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This guidance applies to the 2014 tax year, for returns

due on April 15, 2015. Please bear in mind that while there

may be changes to the tax code for the 2015 tax year, we

are not aware at present of any possible changes that are

likely to apply to 2014.

Federal and State Tax Provisions for the Foreign Service

AFSA’s annual Tax Guide is

designed as an informational

and reference tool. Although

we try to be accurate, many

of the new provisions of the

tax code and the implications

of Internal Revenue Service

regulations have not been

fully tested. Therefore, use

caution and consult with a tax

adviser as soon as possible if

you have specific questions

or an unusual or complex


Foreign Service employees

most frequently ask AFSA

about home ownership, tax

liability upon sale of a resi-

dence and state of domicile.

We have devoted special sec-

tions to these issues. James



. gov),

who compiles the tax guide,

would like to thank M. Bruce

Hirshorn, Foreign Service tax

counsel, for his help in its




For 2014 the six tax rates

for individuals remain at 10,

15, 25, 28, 33, 35 and 39.6

percent. The 10-percent rate

is for taxable income up to

$18,151 for married couples,

$9,076 for singles. The

15-percent rate is for income

percent and are reported on

Schedule D, married taxpay-

ers with income greater than

$450,000 and singles greater

than $400,000 pay a capital

gains rate of 20 percent.

These rates are e“ective for

all sales in 2014, except for

those people who fall within

the 10- to 15-percent tax

bracket: their rate is either

0 or 5 percent. Long-term

capital gain is defined as gain

from the sale of property held

for 12 months or longer.

Also for 2014, since the

Supreme Court decision on

same-sex marriages, same-

sex couples who were married

before Dec. 31, 2013, in a state

where it is legal must now file

their federal tax return either

as married filing separately

or married filing jointly, not


Personal Exemption

For each taxpayer, spouse

and dependent the personal

exemption is $3,950. There is

a personal exemption phase-

out starting in 2014.

Foreign Earned

Income Exclusion

Many Foreign Service

spouses and dependents

work in the private sector

overseas and thus are eli-

gible for the Foreign Earned

Income Exclusion. Ameri-

can citizens and residents

living and working overseas

are eligible for the income

exclusion, unless they are

employees of the United

States government. The first

$99,200 earned overseas

as an employee or as self-

employed may be exempt

from income taxes.

To receive the exemption,

the taxpayer must meet one

of two tests: 1) the Physical

Presence Test, which requires

that the taxpayer be pres-

ent in a foreign country for

at least 330 full (midnight

to midnight) days during

any 12-month period (the





up to $73,801 for married

couples, $36,901 for singles.

The 25-percent rate is for

income up to $148,851 for

married couples, $89,351 for

singles. The 28-percent rate

is for income up to $226,851

for married couples and up

to $186,351 for singles. The

33-percent rate is for income

up to $405,101 for married

couples and singles. Annual

income above $405,101 is

taxed at 35 percent. Income

above $450,000 for married

couples and above $400,000

for singles is taxed at 39.6


Although long-term

capital gains are taxed at a

maximum rate of up to 15