The Foreign Service Journal, January-February 2015

THE FOREIGN SERVICE JOURNAL | JANUARY FEBRUARY 2015 55 AFSA NEWS PLEASE NOTE 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 situation. 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 Yorke (YorkeJ@state . gov), who compiles the tax guide, would like to thank M. Bruce Hirshorn, Foreign Service tax counsel, for his help in its preparation. FEDERAL TAX PROV I S I ONS 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 eective 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 single. 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 2014 AFSA TAX GUIDE 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 percent. Although long-term capital gains are taxed at a maximum rate of up to 15 ISTOCK.COM/RETROROCKET