2008 TAX GUIDE
Federal and State Tax Provisions for the Foreign Service
The annual AFSA Tax Guide vision is retroactive, so that for each $2,500 of Adjusted Gross Income
is designed as an informational anyone who has already over $239,950 (married, filing jointly) or
and reference tool. Although we paid the tax on the sale of a $159,950 (single). For those taxpayers who
try to be accurate, many of the residence that would have file under the category“married filing sep-
new provisions of the tax code and qualified under the new law arately,” the phase-out is 2 percent for each
the implementations of Internal may file an amended return $1,250 of Adjusted Gross Income over
Revenue Service regulations have to get the benefit of the new $119,975.
not been fully tested. Therefore, rule. There is, however, a
use caution and consult with a tax three-year statute of limita- Foreign Earned Income Exclusion
adviser as soon as possible if you tions on this provision, Many Foreign Service spouses and de-
have specific questions or an un- after which one cannot ob- pendents work in the private sector over-
usual or complex situation. tain a refund. seas and thus are eligible for the Foreign
James Yorke (firstname.lastname@example.org), who Foreign Service employees most fre- Earned Income Exclusion. American citi-
compiles the tax guide, would like to quently ask AFSA about home ownership, zens and residents living and working
thank M. Bruce Hirshorn, Foreign Service tax liability upon sale of a residence and overseas are eligible for the income exclu-
tax counsel, for his help in its preparation. state of domicile. We have devoted special sion, unless they are employees of the
sections to these issues. United States government. The first
Federal Tax Provisions For 2008, the six tax rates for individu- $87,600 earned overseas as an employee or
The Military Families Tax Relief Act of als remain at 10, 15, 25, 28, 33 and 35 per- as self-employed may be exempt from in-
2003 continues to provide a significant cent. The 10-percent rate is for taxable come taxes.
benefit for Foreign Service families who income up to $16,051 for married couples, Note: The method for calculating the
sell their homes at a profit, but would have $8,026 for singles. The 15-percent rate is tax on non-excluded income in tax returns
been unable to avail themselves of the cap- for income up to $65,101 for married cou- that include both excluded and non-ex-
ital gains exclusion (up to $250,000 for an ples, $32,551 for singles. The 25-percent cluded income was changed, beginning in
individual/$500,000 for a couple) from the rate is for income up to $131,451 for mar- 2006, so as to result in higher tax on the
sale of a principal residence because they ried couples, $78,851 for singles. The 28- non-excluded portion. (See the box on
did not meet the Internal Revenue Ser- percent rate is for income up to $200,301 page 46 for a full explanation.)
vice’s “two-year occupancy within the five for married couples and income up to To receive the exemption, the taxpayer
years preceding the date of sale” require- $164,551 for singles. The 33-percent rate is must meet one of two tests: 1) the Physical
ment due to postings outside the U.S. In for income up to $357,701 for married Presence Test, which requires that the tax-
relation to the sale of a principal residence couples and singles. Annual income above payer be present in a foreign country for at
after May 6, 1997, the 2003 law notes that $357,701 is taxed at 35 percent. Long-term least 330 days during any 12-month period
the calculation of the five-year period for capital gains are taxed at a maximum rate (the period may be different from the tax
measuring ownership is suspended during of 15 percent and are reported on Schedule year); or 2) the Bona Fide Residence Test,
any period that the eligible individual or D. This rate is effective for all sales in 2008, which requires that the taxpayer has been
his or her spouse is serving away from the except for those people who fall within the a bona fide resident of a foreign country
area on qualified official extended duty as 10- or 15-percent tax bracket: their rate is for an uninterrupted period that includes
a member of the uniformed services or the either 0 or 5 percent. Long-term capital an entire tax year. Most Foreign Service
Foreign Service. gain is defined as gain from the sale of spouses and dependents qualify under this
The five-year period cannot be ex- property held for 12 months or more. test, but they must wait until they have
tended by more than 10 years. In other been overseas for a full calendar year be-
words, Foreign Service employees who are Personal Exemption fore claiming it. Keep in mind that self-
overseas on assignment can extend the For each taxpayer, spouse and depend- employed taxpayers must still pay
five-year period up to 15 years, depending ent the personal exemption has been in- self-employment (Social Security and
on the number of years they are posted creased to $3,500. There is, however, a Medicare) tax on their income. Only the
away from their home. Note that the pro- personal exemption phase-out of 2 percent income tax is excluded.
FEBRUARY 2009/FOREIGN SERVICE JOURNAL 43
S Extension for Taxpayers Abroad exceeds $159,950. Note that this 3 percent ductible. AFSA recommends maintaining
A Taxpayers whose tax home is outside is applied to the AGI over $159,950 and a travel log and retaining a copy of home
the U.S. on April 15 are entitled to an au- not to the total of itemized deductions on leave orders, which will help if the IRS ever
N tomatic extension until June 15 to file their Schedule A. The maximum loss for de- questions claimed expenses.
E returns. When filing the return, these tax- ductions is capped at 80 percent. It is important to save receipts: without
W payers should write “Taxpayer Abroad” at State and local income taxes and real receipts for food, a taxpayer may deduct
S the top of the first page and attach a state- estate and personal property taxes remain only $39 to $64 a day (depending upon the
ment of explanation. There are no late fil- fully deductible for itemizers, as are chari- federal meals-and-incidentals per diem
ing or late payment penalties for returns table contributions to U.S.-based charities rate at the home leave address), no matter
filed and taxes paid by June 15, but the IRS for most taxpayers. Donations to the how large the grocery or restaurant bill.
does charge interest on any amount owed AFSA Scholarship Fund are fully de- Lodging is deductible, as long as it is not
from April 15 until the date it receives pay- ductible as charitable contributions, as are with friends or relatives, or in one’s own
ment. donations to AFSA via the Combined Fed- home. The IRS will disallow use of per
eral Campaign. Individuals may also dis- diem rates and any expenses claimed for
Standard Deduction pose of any profit from the sale of personal family members. If a hotel bill indicates
The standard deduction is given to property abroad in this manner. double rates, the single-room rate should
non-itemizers. For couples, the deduction For 2008 tax returns, any interest paid be claimed; and, if possible, the hotel’s rate
is now $10,900 and for singles, $5,450. on auto or personal loans, credit cards, de- sheet should be saved for IRS scrutiny.
Married couples filing separately get a partment stores and other personal inter- Car rental, mileage and other unreim-
standard deduction of $5,450 and head-of- est will not be allowed as itemized de- bursed travel expenses, including parking
household filers receive an $8,000 deduc- ductions. If such debts are consolidated, fees and tolls, may be deducted. The rate
tion. An additional amount is allowed for however, and paid with a home equity for business miles driven is 50.5 cents per
taxpayers over age 65 and for those who loan, interest on the home equity loan is mile for the first half of 2008, and 58.5
are blind. allowable. Interest on educational loans cents for the second half. Those who use
Most unreimbursed employee business will be allowed as an adjustment to gross this optional mileage method need not
expenses must be reported as miscella- income. Mortgage interest is still, for the keep detailed records of actual vehicle ex-
neous itemized deductions, which are sub- most part, fully deductible. Interest on penses. However, they must keep a de-
ject to a threshold of 2 percent of Adjusted loans intended to finance investments is tailed odometer log to justify the business
Gross Income. These include professional deductible up to the amount of net income use of the vehicle and track the percentage
dues and subscriptions to publications; from investments. Interest on loans in- of business use. This optional mileage
employment and educational expenses; tended to finance a business is 100-percent method applies to leased vehicles as well.
home office, legal, accounting, custodial deductible. Passive-investment interest on
and tax preparation fees; home leave, rep- investments in which the taxpayer is an in- Official Residence Expenses
resentational and other employee business active participant (i.e., a Since Oct. 1, 1990, em-
expenses; and contributions to AFSA’s Leg- limited partnership) can be ployees who receive official
islative Action Fund. Unreimbursed mov- deducted only from the in- residence expenses have not
ing expenses are an adjustment to income, come produced by other been allowed to reduce their
which means that you may deduct them “passive income.” Interest reportable income by 3.5
even if you are taking the standard deduc- on loans that do not fall percent. The IRS ruling re-
tion. However, the deduction includes into the above categories, garding ORE states that
only the unreimbursed costs of moving such as money borrowed to “usual expenses,” defined as
your possessions and yourself and your buy tax-exempt securities, 3.5 percent of salary, are not
family to the new location. is not deductible. deductible. Therefore the
Medical expenses (including health and only expenses that are de-
long-term care insurance, but not health Home Leave Expenses ductible are those above the
insurance premiums deducted from gov- Employee business ex- 3.5 percent paid out of
ernment salaries) are subject to a thresh- penses, such as home leave pocket. Employees should
old of 7.5 percent of Adjusted Gross and representation, may be save receipts for any out-of-
Income. This means that to be deductible, listed as miscellaneous pocket expenses associated
the medical cost would have to exceed itemized deductions and with their representational
$2,250 for a taxpayer with a $30,000 AGI. claimed on Form 2106. In addition to the duties. These expenses can be deducted as
There is also an additional 3-percent re- 2-percent floor, only 50 percent for meals miscellaneous business expenses.
