The Foreign Service Journal, January-February 2022

THE FOREIGN SERVICE JOURNAL | JANUARY-FEBRUARY 2022 77 2021 STATE PENSION AND ANNUITYTAX The laws regarding the taxation of Foreign Service annuities vary greatly from state to state. In addition to those states that have no income tax or no tax on personal income, there are several states that do not tax income derived from pensions and annuities. Idaho taxes Foreign Service annuities received for years worked before Oct. 1, 1991, while exempting certain categories of Civil Service employees. Several websites provide more detail on individual state taxes for retirees, but one of the more comprehensive is the Retirement Living Information Center at www.retirementliving.com/taxes-by-state, which is recommended for further information. ALABAMA Social Security and U.S. gov- ernment pensions are not tax- able. The Alabama state sales tax is 4 percent. Depending on the municipality, combined local and state sales tax is as high as 11 percent. ALASKA No personal income tax. No state sales or use tax, but most municipalities levy sales and/or use taxes of between 2 and 7 percent and/or a property tax. If over age 65, you may be able to claim an exemption. ARIZONA U.S. government pensions are fully taxed but up to $2,500 may be excluded for each tax- payer. There is also a $2,100 exemption for each taxpayer age 65 or over. Social Secu- rity is excluded from taxable income. Arizona state sales and use tax is 5.6 percent, with additions depending on the county and/or city. ARKANSAS The first $6,000 of income from any retirement plan or IRA is exempt (to a maximum of $6,000 overall). Social Security is excluded from taxable income. There is no estate or inheritance tax. State sales and use tax is 6.5 percent; city and county taxes may add another 5 percent. CALIFORNIA Pensions and annuities are fully taxable. Social Security is excluded from taxable income. The sales and use tax rate varies from 7.25 percent (the statewide rate) to 11 percent in some areas. COLORADO Up to $24,000 of pension or Social Security income can be excluded if an individual is age 65 or over. Up to $20,000 is exempt if age 55 to 64. State sales tax is 2.9 percent; local additions can increase it to as much as 11.2 percent. CONNECTICUT Pensions and annuities are fully taxable for residents. Social Security is exempt if Federal Adjusted Gross Income is less than $75,000 for singles or $100,000 for joint filers. Connecticut exempts 14 percent of income from pensions and annuities using those same income qualifiers. This phased-in exemption will increase by 14 percent each year until it reaches 100 per- cent in tax year 2025. State- wide sales tax is 6.35 percent. No local additions. DELAWARE Government pension exclu- sions per person: $2,000 is exempt under age 60; $12,500 if age 60 or over. If over age 65 and you do not itemize, there is an additional standard deduction of $2,500. Social Security is excluded from tax- able income. Delaware does not impose a sales tax. DISTRICT OF COLUMBIA Pensions and annuities are fully taxed for residents. Social Security is excluded from taxable income. Sales and use tax is 6 percent, with higher rates for some commodities (liquor, meals, etc.). FLORIDA There is no personal income, inheritance, gift tax or tax on intangible property. All prop- erty is taxable at 100 percent of its just valuation—many exemptions are available. The state sales and use tax is 6 percent. There are additional county sales taxes, which could make the combined rate as high as 9.5 percent. GEORGIA Up to $35,000 of retirement income may be excludable for those age 62 or older or totally disabled. Up to $65,000 of retirement income may be excludable for taxpayers who are age 65 or older. Social Security is excluded from taxable income. Sales tax is 4 percent statewide, with additions of up to 5 percent depending on jurisdiction. HAWAII Pension and annuity distri- butions from a government pension plan are not taxed in Hawaii. If the employee contributed to the plan, such as a 401(k) with employer matching, only employer con- tributions are exempt. Social Security is excluded from tax- able income. Hawaii charges a general excise tax of 4 percent instead of sales tax. IDAHO If the individual is age 65 or older, or age 62 or older and disabled, Civil Service Retire- ment System and Foreign Ser- vice Retirement and Disability System pensions qualify for a deduction. Refer to Form 39R for details. Federal Employees’ Retirement System or Foreign Service Pension System pen- sions do not qualify for this deduction. The deduction is reduced dollar for dollar by Social Security benefits. Social Security itself is not taxed. Idaho state sales tax is 6 percent; some local jurisdic- tions add as much as another 3 percent.