The Foreign Service Journal, January-February 2020

THE FOREIGN SERVICE JOURNAL | JANUARY-FEBRUARY 2020 73 as well. Most states allow a credit, however, so that the tax- payer 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 continuing, for instance, 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. In some cases, the D.C. and Virginia tax authorities have sought back taxes from those who have used this address. States That Have No Income Tax Seven states currently have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington andWyo- ming. In addition, New Hampshire and Tennessee have no tax on earned income, but they do tax profits from the sale of bonds and property. States That Do Not Tax Nonresident Domiciliaries There are 10 states that, under certain conditions, do not tax income earned while the taxpayer is outside the state: Califor- nia, Connecticut, Idaho, Minnesota, Missouri, New Jersey, New York, Oregon, Pennsylvania (but see entry for Pennsylvania below) and West Virginia. The requirements for all states 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 should not be physically pres- ent 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 nonresident returns for all income earned from in-state sources. Foreign Service employees should also keep in mind that states could challenge the status of overseas government housing in the future. The “State Overviews” section, below, gives brief state- by-state information on tax liability, with addresses provided to obtain further information or tax forms. Tax rates are also provided where possible. As always, members are advised to double-check with their state’s tax authorities. While AFSAmakes every attempt to share the most up-to-date information, readers with specific questions should consult a tax expert in their respective state. A website address for each state’s tax authority is in the state- by-state guide, as well as an email address or link where avail- able. Some states do not offer email customer service. We also recommend the Tax Foundation website at www. taxfoundation.org, which offers a great deal of useful informa- tion, including a table showing 2019 tax rates for all states at https://taxfoundation.org/state-individual-income-tax-rates- brackets-2019/. n The State Department withholds an employee’s state taxes according to his or her “regular place of duty” when assigned domestically—for details, see “New Procedures for Withholding and Reporting Employees’ State and District of Columbia Income Taxes,” Announcement No. 22394 (Nov. 4, 2014; available via the intranet). This reflects some jurisdictions’ imposition of income taxes on nonresidents who derive income within their boundar- ies despite residence or domicile elsewhere. Members residing or domiciled in a jurisdiction other than the one in which they earn income may need state taxes to be withheld for their residence and domicile jurisdictions. If you reside or are domiciled in a jurisdic- tion other than that of your regular place of duty, you may secure an exemption from this withholding method by satisfying the requirements detailed by CGFS Knowl- edgebase (available via the intranet at http://kb.gfs. state.gov/) Issue 39479. Note that the Bureau of the Comptroller and Global Financial Services does not adjudicate state income tax elections when you are serving overseas, since in those cir- cumstances, it is the employee’s responsibility to accurately designate a state for which income taxes will be withheld. On the employee’s return to a domestic assignment, however, CGFS will evaluate the employee’s state tax withholding election based on his or her new official domestic duty sta- tion pursuant toAnnouncement No. 22394. Finally, this determination does not mean that you must relinquish your state of domicile if it is different from your official duty station. “Domicile” and “resi- dence” are different from “regular place of duty.” As long as you maintain your ties to your home state, you will be able to change your withholding back, if you wish, to your home state when you go overseas. See the Overseas Briefing Center’s guide to Residence and Domicile, avail- able on AFSA’s website at www.afsa.org/domicile. n TAX WITHHOLDING WHEN ASSIGNED DOMESTICALLY