duction of itemized deductions (excluding and entertainment may be claimed (100
Schedule A deductions for medical ex- percent for unreimbursed travel and lodg- Home Ownership
penses, losses from casualties and theft, ing). Only the employee’s (not family Individuals may deduct interest on up
and investment-interest losses) if the AGI members’) home leave expenses are de- to $1 million of acquisition debt for loans
44 FOREIGN SERVICE JOURNAL/FEBRUARY 2009
secured by a first and/or second home. Rental expenses cannot be claimed either, gardless of their age. Previously, qualified S
This also includes loans taken out for but all property taxes and mortgage inter- individuals who were age 55 or older were A
major home improvements. On home eq- est may be deducted. allowed a one-time capital-gains exclusion
uity loans, interest is deductible on up to of $125,000. Also, under previous law, if
$100,000, no matter how much the home Rental of Home you had a gain when you sold your home, E
cost, unless the loan is used for home im- Taxpayers who are overseas and rented you could defer all or part of the gain if you W
provements. The $100,000 ceiling applies their homes in 2008 can continue to purchased or built another home (of equal S
to the total of all home equity loans you deduct mortgage interest as a rental ex- or higher value) within two years before or
may have. The same generally applies to pense. Also deductible are property man- after the sale. These last two provisions no
refinancing a mortgage. Points paid to ob- agement fees, condo fees, depreciation longer apply.
tain a refinanced loan cannot be fully de- costs, taxes and all other rental expenses. The current tax laws allow an exclusion
ducted the same year, but must be de- Losses up to $25,000 may be offset against of up to $500,000 for couples filing jointly
ducted over the life of the loan. It is advis- other income, as long as the Adjusted and up to $250,000 for single taxpayers on
able to save the settlement sheet (HUD-1 Gross Income does not exceed $100,000 to the long-term gain from the sale of their
Form) for documentation in the event $150,000 and the taxpayer is actively man- principal residence. One need not pur-
your tax return is selected by the IRS for aging the property. Note: A taxpayer who chase another residence to claim this ex-
audit. retains a property manager does not lose clusion. All depreciation taken after May 7,
Qualified residences are defined as the this benefit, as this is still considered active 1997, will, however, be recaptured (added
taxpayer’s principal residence and one management of the property. All passive to income) at the time of sale, and taxed at
other residence. The second home can be losses that cannot be deducted currently 25 percent.
a house, condo, co-op, mobile home or are carried forward, and deducted in the Readers should also be aware that start-
boat, as long as the structure includes basic year the property is sold. ing in January 2009, gain from the sale of
living accommodations, including sleep- a home will no longer be excluded from
ing, bathroom and cooking facilities. If the Sale of a Principal Residence gross income for periods when it was
second home is a vacation property that The current capital-gains exclusion on rented out before you occupied it as a prin-
you rent out for fewer than 15 days during the sale of a principal residence on or after cipal residence. Further details will be in-
the year, the income need not be reported. May 7, 1997, applies to all homeowners re- cluded in the 2009 Tax Guide.
FEBRUARY 2009/FOREIGN SERVICE JOURNAL 45
S The only qualification for the capital- exclusion may be eligible to replace the Money spent on fixing up the home for
A gains exclusion is that the house sold must property through a “tax-free exchange” sale may be added to the basis. To qualify
have been owned and occupied by the tax- (the so-called Starker Exchange). In as legitimate “fixing-up costs,” the follow-
N payer as his or her principal residence for at essence, one property being rented out ing conditions must be met: 1) the ex-
E least two of the last five years prior to the may be exchanged for another, as long as penses must be for work performed during
W date of the sale. As stated above, the five- that one is also rented. In exchanging the the 90-day period ending on the day on
S year period may be extended based on any properties, capital gains tax may be de- which the contract to sell the old residence
period during which the taxpayer has been ferred. Technically, a simultaneous trade was signed; 2) the expenses must be paid
away from the area on a Foreign Service as- of investments occurs. Actually, owners on or before the 30th day after sale of the
signment, up to a maximum of 15 years first sign a contract with an intermediary house; and 3) the expenses must not be
(including the five years). There are some to sell their property, hold the cash pro- capital expenditures for permanent im-
exceptions to the two-year requirement, ceeds in escrow, identify in writing within provements or replacements (these can be
including a sale due to a“change in place of 45 days the property they intend to ac- added to the basis of the property, the orig-
employment” (this would include foreign quire, and settle on the new property inal purchase price, thereby reducing the
transfers). This exclusion is not limited to within 180 days, using the money held in amount of profit). A new roof and kitchen
a once-in-a-lifetime sale, but may be taken escrow as part of the payment. counters are not“fix-up”items. But paint-
once every two years. It is important to emphasize that the ing the house, cleaning up the garden and
When a principal residence is sold, cap- exchange is from one investment property making minor repairs qualify.
ital gains realized above the exclusion to another investment property — the key
amounts are subject to taxation. This ex- factor in the IRS evaluation of an exchange State Tax Provisions
clusion replaces the earlier tax-law provi- transaction is the intent of the investor at Members of the Foreign Service are not
sion that allowed both the deferral of gain the time the exchange was consummated. treated as domiciled in their countries of
and a one-time exclusion of a principal The IRS rules for these exchanges are com- assignment abroad. Every active-duty For-
residence sale. plex and specific, with a number of pitfalls eign Service employee serving abroad
Temporary rental of the home does not that can nullify the transaction. An ex- must maintain a state of domicile in the
disqualify one from claiming the exclusion. change should never be attempted without United States, and the tax liability that the
The new tax law requires only that you assistance from a tax lawyer specializing in employee faces varies greatly from state to
have occupied the house as your principal this field. state. In addition, there are numerous reg-
residence for the required period (two ulations concerning the taxability of For-
years out of five, extended). Calculating Your Adjusted Basis eign Service pensions and annuities that
Under Internal Revenue Code Section Many Foreign Service employees ask vary by state. This state guide briefly re-
1031, taxpayers whose U.S. home may no what items can be added to the cost basis views the laws regarding income tax and
longer qualify for the principal residence of their homes when they are ready to sell. tax on annuities and pensions as they af-
fect Foreign Service personnel. Please note
that while AFSA makes every attempt to
Foreign Earned Income — Important Change in IRS Rules provide the most up-to-date information,
readers with specific questions should con-
he Foreign Earned Income Ex- your tax would be, then deduct the tax sult a tax expert in the state in question at
T clusion allows U.S. citizens who
are not government employees
and are living outside the U.S. to ex-
that you would have paid on the ex-
the addresses given. We also encourage
readers to visit the state’s tax Web site, also
clude up to $85,700 of their 2008 for- A Foreign Service employee earns Most Foreign Service employees have
eign-source income if they meet $80,000. questions about their liability to pay state
certain requirements. Teacher spouse earns $30,000. income taxes during periods when they are
However, beginning in 2006, the Before 2006: Tax on $110,000 posted overseas or assigned to Washington.
