmental or political sectors.
The D.C. startup scene saw a 61% increase in VC funding in 2014, with $48 billion invested in the region, largely from these 24 VC firms in the Virginia area.
Federal dollars are also worth chasing, especially if you need to invest in research and development. In particular, consider the Defense Advanced Research Projects Agency (DARPA) and the National Science Foundation. According to the Alexandria Economic Development Partnership (AEDP), $3.7B will be given out in 2015 to support R&D.
But there are still some disadvantages within Washington’s growing startup ecosystem that entrepreneurs need to be aware of:
It takes time to get to know the lay of the land. Like any ecosystem, there are local influencers and power centers, but Washington, D.C. is a unique environment. Get to know the pressure points, especially when interacting with government agencies and VC firms.
VC money is flowing a lot easier in D.C., but on a national scale it is still far behind Silicon Valley or New York, ranking 10th overall. Expect more conservative funding rounds and valuations.
Not unlike San Francisco and New York, office space and rent can be more expensive in some areas, simply as a result of higher average per-capita incomes compared to the surrounding states.
Steps for Setting up your Payroll in Washington D.C.
As a small business owner, you have three action items you need to complete properly in order to be set up in Washington D.C.:
Let's take a closer look at each one and see what's involved.
The first step is to set up your business with the necessary governmental departments, namely, the IRS, and DC Department of Consumer & Regulatory Affairs’ (DCRA) Corporations Division.
A Basic Business License (BBL) may be required in order to legally run your business in the District of Columbia. The Basic Business License will depend on your business activity and you can visit the DCRA’s website to determine if you need to apply for this license.
IRS: Apply for your Federal Employer Identification Number (FEIN).
District of Columbia: Register here as an Employer.
District of Columbia: Register as an employer to pay Unemployment Insurance.
District of Columbia: Register as an employer to pay withholding taxes online.
It may be beneficial to look at the DCRA’s Business Licensing & Corporate Registration page for unique circumstances, additional links and frequently asked questions.
As a small business or startup, there are various taxes you'll have to pay for your business and your employees.
The important part is to figure out your tax payment schedule for all levels of government. For that, you'll need to know how much payroll you paid your employees in the previous year and/or quarter.
Federal Taxes: Payable to the IRS via electronic funds transfer (EFTPS)
(Note: These are based on your previous quarterly payroll payments.)
You'll pay Semi-weekly, if you paid more than $2,500 in payroll.
You'll pay Monthly, if you paid less than $2,500 in payroll.
You'll pay Next Day, if you paid more than $100,000 in payroll.
State Taxes: Payable to the DC Treasurer
Monthly- due the 20th of the following month.
Quarterly- due on or before the 20th day of the quarter following the month being reported.
Annually- due on or before January 20.
You'll pay your state and Federal unemployment taxes quarterly.
Payroll regulations apply to all companies, no matter where you are located. To be fully payroll compliant in DC and meet all requirements, any Washington-based business will need to complete all of the correct government tax forms.
For each hire you must complete the following forms when you hire them:
W4 Federal Withholding Allowance Certificate
Employee Withholding Allowance Certificate, D-4
I-9 Employment Eligibility Verification
Remember that this second group of forms is required for every employee, regardless if they're still working for you at the end of the year.
By working through these three steps, you’ll be registered with all of the necessary tax agencies, you’ll understand your tax payment schedule, and you'll have all of the employee forms needed for onboarding your staff.
You’ll be able to sleep soundly knowing your business is prepared. You’re ready from a payroll administration standpoint and now all you need to do is grow, promote and maintain your business!
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