THE FOREIGN SERVICE JOURNAL | JANUARY-FEBRUARY 2024 59 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 residents 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. When Overseas … 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. Teleworking Domestically If you are working in a state that is not your permanent legal domicile, you could trigger a tax reporting requirement as a statutory resident or nonresident. If you work even one day in a state, you should review that state’s law for the reporting/filing requirements. 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 announcement reflects some jurisdictions’ imposition of income taxes on nonresidents who derive income within their boundaries 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 jurisdiction outside of your regular place of duty, you may secure an exemption from this withholding method by satisfying the requirements detailed by CGFS Knowledgebase (available via the intranet at https://kb.gfs.state.gov/) Issue 39479. Note that the Bureau of the Comptroller and Global Financial Services do not adjudicate state income tax elections when you are serving overseas, since in those circumstances, 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 station pursuant to Announcement 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 “residence” 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, available on AFSA’s website at https:// afsa.org/domicile. n TAX WITHHOLDING WHEN ASSIGNED DOMESTICALLY States That Have No Income Tax There are currently nine states with no tax on earned income: Alaska, Florida, Nevada, South Dakota, New Hampshire, Tennessee, Texas, Washington, and Wyoming. New Hampshire, however, does 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: California, Connecticut, Idaho, Maine, Missouri, New Jersey, New York, Oregon, Pennsylvania (but see entry for Pennsylvania 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 should 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 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. “State Overviews” below gives brief state-by-state information on tax liability, with addresses provided to get further information or tax forms. Tax rates are provided where possible.
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