IRS changed the requirement for how minus $30,000 = tax on $80,000 = tax There are many criteria used in determin-
the excluded amount needs to be cal- bill of $13,121. ing which state is a citizen’s domicile. One
culated. This affects the tax liability for Now (2006 and later): Tax on of the strongest determinants is prolonged
couples with one member employed $110,000 = $20,615; tax on $30,000 = physical presence, a standard that Foreign
on the local economy overseas. Previ- $3,749; total tax = $20,615 minus Service personnel frequently cannot meet
ously, you took your total income and $3,749 = tax bill of $16,866. due to overseas service.
then subtracted your excluded income Increase in tax bill = $3,745. In such cases, the states will make a de-
and paid tax on the remainder. The If you have questions about the im- termination of the individual’s income-tax
change now requires that you take plementation of this new regulation, status based on other factors, including
your total income and figure what please consult a financial professional. where the individual has family ties, where
he or she has been filing resident tax re-
46 FOREIGN SERVICE JOURNAL/FEBRUARY 2009
turns, where he or she is registered to vote thus fully liable for taxes, if they are domi- quirements for all except California, Idaho, S
or has a driver’s license, where he or she ciled in the state or if they are living in the Minnesota and Oregon are that the indi- A
owns property, or where the person has state (usually at least six months of the vidual not have a permanent “place of
bank accounts or other financial holdings. year) but are not domiciled there. abode” in the state, have a permanent
In the case of Foreign Service employees, Foreign Service employees residing in “place of abode” outside the state, and not E
the domicile might be the state from which the metropolitan Washington, D.C. area be physically present for more than 30 days W
the person joined the Service, where his or are required to pay income tax to the Dis- during the tax year. California allows up S
her home leave address is, or where he or trict of Columbia, Maryland or Virginia, in to 45 days in the state during a tax year.
she intends to return upon separation. addition to paying tax to the state of their These 10 states require the filing of non-
For purposes of this article, the term domicile. However, most states allow a resident returns for all income earned
domicile refers to legal residence; some credit, so that the taxpayer pays the higher from in-state sources.
states also define it as permanent residence. tax rate of the two states, with each state Foreign Service employees should be
Residence refers to physical presence in the receiving a share. aware that states could challenge the status
state. Foreign Service personnel must con- There are currently seven states with no of government housing in the future.
tinue to pay taxes to the state of domicile state income tax: Alaska, Florida, Nevada, The following list gives a state-by-state
(or to the District of Columbia) while re- South Dakota, Texas, Washington and overview of the latest information available
siding outside of the state, including dur- Wyoming. In addition, New Hampshire on tax liability, with addresses provided to
ing assignments abroad, unless the state of and Tennessee have no tax on personal in- write for further information or tax forms.
residence does not require it. come but do tax profits from the sale of Tax rates are provided where possible. For
A non-resident, according to most bonds and property. further information, please contact AFSA’s
states’ definitions, is an individual who There are 10 states that, under certain Labor Management Office or the individ-
earns income sourced within the specific conditions, do not tax income earned ual state tax authorities. As always, mem-
state but does not live there or is living while the taxpayer is outside of the state: bers are advised to double-check with their
there for only part of the year (usually, California, Connecticut, Idaho, Minnesota, state’s tax authorities. To assist you in con-
fewer than six months). Individuals are Missouri, New Jersey, New York, Oregon, necting with your state tax office, we pro-
generally considered residents, and are Pennsylvania and West Virginia. The re- vide the Web site address for each in the
FEBRUARY 2009/FOREIGN SERVICE JOURNAL 47
S state-by-state guide, and an e-mail address Arkansas tax rate ranges in six brackets ciliaries may qualify for non-resident tax
A or link where available. Some states do not from a minimum of 1 percent of net tax- treatment under either of two exceptions
offer e-mail customer service. The Feder- able income to a maximum of $1,341 plus as follows: Group A — The domiciliary
N ation of Tax Administrators Web site, at 7 percent of net taxable income over 1) did not maintain a permanent place of
E www.taxadmin.org, also provides much $31,000 for married filing jointly. Write: abode inside Connecticut for the entire
W useful information on individual state in- Department of Finance and Administra- tax year; and 2) maintains a permanent
S come taxes. tion, Individual Income Tax, 1816 West place of abode outside the state for the
Seventh Street, Room 2300, Ledbetter entire tax year; and 3) spends not more
Building, Little Rock AR 72201. than 30 days in the aggregate in the state
State Overviews Phone: (501) 682-7225.
during the tax year. Group B — The
domiciliary 1) in any period of 548 con-
ALABAMA: Individuals domiciled in rev.state.ar.us secutive days, is present in a foreign coun-
Alabama are considered residents and are Web site: www.state.ar.us/dfa/ try for at least 450 days; and 2) during the
subject to tax on their entire income re- CALIFORNIA: Foreign Service em- 548-day period, is not present in Con-
gardless of their physical presence in the ployees domiciled in California must es- necticut for more than 90 days; and 3)
state. Alabama’s individual income tax tablish non-residency to avoid liability for does not maintain a permanent place of
rates range from 2 to 5 percent on gross in- California taxes (see FTB Publication abode in the state at which the domicil-
come over $5,250 for individuals filing sep- 1031). “Safe harbor”provision allows any- iary’s spouse or minor children are pres-
arately or $10,500 for individuals filing one who is domiciled in state but is out of ent for more than 90 days. For 2008,
jointly. the state on an employment-related con- Connecticut’s tax rate for married filing
Write: Alabama Department of Revenue, tract for at least 546 consecutive days to be jointly ranges from 3 percent of income
50 N. Ripley, Montgomery AL 36132. considered a non-resident. This applies to less than $20,000, to $600 plus 5 percent
Phone: (334) 242-1170. most FS employees and their spouses, but of income over $20,000. Write: Depart-
E-mail: Link through the Web site, members domiciled in California are ad- ment of Revenue Services, Taxpayer Serv-
“About Us” then “Contacts.” vised to study FTB Publication 1031 for ices Division, 25 Sigourney St., Hartford
Web site: www.ador.state.al.us exceptions and exemptions. The Califor- CT 06106-5032.
ALASKA: Alaska does not tax individ- nia tax rate for 2008 ranges in six brackets Phone: (860) 297-5962.
ual income or intangible or personal prop- from 1 percent to a maximum of $4,143.52 E-mail: email@example.com
erty. It has no sales and use, franchise or plus 9.3 percent of the excess over $94,110 Web site: www.ct.gov/drs
fiduciary tax. Some, but not all, munici- for married filing jointly. Non-resident DELAWARE: Individuals domiciled in
palities levy sales and property taxes. domiciliaries are advised to file on Form Delaware are considered residents and are
Write: State Office Building, 333 Willough- 540NR. Write: Franchise Tax Board, P.O. subject to tax on their entire income re-
by Ave., 11th Floor, P.O. Box 110420, Box 1468, Sacramento CA 95812-1468. gardless of their physical presence in the
Juneau AK 99811-0420. Phone: toll-free 1 (800) 852-5711 state. Delaware’s graduated tax rate ranges
Phone: (907) 465-2320. (inside the U.S.); (916) 845-6500 from 2.2 percent to 5.55 percent for in-
Web site: www.tax.state.ak.us (outside the U.S.). come under $60,000, to a maximum of
ARIZONA: Individuals domiciled in E-mail: Link through the Web site’s $2,943.50 plus 5.95 percent of any taxable
Arizona are considered residents and are “Contact Us” tab. income over $60,000. Write: Division of
taxed on any income that is included in the Web site: www.ftb.ca.gov Revenue, Taxpayers Assistance Section,
Federal Adjusted Gross Income, regardless COLORADO: Individuals domiciled in State Office Building, 820 N. French St.,
of their physical presence in the state. Ari- Colorado are considered residents and are Wilmington DE 19801.
zona’s tax rate ranges in five brackets from subject to tax on their entire income re- Phone (302) 577-8200.
a minimum of 2.59 per cent to a maxi- gardless of their physical presence in the E-mail: firstname.lastname@example.org
mum of 4.54 percent of taxable income state. Colorado’s tax rate is a flat 4.63 per- Web site: www.state.de.us/revenue/
over $300,000 for married filing jointly or cent of federal taxable income plus or DISTRICT OF COLUMBIA: Individ-
$150,000 for single filers. Write: Arizona minus allowable modifications. Write: De- uals domiciled in the District of Columbia
Department of Revenue, Taxpayer Infor- partment of Revenue, Taxpayer Service Di- are considered residents and are subject to
mation & Assistance, P.O. Box 29086, vision, State Capitol Annex, 1375 Sherman tax on their entire income regardless of
Phoenix AZ 85038-9086. St., Denver CO 80261-0005. their physical presence there. Individuals
Phone: (602) 255-3381. Phone: (303) 238-7378. domiciled elsewhere are also considered
E-mail: email@example.com E-mail: Link through “Contact Us” tab residents for tax purposes for the portion
Web site: www.azdor.gov on “Taxation” page, then click on any of of any calendar year in which they are
ARKANSAS: Individuals domiciled in the categories in “Online Answers and physically present in the District for 183
Arkansas are considered residents and are Customer Support” for e-mail option. days or more. The District’s tax rate is 4
taxed on their entire income regardless of Web site: www.revenue.state.co.us percent if income is less than $10,000; $400
their physical presence in the state. The CONNECTICUT: Connecticut domi- plus 6 percent of excess over $10,000 if be-
48 FOREIGN SERVICE JOURNAL/FEBRUARY 2009
tween $10,000 and $40,000; and $2,200 “Taxes,” then “Tax Information,” then $48,000 for single filers and $96,000 for S
plus 8.5 percent of excess over $40,000. “Questions?” married filing jointly. Write: Oahu District A
Write: Office of Tax and Revenue, 941 N. Web site: http://dor.myflorida.com/dor/ Office, Taxpayer Services Branch, P.O. Box
Capitol St. NE, 1st Floor, Washington DC GEORGIA: Individuals domiciled in 259, Honolulu HI 96809-0259.
