AFSA NEWS 66 JANUARY-FEBRUARY 2025 | THE FOREIGN SERVICE JOURNAL 3903 to calculate and deduct moving expenses from their military moves. Visit the IRS webpage “Moving Expenses to and from the United States.” Official Relocation Under the Foreign Service Act Is Not Taxed (PCS, R&R, Medevac) All travel authorized under Section 901 of the Foreign Service Act—which includes permanent change of station (PCS), representational travel, R&R, emergency visitation travel, and medevac—is exempt from taxation per IRC Sec. 912. Charleston General Financial Services secured advice from the IRS to this effect, which is consistent with IRS guidance issued in April 2018. None of these reimbursements appear on a W-2 for State Department employees. Non–State Department employees and anyone who doubts they are traveling under the Foreign Service Act should contact a professional to determine what relocation expenses may be taxable. Personally Incurred Expenses for Home Leave and R&R Personal expenses paid by a direct-hire employee while on R&R are not tax deductible. Prior to the 2017 TCJA, lodging, food, and transportation expenses paid by the employee on official home leave were deductible on Schedule A as unreimbursed employee business expenses. The TCJA eliminated the tax deduction for most unreimbursed employee business expenses, so these expenses cannot be deducted until/if the TCJA sunsets on Dec. 31, 2025. The Schedule A line 16 “other itemized deductions” section is not appropriate for deducting these expenses. Representational and Official Residence Expenses Certain Foreign Service employees receive a nontaxable allowance for representational expenses. If the actual expenses exceed the allowance, the excess expenses are not deductible under current tax law. Further, other Foreign Service employees incurring expenses related to their job may not deduct such expenses. Alimony for Divorces, Settlements, and Modifications Alimony paid pursuant to agreements and orders entered into before Jan. 1, 2019, is deductible by the payer and taxed as income to the payee. Alimony payments paid pursuant to divorce or separation instruments entered into or modified after Dec. 31, 2018, are not deductible by the payer or taxed as income to the payee. Any modifications after Dec. 31, 2018, to agreements finalized before Jan. 1, 2019, must explicitly state that the repeal of the alimony and maintenance rules will apply to the modification, otherwise the pre2019 rules apply. Taxpayers should read Form 1040 Schedule 1, the Form 1040 Instructions, and Tax Topic 452. Note, TCJA generally repealed IRC Section 71 and 26 CFR 1.71-1 for agreements entered into after Dec. 31, 2018. Required Minimum Distributions (RMD) from Inherited IRAs and Retirement Accounts For inherited traditional IRAs and retirement plan accounts (Account) where the Account owner dies after Dec. 31, 2019, the 2019 SECURE Act changed some rules for RMDs and distinguished between an eligible designated beneficiary (EDB) and other beneficiaries (non-EDBs). EDBs include the surviving spouse, a disabled individual, a chronically ill individual, a minor child until age 21, or an individual not more than 10 years younger than the Account owner. Generally, an EDB may take distributions over the EDB’s life expectancy. However, non-EDBs must withdraw the entire Account by the 10th calendar year following the year of the Account owner’s post-2019 death unless the Account owner had already started RMDs prior to their death. Under regulations finalized on July 19, 2024, the Department of the Treasury clarified that non-EDBs who inherit the Account before the deceased owner’s required beginning date (RBD) of distributions must withdraw the entire Account before the end of the 10th calendar year following the owner’s death. If the Account owner died on or after their RBD, the regulations state that non-EBDs must take annual RMDs (based on the non-EDB’s lifespan) for years one to nine and receive the remaining balance in the 10th calendar year. Prior to these regulations, non-EDBs who inherited Accounts in 2020 reasonably expected they could wait until the end of the 10-year period to withdraw the entire Account. Due to the confusion regarding RMDs for non-EDBs, the IRS issued Notices 2022-53, 2023-54, and 2024-35, which provide transition relief to taxpayers so they are not required to take an RMD from an inherited IRA through 2024. Retirement Savings in TSP, 401(k)s, and IRAs Individuals may contribute up to $23,000 to 401(k) plans, the Thrift Savings Plan, and 403(b) plans in 2024. Taxpayers age 50 and older (note the additional amount permitted for ages 60-63 beginning in 2025 as explained below) may make additional catch-up contributions of $7,500 to their qualified employer workplace retirement plan. The 2024 Traditional IRA and Roth contribution limits (in total) are $7,000 for those under age 50 and $8,000 for those age 50 and older. The 2024 tax year deadline for contributing to a Roth IRA or Traditional IRA is April 15, 2025. The IRS charges a penalty for Roth or IRA contributions over the allowed limits. Over-contributions for the tax year
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