THE FOREIGN SERVICE JOURNAL
STATE TAX PROVISIONS
Every employer, including the State Department
and the other foreign affairs agencies, is required to withhold
state taxes for the location where the employee either lives or
works. Employees serving overseas, however, must maintain
a state of domicile in the United States where they may be
liable for income tax; the consequent tax liability that the
employee faces will vary greatly from state to state.
Further, the many laws on taxability of Foreign Service pen-
sions and annuities also vary by state. This section brieflycovers both those situations. (See separate box on Tax With- holding When Assigned Domestically.)
Domi c i l e and Res i den c y
There are many criteria used in determining which state is a citi-
zen’s domicile. One of the strongest determinants is prolonged
physical presence, a standard that Foreign Service personnel fre-
quently cannot meet due to overseas service. In such cases, the
states will make a determination of the individual’s income-tax
status based on other factors, including where the individual has
family ties, has been filing resident tax returns, is registered to
vote, has a driver’s license, owns property, or has bank accounts
or other financial holdings.
In the case of Foreign Service employees, the domicile
might be the state from which the person joined the Service,
where his or her home leave address is or where he or she
intends to return upon separation. For purposes of this article,
the term “domicile” refers to legal residence; some states also
define it as permanent residence. “Residence” refers to physi-
cal presence in the state. Foreign Service personnel must con-
tinue to pay taxes to the state of domicile (or to the District of
Columbia) while residing outside of the state, including during
assignments abroad, unless the state of residence does not
Members are encouraged to review the Overseas Briefing
Center’s Guide to Residence and Domicile, available on AFSA’s
Domes t i c Emp l oye es i n t he D.C . A r ea
Foreign Service employees residing in the metropolitan Wash-
ington, D.C., area are generally required to pay income tax to
the District of Columbia, Maryland or Virginia, in addition to
paying tax to the state of their domicile.
Virginia requires tax returns from most temporary resi-
dents, as well. Most states allow a credit, however, so that the
taxpayer pays the higher tax rate of the two states, with each
state receiving a share.
We recommend that you maintain ties with your state of
domicile—by, for instance, continuing to also file tax returns in
that state if appropriate—so that when you leave the D.C. area
for another overseas assignment, you can demonstrate to the
District of Columbia, Virginia or Maryland your affiliation to
your home state.
Also, if possible, avoid using the D.C. or Dulles VA pouch zip
code as your return address on your federal return because, in
some cases, the D.C. and Virginia tax authorities have sought
back taxes from those who have used this address.
See box on page 66 for new procedures within the State
Department for state tax withholdings.
S t a t es Tha t Have No I n come Ta x
There are currently seven states with no state income tax:
Alaska, Florida, Nevada, South Dakota, Texas, Washington and
Wyoming. In addition, New Hampshire and Tennessee have
no tax on earned income, but do tax profits from the sale of
bonds and property.
S t a t es Tha t Do No t Ta x Non - Res i den t
Domi c i l i a r i es
There are 10 states that, under certain conditions, do not tax
income earned while the taxpayer is outside the state: Cali-
fornia, Connecticut, Idaho, Minnesota, Missouri, New Jersey,
New York, Oregon, Pennsylvania (but see entry for Pennsylva-
nia below) and West Virginia. The requirements for all except
California, Idaho and Oregon are that the individual should not
have a permanent “place of abode” in the state, should have
a permanent “place of abode” outside the state, and not be
physically present for more than 30 days during the tax year.
California allows up to 45 days in the state during a tax year.
All 10 states require the filing of non-resident returns for all
income earned from in-state sources. Foreign Service employ-
ees should also keep in mind that states could challenge the
status of overseas government housing in the future.
In “State Overviews” you will find brief state-by-state
information on tax liability, with addresses provided to get
further information or tax forms. Tax rates are provided where
As always, members are advised to double-check with their
state’s tax authorities. While AFSA makes every attempt to
provide the most up-to-date information, readers with specific
questions should consult a tax expert in the state in question.
We provide the website address for each in the state-by-state
guide, and an email address or link where available. Some
states do not offer email customer service.
We also recommend the Tax Foundation website at www.
taxfoundation.org, which also provides a table showing 2016
tax rates for all states.