20002. Georgia are considered residents and are Phone: toll-free 1 (800) 222-3229, or E
Phone: (202) 727-4TAX (4829). subject to tax on their entire income re- (808) 587-4242. W
E-mail: firstname.lastname@example.org gardless of their physical presence in the E-mail: Taxpayer.Services@hawaii.gov S
Web site: www.cfo.dc.gov/cfo state. Georgia has a graduated tax rate ris- Web site: www.state.hi.us/tax
FLORIDA: Florida does not impose ing to a maximum of 6 percent of taxable IDAHO: Individuals domiciled in
personal income, inheritance or gift taxes. income of $10,000 and above for joint Idaho for an entire tax year are considered
Beginning in Tax Year 2007, individuals, married filers and $7,000 for single filers. residents and are subject to tax on their en-
married couples, personal representatives Write: Georgia Department of Revenue, tire income. Idaho’s tax rate rises in eight
of estates, and businesses were no longer Taxpayer Services Division, 1800 Century steps from a minimum of 1.6 percent to a
required to file an annual intangible per- Blvd. NE, Atlanta GA 30345-3205. maximum of 7.8 percent on Idaho taxable
sonal property tax return reporting their Phone: (404) 417-4477. income of $100,000 or more. However,
stocks, bonds, mutual funds, money mar- E-mail for questions: you are considered a non-resident if: 1)
ket funds, shares of business trusts and un- email@example.com you are an Idaho resident who lived out-
secured notes. Florida imposes a state sales E-mail for forms: firstname.lastname@example.org side of Idaho for at least 445 days in a 15-
tax and a use tax of 6 percent. Counties Web site: www.etax.dor.ga.gov/ month period; and 2) after satisfying the
impose further taxes from 0.5 to 1.5 per HAWAII: Individuals domiciled in 15-month period, you spent fewer than 60
cent. Write: Taxpayer Services, Florida De- Hawaii are considered residents and are days in Idaho during the year; and 3) you
partment of Revenue, 5050 W. Tennessee subject to tax on their entire income re- did not have a personal residence in Idaho
St., Bldg. L, Tallahassee FL 32399-0112. gardless of their physical presence in the for yourself or your family during any part
Phone: toll-free 1 (800) 352-3671, or state. For 2008, Hawaii’s tax rate ranges in of the calendar year; and 4) you did not
(850) 488-6800. eight steps from 1.4 percent to a maximum claim Idaho as your federal tax home for
E-mail: Link through Web site. Go to of 8.25 percent for taxable income over deducting away-from-home expenses on
FEBRUARY 2009/FOREIGN SERVICE JOURNAL 49
S your federal return; and 5) you were not Des Moines IA 50306-0457. three of the following conditions: 1) they
A employed on the staff of a U.S. senator; Phone: (515) 281-3114. did not maintain a permanent place of
and 6) you did not hold an elective or ap- E-mail: email@example.com abode in Maine for the entire taxable year;
N pointive office of the U.S. government Web site: www.state.ia.us/tax 2) they maintained a permanent place of
E other than the armed forces or a career ap- KANSAS: Individuals domiciled in abode outside Maine for the entire taxable
W pointment in the U.S. Foreign Service (see Kansas are considered residents and are year; and 3) they spent no more than 30
S Idaho Code Sections 63-3013 and 63- subject to tax on their entire income re- days in the aggregate in Maine during the
3030). A non-resident must file an Idaho gardless of their physical presence in the taxable year. Under the Foreign Safe Har-
income tax return if his or her gross in- state. The Kansas tax rate rises from a min- bor provision, Maine domiciliaries are
come from Idaho sources is $2,500 or imum of 3.5 percent to a maximum of treated as non-residents if they are present
more. Write: Idaho State Tax Commission, $2,925 plus 6.45 percent of excess over in a foreign country for 450 days in a 548-
P.O. Box 36, Boise ID 83722-0410. $60,000 for joint filers, or $1,462.50 plus day period and do not spend more than 90
Phone: toll-free 1 (800) 972-7660. 6.45 percent of excess over $30,000 for sin- days in Maine during that period. Maine’s
E-mail: firstname.lastname@example.org gle filers. Write: Kansas Taxpayer Assis- tax rate rises in three steps from a mini-
Web site: www.tax.idaho.gov tance Center, Room 150, 915 S.W. Harri- mum of 2 percent to a maximum of
ILLINOIS: Individuals domiciled in son, Topeka KS 66612. $1,994 plus 8.5 percent of the taxable in-
Illinois are considered residents and are Phone: (785) 368-8222. come over $38,900 for married taxpayers.
subject to tax on their entire income re- E-mail: email@example.com Write: Maine Revenue Services, Income
gardless of their physical presence in the Web site: www.ksrevenue.org Tax Assistance, 24 State House Station,Au-
state. However, it appears that under some KENTUCKY: Individuals domiciled in gusta ME 04333-0024.
circumstances, domiciliaries absent from Kentucky are considered residents and are Phone: (207) 626-8475.
the state throughout the year may not be subject to tax on their entire income re- E-mail: firstname.lastname@example.org
subject to tax, so they should check with gardless of their physical presence in the Web site: www.maine.gov/revenue
the Illinois Department of Revenue in ad- state. Kentucky’s tax rate ranges from 2 MARYLAND: Individuals domiciled in
vance. The Illinois tax rate remains a flat percent on the first $3,000 of taxable in- Maryland are considered residents and are
3 percent for 2008. Write: Illinois Depart- come to $4,166 plus 6 percent on all tax- subject to tax on their entire income re-
ment of Revenue, PO Box 19001, Spring- able income over $75,000. Write: Ken- gardless of their physical presence in the
field IL 62794-9001. tucky Department of Revenue, Frankfort state. Individuals domiciled elsewhere are
Phone: toll-free 1 (800) 732-8866, or KY 40602. also considered residents for tax purposes
(217) 782-3336. Phone: (502) 564-4581. for the portion of any calendar year in
E-mail: Link through “Contact Us,” then E-mail: Link through the Web site’s which they are physically present in the
“Taxpayer Answer Center.” “Contact Us” tab. state for an aggregated total of 183 days or
Web site: www.revenue.state.il.us Web site: revenue.ky.gov more. For Tax Years 2007, 2008 and 2009
INDIANA: Individuals domiciled in LOUISIANA: Individuals domiciled in only, U.S. government employees can
Indiana are considered residents and are Louisiana are considered residents and are deduct up to $3,500 of any income earned
subject to tax on their entire income re- subject to tax on their entire income re- overseas, including federal pay, if physically
gardless of their physical presence in the gardless of their physical presence in the present in a foreign country (or countries)
state. Indiana’s tax rate remains a flat 3.4 state. Louisiana’s tax rate starts at 2 per- for 330 days in the 12-month period.
percent for 2008. Write: Department of cent for the first $12,500 for single filers or Maryland’s tax rate is $90 plus 4.75 percent
Revenue, 100 N. Senate Ave., Indianapolis $25,000 for joint filers, rising to 6 percent of taxable income over $3,000 up to
IN 46204. for over $25,000 for single filers or $50,000 $150,000 if filing singly and $200,000 if fil-
Phone: (317) 232-2240. for joint filers. Write: Taxpayer Services ing jointly; it then rises steeply to
E-mail: Link through the Web site’s Division, Personal Income Tax Section, $52,322.50 plus 6.25 percent on taxable in-
“Contact Us” tab. Louisiana Department of Revenue, P.O. come over $1,000,000. In addition, Balti-
Web site: www.in.gov/dor Box 201, Baton Rouge LA 70821-0201. more City and the 23 Maryland counties
IOWA: Individuals domiciled in Iowa Phone: (225) 219-0102. impose a local income tax, which is a per-
are considered residents and are subject to E-mail: Link through the Web site’s centage of the Maryland taxable income,
tax on their entire income to the extent “Contact Us” tab. using Line 31 of Form 502 or Line 9 of
that income is taxable on the person’s fed- Web site: www.revenue.louisiana.gov Form 503. The local factor varies from
eral income tax returns. Iowa’s 2008 tax MAINE: Individuals domiciled in 1.25 percent in Worcester County to 3.2
rate rises in nine steps from 0.36 percent to Maine are considered residents and are percent in Montgomery and Howard
a maximum of $38,818.95 plus 8.98 per- subject to tax on their entire income. Counties (see Web site for details for all
cent of taxable income over $62,055, However, since Jan 1, 2007, there have been counties). Write: Comptroller of Mary-
depending on income and filing status. “safe harbor” provisions. Under the Gen- land, Revenue Administration Center, Tax-
Write: Taxpayer Services, Iowa Depart- eral Safe Harbor, Maine domiciliaries are payer Service Section, Annapolis MD
ment of Revenue, P.O. Box 10457, treated as non-residents if they satisfy all 21411.
