Page 45 - Foreign Service Journal - February 2013

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regulations concerning the
taxability of Foreign Service
pensions and annuities that
vary by state.
The “State Overviews”
(see p. 46) briefy review
the laws regarding income
tax and tax on annuities
and pensions as they afect
Foreign Service personnel by
state. Please note that while
AFSA makes every attempt
to provide the most up-to-
date information, readers
with specifc questions
should consult a tax expert
in the state in question at
the addresses given. We also
encourage readers to visit
the state’s tax Web site (also
There are many criteria
used in determining which
state is a citizen’s domicile.
One of the strongest determi-
nants is prolonged physical
presence, a standard that
Foreign Service personnel
frequently cannot meet due
to overseas service. In such
cases, the states will make a
determination of the indi-
vidual’s income-tax status
based on other factors,
including where the indi-
vidual has family ties, where
he or she has been fling resi-
dent tax returns, where he or
she is registered to vote or
has a driver’s license, where
he or she owns property, or
where the person has bank
accounts or other fnancial
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 defne it as permanent
residence. Residence refers
to physical presence in the
state. Foreign Service per-
sonnel must continue to pay
taxes to the state of domicile
(or to the District of Colum-
bia) while residing outside
of the state, including during
assignments abroad, unless
the state of residence does
not require it.
Members are encour-
aged to review the Overseas
Briefng Center’s guide to
Residence and Domicile,
available on AFSA’s Web site
A non-resident, according
to most states’ defnitions,
is an individual who earns
income sourced within the
specifc state but does not
live there or is living there for
only part of the year (usu-
ally fewer than six months).
Individuals are generally
considered residents, and
are thus fully liable for taxes,
if they are domiciled in the
state or if they are living in
the state (usually at least six
months of the year) but are
not domiciled there.
Foreign Service employ-
ees residing in the metro-
politan Washington, D.C.,
area are required to pay
income tax to the District
of Columbia, Maryland or
Virginia, in addition to pay-
ing tax to the state of their
domicile. 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. 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
personal income but do tax
profts from the sale of bonds
and property.
There are 10 states that,
under certain conditions,
do not tax income earned
while the taxpayer is outside
the state: California, Con-
necticut, Idaho, Minnesota,
Missouri, New Jersey, New
York, Oregon, Pennsylvania
(but see entry for Penn,
below) and West Virginia. The
requirements for all except
California, Idaho, Minnesota
and Oregon are that the indi-
vidual not have a permanent