50 FOREIGN SERVICE JOURNAL/FEBRUARY 2009
Phone: toll-free 1 (800) MD-TAXES, or tional 1- or 2-percent income tax. Detroit the first $5,000 of taxable income, 4 per- S
(410) 260-7980. imposes an additional 2.5-percent tax. cent on the next $5,000 and 5 percent on A
E-mail: email@example.com Write: Michigan Department of Treasury, taxable income over $10,000. Write: Mis-
Web site: www.marylandtaxes.com Lansing MI 48922. sissippi State Tax Commission, P.O. Box
MASSACHUSETTS: Individuals domi- Phone: toll-free 1 (800) 827-4000. 1033, Jackson MS 39215-1033. E
ciled in Massachusetts are considered res- E-mail: treasIndTax@michigan.gov Phone: (601) 923-7000. W
idents and are subject to tax on their entire Web site: www.michigan.gov/treasury E-mail: Link through the Web site’s S
income regardless of their physical pres- MINNESOTA: Individuals domiciled “Contact Us” tab.
ence in the state. Salaries and most inter- in Minnesota are considered residents and Web site: www.mstc.state.ms.us
est and dividend income are taxed at a flat are subject to tax on their entire income re- MISSOURI: An individual domiciled
rate of 5.3 percent. Some income (e.g., gardless of their physical presence in the in Missouri is considered a non-resident,
short-term capital gains) is taxed at 12 per- state. Minnesota’s tax rate is either 5.35 and is not liable for tax on Missouri in-
cent. Write: Massachusetts Department of percent, 7.05 percent, or a maximum of come if the individual has no permanent
Revenue, Taxpayer Services Division, 200 7.85 percent on taxable income over residence in Missouri, has a permanent
Arlington Street, Chelsea MA 02150. $71,591 for single filers or $126,581 for residence elsewhere, and is not physically
Phone: (617) 887-6367. married filing jointly. Write: Department present in the state for more than 30 days
E-mail: Link through the Web site’s of Revenue, Mail Station 5510, Saint Paul during the tax year. Missouri calculates tax
“Contact Us” tab. MN 55146-5510. on a graduated scale up to $9,000 of tax-
Web site: www.dor.state.ma.us Phone: (651) 296-3781. able income. Any taxable income over
MICHIGAN: Individuals domiciled in E-mail: firstname.lastname@example.org $9,000 is taxed at a rate of 6 percent. File a
Michigan are considered residents and are Web site: www.taxes.state.mn.us return yearly with Form MO-NRI. Write:
subject to tax on their entire income re- MISSISSIPPI: Individuals domiciled Individual Income Tax, P.O. Box 2200, Jef-
gardless of their physical presence in the in Mississippi are considered residents and ferson City MO 65105-2200.
state. Michigan’s tax rate is 4.35 per cent are subject to tax on their entire income re- Phone: (573) 751-3505.
(up from 3.9 percent as of Oct. 1, 2007). gardless of their physical presence in the E-mail: email@example.com
Some Michigan cities impose an addi- state. Mississippi’s tax rate is 3 percent on Web site: www.dor.mo.gov
FEBRUARY 2009/FOREIGN SERVICE JOURNAL 51
S MONTANA: Individuals domiciled in iary is considered a non-resident for New $40,000 for married filing jointly. In New
A Montana are considered residents and are Jersey tax purposes if the individual has no York City the maximum rate is 3.648 per-
subject to tax on their entire income re- permanent residence in New Jersey, has a cent. Filing is required on Form IT-203 for
N gardless of their physical presence in the permanent residence elsewhere and is not revenue derived from New York sources.
E state. Montana’s tax rate for 2008 rises in physically in the state for more than 30 A 2001 opinion from the New York tax
W six steps from 1 percent of taxable income days during the tax year. Filing a return is authorities stated that FS employees not
S under $2,600 to a maximum of 6.9 percent not required (unless the non-resident has domiciled in New York State but assigned
of taxable income over $15,600. See the New Jersey-source income), but it is rec- to the U.S. United Nations office for a nor-
Web site for various deductions and ex- ommended in order to preserve domicile mal tour of duty would not be considered
emptions. Write: Montana Department of status. Filing is required on Form 1040- to be maintaining a permanent place of
Revenue, P.O. Box 5805, Helena MT NR for revenue derived from in-state abode in New York State. Therefore, such
59604. sources. Tax liability is calculated as a vari- individuals are not treated as resident in-
Phone: (406) 444-6900. able lump sum plus a percentage from a dividuals and are taxed as non-residents in
E-mail: Link through the Web site’s minimum of 1.4 percent of taxable gross New York State. Write: New York State De-
“Contact Us” tab. income up to $20,000, to a maximum of partment of Taxation and Finance, Per-
Web site: mt.gov/revenue 8.97 percent on taxable gross income over sonal Income Tax Information, W.A.
NEBRASKA: Individuals domiciled in $500,000. Write: State of New Jersey, New Harriman Campus, Albany NY 12227.
Nebraska are considered residents and are Jersey Division of Taxation, Office of In- Phone: toll-free 1 (800) 225-5829.
subject to tax on their entire income re- formation and Publications, P.O. Box 281, E-Mail: Link through Web site’s “Answer
gardless of their physical presence in the Trenton NJ 08695-0281. Center” tab.
state. The 2008 individual income tax rates Phone: (609) 292-6400. Web site: www.nystax.gov
range in four steps from a minimum of E-mail: Link through the Web site’s NORTH CAROLINA: Individuals domi-
2.56 percent to a maximum of $2,173.82 “Contact Us” page. ciled in North Carolina are considered res-
plus 6.84 percent of the excess over $54,000 Web site: www.state.nj.us/treasury/ idents and are subject to tax on their entire
for joint filers. Write: Department of Rev- taxation income regardless of their physical pres-
enue, 301 Centennial Mall South, P.O. Box NEW MEXICO: Individuals domiciled ence in the state. The tax rate rises in three
94818, Lincoln NE 68509-4818. in New Mexico are considered residents steps from 6 percent of taxable income up
Phone (402) 471-5729. and are subject to tax on their entire in- to $12,750 for single or $21,250 for joint
E-mail: Link through the Web site “Con- come regardless of their physical presence filers, to 7.75 percent (for 2008 and subse-
tact Us” page. in the state. The basis for New Mexico’s quent years) of taxable income over
Web site: www.revenue.state.ne.us calculation is the Federal Adjusted Gross $120,000 for single filers and over $200,000
NEVADA: Nevada does not tax per- Income figure. For the 2008 tax year, the for joint filers. Residents must also report
sonal income. There is a sales-and-use tax state has a graduated rate table with four and pay a “use tax” on purchases made
of between 6.5 and 7.75 percent, depend- brackets, ranging from 1.7 percent to a outside the state for use in North Carolina.
ing on the county, and an ad valorem per- maximum of 4.9 percent on New Mexico Write: Department of Revenue, P.O. Box
sonal and real property tax. Write: Nevada taxable income over $16,000 for single fil- 27431, Raleigh NC 27611.
Department of Taxation, 1550 College ers and $24,000 for married filing jointly. Phone: toll-free 1 (877) 252-3052. From
Pkwy., Suite 115, Carson City NV 89706. Write: New Mexico Taxation and Revenue overseas, call 1 (252) 467-9000.
Phone: (775) 684-2000. Department, Tax Information and Policy Web site: www.dor.state.nc.us
Web site: www.tax.state.nv.us Office, 1100 St. Francis Drive, P.O. Box 630, NORTH DAKOTA: Individuals domi-
NEW HAMPSHIRE: The state im- Santa Fe NM 87504-0630. ciled in North Dakota and serving outside
poses no personal income tax on earned Phone: (505) 827-0700. the state are considered residents and are
income and no general sales tax. The state E-mail: Link through “E-mail Us” tab at subject to tax on their entire income. For
does levy, among other taxes, a 5-percent bottom of home page. 2008 the tax rate ranges from 2.1 percent
tax on interest and dividend income of Web site: www.state.nm.us/tax on taxable income up to $32,550, to a max-
more than $2,400 annually for single filers NEW YORK: There is no tax liability imum of 5.54 percent on taxable income
($4,800 annually for joint filers) and an for out-of-state income if the individual over $357,700. Write: Office of State Tax
8.5-percent tax on business profits includ- has no permanent residence in New York, Commissioner, State Capitol, 600 E. Boule-
ing sale of rental property. The inheritance has a permanent residence elsewhere and is vard Ave., Dept 127, Bismarck ND 58505-
tax was repealed in 2003. Applicable taxes not present in the state more than 30 days 0599.
apply to part-year residents. Write: Tax- during the tax year. Filing a return is not Phone: (701) 328-2770.
payer Assistance Office, 109 Pleasant Street, required, but it is recommended to pre- E-mail: firstname.lastname@example.org
Concord NH 03301. serve domicile status. The tax rate rises in Web site: www.nd.gov/tax
Phone: (603) 271-2191. four steps from a minimum of 4 percent OHIO: Individuals domiciled in Ohio
Web site: www.nh.gov/revenue to a maximum of 6.85 percent of taxable are considered residents and their income
NEW JERSEY: A New Jersey domicil- income over $20,000 for single filers and is subject to tax, using the Federal Adjusted
52 FOREIGN SERVICE JOURNAL/FEBRUARY 2009
Gross Income figure as a starting base. For spends no more than 30 days in the state olina imposes a graduated tax rising in six S
2008, Ohio’s tax rate ranges in nine steps during the tax year. However, Pennsylva- steps from 2.5 percent on the first $2,500 to A
from a minimum of 0.618 percent to a nia does not consider government quarters a maximum of 7 percent of taxable income
maximum of 6.24 percent on taxable in- overseas to be a“permanent residence else- over $100,000. Write: South Carolina Tax
come over $200,000. For Tax Year 2009 the where.” Filing a return is not required, but Commission, 301 Gervais Street, P.O. Box E
maximum will fall to 5.925 percent. Write: it is recommended to preserve domicile 125, Columbia SC 29214. W
Ohio Department of Taxation, Taxpayer status. File Form PA-40 for all income de- Phone: (803) 898-5709. S
Services Center, 4485 Northland Ridge rived from Pennsylvania sources. Pennsyl- E-mail: email@example.com
Blvd., Columbus OH 43229. vania’s tax rate is a flat 3.07 percent. Write: Web site: www.sctax.org
Phone: toll-free 1 (800) 282-1780 or Commonwealth of Pennsylvania, Depart- SOUTH DAKOTA: There is no state
(614) 387-0224. ment of Revenue, Taxpayer Services De- income tax and no state inheritance tax.
E-mail: Link through Web site’s “Contact partment, Harrisburg PA 17128-1061. Property and sales taxes vary depending on
Us” tab. Phone: (717) 787-8201. city and/or county. Sales tax and use tax
Web site: www.tax.ohio.gov E-mail: Link through the Web site’s are generally between 5 and 6 percent.
OKLAHOMA: Individuals domiciled “Contact Us” tab. Write: South Dakota Dept. of Revenue, 445
in Oklahoma are considered residents and Web site: www.revenue.state.pa.us E. Capitol Ave., Pierre SD 57501-3185.
are subject to tax on their entire income re- PUERTO RICO: Individuals who are Phone: (605) 773-3311.
gardless of their physical presence in the domiciled in Puerto Rico are considered E-mail: Link through the Web site’s
state. The 2008 tax rate rises in eight stages residents and are subject to tax on their en- “Contact Us” tab.
to a maximum of 5.55 percent on taxable tire income regardless of their physical Web site: www.state.sd.us/drr2/
income over $8,700 for single filers and presence in the commonwealth. Normally, revenue.html
$15,000 for married filing jointly. Write: they may claim a credit with certain limi- TENNESSEE: Salaries and wages are
Oklahoma Tax Commission, Taxpayer tations for income taxes paid to the United not subject to state income tax, but Ten-
Services Division, 2501 North Lincoln States on income from sources outside nessee imposes a 6-percent tax on divi-
Blvd., Oklahoma City OK 73194-0009. Puerto Rico, and for any federal taxes paid. dends and certain types of interest income
Phone: (405) 521-3160. See the forms on the Web site for 2008 tax received by residents. Total sales tax is be-
E-mail: firstname.lastname@example.org rates. Write: Departamento de Hacienda, tween 8.5 and 9.75 percent, depending on
Web site: www.oktax.state.ok.us P.O. Box 9024140, San Juan PR 00902- the jurisdicition. For information write:
OREGON: Individuals domiciled in 4140. Tennessee Department of Revenue (Atten-
Oregon are considered residents and are Phone: toll-free 1 (800) 981-9236, or tion: Taxpayer Services), 500 Deaderick
subject to tax on their entire income re- (787) 721-2020, ext. 3611. Street, Nashville TN 37242.
gardless of their physical presence in the E-mail: email@example.com Phone: (615) 253-0600.
state. However, under a 1999 law, Oregon Web site: www.hacienda.gobierno.pr E-mail: TN.Revenue@state.tn.us
exempts domiciliaries who meet the for- RHODE ISLAND: Individuals domi- Web site: www.state.tn.us/revenue
eign residence requirement for the Foreign ciled in Rhode Island are considered resi- TEXAS: There is no state income tax.
Earned Income Exclusion, even though dents and are subject to tax on their entire Sales tax ranges from 6.5 to 8.25 percent
they may be federal employees. The 2008 income regardless of their physical pres- depending on the jurisdiction. Write:
tax rate rises to a maximum of 9 percent ence in the state. The Rhode Island tax rate Texas Comptroller of Public Accounts, P.O.
on taxable income over $7,300 for single ranges from 3.75 percent of taxable in- Box 13528, Capitol Station, Austin TX
filers and over $14,600 for married filing come up to $26,575 (married filing sepa- 78711-3528.
jointly. Oregon has no sales tax. Write: rately) up to 9.9 percent of taxable income Phone: toll-free 1 (877) 622-8375.
Oregon Department of Revenue, 955 Cen- over $349,700. Refer to the tax division’s E-mail: firstname.lastname@example.org
ter Street N.E., Salem OR 97301-2555. Web site for current information and Web site: www.window.state.tx.us
Phone: (503) 378-4988. handy filing hints, as well as for forms and UTAH: Individuals domiciled in Utah
E-mail: email@example.com regulations. Write: Rhode Island Division are considered residents and are subject to
Web site: http://egov.oregon.gov/DOR of Taxation, Taxpayer Assistance Section, Utah state tax. Utah requires that all Fed-
PENNSYLVANIA: Pennsylvania tax One Capitol Hill, Providence RI 02908- eral Adjusted Gross Income reported on
authorities have ruled that Pennsylvania 5801. the federal return be reported on the state
residents in the U.S. Foreign Service are not Phone (401) 574-8829. return regardless of the taxpayer’s physical
on federal active duty for state tax pur- E-mail: firstname.lastname@example.org presence in the state. For 2008, Utah has
poses, and thus their income is taxable Web site: www.tax.state.ri.us abolished variable tax rates and has insti-
compensation. For non-Foreign Service SOUTH CAROLINA: Individuals tuted a “single rate tax” of 5 percent on all
Penn. residents, there is no tax liability for domiciled in South Carolina are consid- income. Some taxpayers will be able to
out-of-state income if the individual has ered residents and are subject to tax on claim either a taxpayer tax credit or a re-
no permanent residence in the state, has a their entire income regardless of their tirement tax credit, or both (see Web site
permanent residence elsewhere, and physical presence in the state. South Car- for explanation). Write: Utah State Tax
FEBRUARY 2009/FOREIGN SERVICE JOURNAL 53
S Commission, Taxpayer Services Division, Web site: www.tax.virginia.gov between 4 and 6 percent, depending on the
A 210 North 1950 West, Salt Lake City UT WASHINGTON: There is no state in- jurisdiction. Write: Wyoming Department
84134. come tax and no tax on intangibles such as of Revenue, Herschler Building, 122 West
N Phone: toll-free 1 (800) 662-4335, or bank accounts, stocks and bonds. Sales tax 25th St., Cheyenne WY 82002-0110.
E (801) 297-2200. ranged from 7 to 9 percent, depending on Phone: (307) 777-7961.
W E-mail: email@example.com the jurisdiction, in the last quarter of 2008; E-mail: DirectorOfRevenue@wy.gov
S Web site: tax.utah.gov rates are updated quarterly. Residents may Web site: revenue.state.wy.us
VERMONT: Individuals domiciled in deduct Washington sales tax on their fed-
Vermont are considered residents and are eral tax returns if they itemize deductions.
subject to tax on their entire income re- Write: Washington State Department of State Pension
gardless of their physical presence in the Revenue, Taxpayer Services, P.O. Box
state. The 2008 tax rate ranges from 3.6 47478, Olympia WA 98504-7478. & Annuity Tax
percent on taxable income under $32,550, Phone: toll-free 1 (800) 647-7706, or The laws regarding the taxation of For-
to a maximum of 9.5 percent on taxable (360) 786-6100. eign Service annuities vary greatly from
income over $357,700 for married filing E-mail: Link through the Web site’s state to state. In addition to those states
jointly. Write: Vermont Department of “Contact Us” tab. that have no income tax or no tax on per-
Taxes, Taxpayer Services Division, 133 Web site: www.dor.wa.gov sonal income, there are several states that
State Street, Montpelier VT 05633-1401. WEST VIRGINIA: There is no tax lia- do not tax income derived from pensions
Phone: (802) 828-2865. bility for out-of-state income if the indi- and annuities. Idaho taxes Foreign Serv-
E-mail: Link through the Web site’s vidual has no permanent residence in West ice annuities while exempting certain cat-
“Contact Us” tab. Virginia, has a permanent residence else- egories of Civil Service employees. Several
Web site: www.state.vt.us/tax where and spends no more than 30 days of Web sites provide more information on in-
VIRGINIA: Individuals domiciled in the tax year in West Virginia. However, dividual state taxes for retirees, but the Re-
Virginia are considered residents and are non-resident domiciliaries are required to tirement Living Information Center at
subject to tax on their entire income re- file a return on Form IT-140 for all income www.retirementliving.com/RLtaxes.html
gardless of their physical presence in the derived from West Virginia sources. Tax is one of the more comprehensive.
state. Individuals domiciled elsewhere are rates rise in four steps from $150 plus 4 ALABAMA: Social Security and federal
also considered residents for tax purposes percent of income over $5,000 for married pensions are not taxable. The combined
for the portion of any calendar year in filing separately, to $2,775 plus 6.5 percent state, county and city sales tax rates average
which they are physically present in the of income over $60,000 for joint filers. from 7 to 10 percent.
state for 183 days or more. These individ- Write: Department of Tax and Revenue, ALASKA: No personal income tax.
uals should file using Form 760. In addi- Taxpayer Services Division, P.O. Box 3784, ARIZONA: Up to $2,500 of U.S. gov-
tion, Virginia requires non-residents to file Charleston WV 25337-3784. ernment pension income may be excluded
Form 763 if their Virginia Adjusted Gross Phone: toll-free 1 (800) 982-8297, or for each taxpayer. There is also a $2,100
Income in the 2008 or 2009 tax years (304) 558-3333. exemption for each taxpayer age 65 or over.
(which includes any federal salary paid E-mail: firstname.lastname@example.org Arizona does not tax Social Security.
during time they are residing in Virginia) Web site: www.wvtax.gov ARKANSAS: Up to $6,000 of income
exceeds $11,250 for single filers, $22,500 WISCONSIN: Individuals domiciled from any retirement plan is exempt. So-
for married filing jointly or $11,250 for in Wisconsin are considered residents and cial Security is not taxed.
married filing separately. (These amounts are subject to tax on their entire income re- CALIFORNIA: Fully taxable.
will increase to $11,650 and $23,300 in Tax gardless of where the income is earned. COLORADO: Up to $24,000 of pen-
Years 2010 and 2011, and to $11,950 and Wisconsin’s current tax rate ranges from sion income is exempt if individual is age
$23,900 for Tax Year 2012 and beyond.) 4.6 percent on income up to $9,510 for sin- 65 or over. Up to $20,000 is exempt if age
Individual tax rates are: 2 percent if taxable gle filers, to a maximum of $12,078.35 plus 55 to 64.
income is less than $3,000; $60 plus 3 per- 6.75 percent of income over $190,210 for CONNECTICUT: Fully taxable for res-
cent of excess over $3,000 if taxable income joint filers. Write: Wisconsin Department idents.
is between $3,000 and $5,000; $120 plus 5 of Revenue, Individual Income Tax Assis- DELAWARE: Pension exclusions per
percent of excess over $5,000 if taxable in- tance, P.O. Box 59, Madison WI 53785- person: $2,000 is exempt under age 60;
come is between $5,000 and $17,000; and 0001. $12,500 if age 60 or over. There is an ad-
$720 plus 5.75 percent of taxable income Phone: (608) 266-2486. ditional deduction of $2,500 if age 65 or
over $17,000. Write: Virginia Department E-mail: Use Web site “contact us” page over. Social Security income is exempt.
of Taxation, Office of Customer Services, and click on “Taxpayer Assistance.” DISTRICT OF COLUMBIA: Pension
P.O. Box 1115, Richmond VA 23218-1115. Web site: www.dor.state.wi.us or annuity exclusion of $3,000 is applicable
Phone: (804) 367-8031. WYOMING: There is no state income if 62 years or older. Social Security is ex-
E-mail: Link through the Web site’s tax and no tax on intangibles such as bank cluded from taxable income.
“Contact Us” tab. accounts, stocks or bonds. Sales tax ranges FLORIDA: There is no personal in-
54 FOREIGN SERVICE JOURNAL/FEBRUARY 2009
come, inheritance or gift tax. Florida re- Federal Adjusted Gross Income is under included in the AGI up to $9,690 for sin- S
pealed the “intangibles tax” in 2007. $50,000. gle filers and to $19,380 for joint filers for A
GEORGIA: For Tax Year 2008, $35,000 KENTUCKY: Government pensions at- 2008.
of retirement income is excluded for tributable to service before Jan. 1, 1998, MINNESOTA: Generally all pensions
those who are 62 years or older, or totally are not taxed. The portion of annuity in- are taxable, but single taxpayers who are E
disabled. come attributable to service after Dec. 31, over 65 or disabled may exclude some in- W
HAWAII: Pension and annuity distri- 1997, is subject to tax at the appropriate come if Federal Adjusted Gross Income is S
butions from a government pension plan rate; the pension exclusion of up to under $33,700 and non-taxable Social Se-
are not taxed in Hawaii. Social Security $41,110 is unchanged for 2008. Social Se- curity is under $9,600. For a couple, the
is not taxed. curity is not taxed. limits are $42,000 for Adjusted Gross In-
IDAHO: If the individual is age 65 or LOUISIANA: Federal retirement bene- come and $12,000 for non-taxable Social
older, or age 62 and disabled, CSRS and fits are exempt from Louisiana state in- Security.
FSRDS pensions qualify for a deduction come tax. There is an exemption of MISSISSIPPI: Social Security and
in 2008 of up to $26,220 for a single re- $6,000 of other annual retirement income qualified retirement income from federal,
turn and up to $39,330 for a joint return. received by any person age 65 or over. state and private retirement systems are
Up to $26,220 may be deducted by the Married filing jointly may exclude exempt from Mississippi tax.
unmarried survivor of the annuitant. $12,000. MISSOURI: $6,000 or 35 percent for
The deduction is not available if married MAINE: Recipients of a government- 2008, whichever is greater, is exempt if
filing separately; nor do FERS or FSPS sponsored pension or annuity who are fil- public pension income is less than
pensions qualify for this deduction. The ing singly may deduct up to $6,000 $100,000 when married filing jointly or
deduction is reduced dollar for dollar by ($12,000 for married filing jointly) on in- $85,000 for single filers. This $6,000 is re-
Social Security benefits. Social Security come that is included in their Federal Ad- duced dollar for dollar by the amount the
itself is not taxed. justed Gross Income, reduced by all Social income exceeds these income limitations.
ILLINOIS: Illinois does not tax U.S. Security and railroad benefits. For those In 2008 you may deduct 35 percent of So-
government pensions or Social Security. age 65 and over, there is an additional cial Security income if over age 62 and
INDIANA: If the individual is over age standard deduction of $1,350 (single), Federal Adjusted Gross Income is less
62, the Adjusted Gross Income may be re- $1,050 (married filing singly) or $2,100 than the limits above.
duced by the first $2,000 of any pension, (married filing jointly). MONTANA: There is a $3,600 pension-
reduced dollar for dollar by (non-taxable) MARYLAND: Those over 65 or perma- income exclusion if Federal Adjusted
Social Security benefits. There is also a nently disabled, or who have a spouse Gross Income is less than $30,000. This
$1,000 exemption if over 65, or $1,500 if who is permanently disabled, may under exclusion can be claimed by each spouse
Federal Adjusted Gross Income is less certain conditions be eligible for Mary- if both have retirement income and is re-
than $40,000. There is no pension exclu- land’s maximum pension exclusion of duced by $2 for every $1 over $30,000.
sion for survivor annuitants of federal an- $23,600. Also, all individuals 65 years or Those over 65 can exempt an additional
nuities. older are entitled to an extra $1,000 per- $800 of interest income for single taxpay-
IOWA: Generally taxable. However, sonal exemption in addition to the regu- ers and $1,600 for married joint filers.
for the 2007 and 2008 tax years, a married lar $2,400 personal exemption available NEBRASKA: U.S. government pen-
couple with an income for the year of less to all taxpayers. Social Security is not sions and annuities are fully taxable.
than $24,000 may file for exemption, if at taxed. See the worksheet and instructions NEVADA: No personal income tax.
least one spouse or the head of household for Maryland Form 502. NEW HAMPSHIRE: No personal in-
is 65 years or older on Dec. 31. Starting MASSACHUSETTS: Distributions come tax. The inheritance tax was re-
with the 2009 tax year, this amount is in- made to a retiree from a federal employee pealed in 2003. There is a 5-percent tax
creased to $32,000. For the 2007 and contributory plan are excluded from on interest/dividend income over $2,400
2008 tax years, single persons who are 65 Massachusetts gross income. Social Se- for singles ($4,800 married filing jointly).
years or older on Dec. 31 may file for an curity is not taxed. A $1,200 exemption is available for those
exemption if their income is $18,000 or MICHIGAN: Federal government pen- 65 or over.
less. Starting with the 2009 tax year, this sions are exempt from taxation in Michi- NEW JERSEY: Pensions and annuities
amount is increased to $24,000. Over age gan. Retirement benefits from private from civilian government service are sub-
55, there is a pension/retirement income sources included in the Adjusted Gross ject to state income tax, with exemptions
exclusion of up to $6,000 for single, head Income are deductible to a maximum of for those who are age 62 or older or to-
of household or qualifying widower filers $43,440 on a single return and $86,880 on tally and permanently disabled. Singles
and up to $12,000 for married filing joint returns for Tax Year 2008. This max- and heads of households can exclude up
jointly. The same income tax rates apply imum is reduced by the deduction taken to $15,000; those married filing jointly up
to annuities as to other incomes. for the government pension. Those age to $20,000; those married filing separately
KANSAS: U.S. government pensions 65 or over may also be able to deduct part up to $10,000 each. These exclusions are
are not taxed. Social Security is exempt if of their interest, dividends or capital gains eliminated for New Jersey gross incomes
FEBRUARY 2009/FOREIGN SERVICE JOURNAL 55
S over $100,000. Residents over 65 may be ceived by an Oregon resident. However, cent of Modified Adjusted Gross Income
A eligible for an additional $1,000 personal federal retirees who retired on or before can be reduced by the Taxpayer Tax
exemption. Oct. 1, 1991, may exempt their entire fed- Credit and, for taxpayers over 65, by the
N NEW MEXICO: All pensions and annu- eral pension; those who worked both be- Retirement Tax Credit. This latter starts
E ities are taxed as part of Federal Adjusted fore and after Oct. 1, 1991, must prorate to phase out for incomes over $25,000 for
W Gross Income. Taxpayers 65 and older their exemption using the instructions in single filers, $32,000 for married or head
S may exempt up to $8,000 (single) or the tax booklet. A tax credit of up to 9 of household. See the state Web site for
$16,000 (joint) from any income source percent of taxable pension income is details.
if their income is under $28,500 (individ- available to recipients of pension income, VERMONT: U.S. government pensions
ual filers) or $51,000 (married filing including most private pension income, and annuities are fully taxable.
jointly). The exemption is reduced as in- whose income was less than $22,500 (sin- VIRGINIA: Individuals who were over
come increases, disappearing altogether gle) and $45,000 (joint), and who re- age 65 on Jan. 1, 2004, can take a $12,000
at $51,000. ceived less than $7,500/$15,000 in Social deduction; those age 62 or 63 on Jan. 1,
NEW YORK: U.S. government pen- Security benefits. The credit is the lesser 2004, can take a $6,000 deduction. Those
sions and annuities are not taxed. For of the tax liability or 9 percent of taxable who reached 62 after Jan. 1, 2004, cannot
those over age 59½, up to $20,000 of pension income. Oregon does not tax So- claim any deduction until they reach 65.
other annuity income (e.g., Thrift Savings cial Security benefits. For those who reached 65 after Jan. 1,
Plan) may be excluded. See N.Y. Tax Pub- PENNSYLVANIA: Government pen- 2004, the $12,000 deduction is reduced by
lication 36 for details. sions and Social Security are not subject one dollar for each dollar their Adjusted
NORTH CAROLINA: Pursuant to the to personal income tax. Gross Income exceeds $50,000 for single,
“Bailey” decision, government retirement PUERTO RICO: For 2007, the first and $75,000 for married, taxpayers. All
benefits received by federal retirees who $10,000 of income received from a federal taxpayers over 65 receive an additional
had five years of creditable service in a pension could be excluded for individuals personal exemption of $800. Social Secu-
federal retirement system on Aug. 12, under 60. For those over 60 the exclusion rity income is exempt. The estate tax has
1989, are exempt from North Carolina in- was $14,000. Figures for 2008 were not been repealed for all deaths after July 1,
come tax. Those who do not have five yet available at press time. If the individ- 2007.
years of creditable service on Aug. 12, ual receives more than one federal pen- WASHINGTON: No personal income
1989, must pay North Carolina tax on sion, the exclusion applies to each tax.
their federal annuities. In this case, up to pension or annuity separately. Social Se- WEST VIRGINIA: If under 65, there is a
$4,000 ($8,000 if filing jointly) of any fed- curity is not taxed. $2,000 pension exclusion. If 65 years or
eral annuity income is exempt. For those RHODE ISLAND: U.S. government older, you may apply for an additional ex-
over 65, an extra $750 (single) or $1,200 pensions and annuities are fully taxable. clusion of up to $8,000 of income re-
(couple) may be deducted. SOUTH CAROLINA: Individuals under ceived from any source.
NORTH DAKOTA: All pensions and an- age 65 can claim a $3,000 deduction on WISCONSIN: Pensions and annuities
nuities are fully taxed, except for the first qualified retirement income; those 65 are fully taxable. Those age 65 or over
$5,000, which is exempt minus any Social years of age or over can claim a $10,000 may take two personal deductions total-
Security payments if the individual deduction on qualified retirement in- ing $950. However, benefits received
chooses to use Form ND-2 (optional come. A resident of South Carolina who from a federal retirement system account
method). is 65 years or older may claim a $15,000 established before Dec. 31, 1963, are not
OHIO: Taxpayers 65 and over may take deduction against any type of income taxable. For tax years starting after Jan. 1,
a $50 credit per return. In addition, Ohio ($30,000 if both spouses are over 65), but 2008, Wisconsin no longer taxes Social
gives a tax credit based on the amount of must reduce this figure by any retirement Security benefits included in Federal Ad-
the retirement income included in the deduction claimed. Social Security is not justed Gross Income.
Ohio Adjusted Gross Income, reaching a taxed. WYOMING: No personal income tax.
maximum of $200 for any retirement in- SOUTH DAKOTA: No personal income
come over $8,000. Social Security is ex- tax or inheritance tax.
empt. TENNESSEE: Social Security and an-
OKLAHOMA: Up to $10,000 is exempt nuities (e.g., Thrift Savings Plan) are not
on qualified private pensions if the Fed- subject to personal income tax. Certain The AFSA Tax Guide is
eral Adjusted Gross Income is under interest/dividend income is taxed at 6 per-
$37,500 for single filers or $75,000 for cent if over $2,500 (married filing jointly).
also available at
married filing jointly. In addition, 20 per- However, those over 65 have $16,200 ex- www.afsa.org/news.
cent of any federal pension may be ex- empted for a single filer and $27,000 for
empt. Social Security is exempt. joint filers.
OREGON: Generally, all retirement in- TEXAS: No personal income tax.
come is subject to Oregon tax when re- UTAH: The new flat tax rate of 5 per-
56 FOREIGN SERVICE JOURNAL/FEBRUARY 2009