The Foreign Service Journal, February 2008

F E B R U A R Y 2 0 0 8 / F OR E I GN S E R V I C E J OU R N A L 57 State Pension & Annuity Tax The laws regarding the taxation of Foreign Service annuities vary greatly from state to state. In addition to those states that haveno income tax, thereare sev- eral states that do not tax income derived frompensions and annuities. Idaho taxes ForeignService annuitieswhile exempting certaincategories of Civil Service annuities. The National Active and Retired Federal Employees AssociationWeb site also pro- vides detailed information on other state taxes for federal annuitants. Go to: www.narfe.org/departments/hq/guest/ articles.cfm?ID=732 ALABAMA: Social Security and feder- al pensions are not taxable. ALASKA: No personal income tax. ARIZONA: Up to $2,500 of U.S. gov- ernment pension income may be exclud- ed for each taxpayer. There is also a $2,100 exemption for each taxpayer age65or over. ARKANSAS: Up to $6,000 of income from any retirement plan is exempt. Social Security is not taxed. CALIFORNIA: Fully taxable. COLORADO: Up to $24,000 exempt if age 65 or over. Up to $20,000 exempt if age 55 to 64. CONNECTICUT: Fully taxable for res- idents. DELAWARE: Pension exclusions per person: $2,000 exempt under age 60, $12,500 if age60orover. Additional deduc- tion of $2,500 if age 65 or over. Social Security income is exempt. DISTRICT OF COLUMBIA: Pensionor annuity exclusion of $3,000 if 62 years or older. Social Security excluded from tax- able income. FLORIDA: Nopersonal income, inher- itanceor gift tax. ForTaxYear 2007Florida has repealed the intangibles tax. GEORGIA: ForTaxYear 2007, $30,000 retirement income excluded for those age 62 or older, or totally disabled. This will increase to $35,000 for Tax Year 2008. HAWAII: Pension and annuity distri- butions from a government pension plan are not taxed in Hawaii. IDAHO: If the individual is age 65 or older, or age 62 anddisabled, U.S. govern- ment pensions qualify for a deduction in 2007 of up to $25,392 for a single return and up to $38,808 for a joint return. Up to $25,392 may be deducted by the unmarried survivor of the annuitant. The deduction is not available if married filing separately. The amount is reduced dollar for dollar by Social Security benefits. ILLINOIS: U.S. government pensions are not taxed. INDIANA: If the individual is over age 62, the AGI may be reduced by the first $2,000 of any pension, reduced dollar for dollar by (non-taxable) Social Securityben- efits. Also, there is a $1,000 exemption if over 65, or $1,500 if federal AGI less than $40,000. Nopensionexclusion for survivor annuitants of federal annuities. IOWA: Generally taxable. However, for Tax Years 2007 and 2008, a married cou- plewith an income for the year of less than $24,000 may file for exemption if at least one spouse or the head of household is 65 years or older on Dec. 31 of that tax year. Starting with Tax Year 2009, this amount is increased to$32,000. ForTaxYears 2007 and 2008, a single person who is 65 years or older on Dec. 31 of that tax year may file for an exemption if their income is $18,000or less. StartingwithTaxYear2009, this amount will increase to $24,000. For those over age 55, there is a pension/retire- ment income exclusionof up to$6,000 for single, headof householdor qualifyingwid- ower filers and up to $12,000 for married filing jointly. The same income tax rates apply to annuities as other incomes. KANSAS: U.S. government pensions arenot taxed. Onother income, thededuc- tion for those over age 65 is $6,200. KENTUCKY: Government pensions attributable to service before Jan. 1, 1998, are not taxed. The portion of annuity income attributable to service afterDec. 31, 1997, is subject to taxat the appropriate rate; the pension exclusion of up to $41,110 is unchanged for 2007. Social Security is not taxed. LOUISIANA: Federal retirement ben- efits are exempt from Louisiana state income tax. There is an exemption of $6,000 of other annual retirement income received by any person age 65 or over. MAINE: Recipients of a government- sponsoredpensionor annuitymay deduct up to $6,000 on income that is included in their federal AGI, reduced by all Social Security and railroad benefits. For those age 65 andover, there is anadditional stan- dard deduction of $1,250 (single), $1,000 (married filing singly), and $2,000 (mar- ried filing jointly). MARYLAND: Thoseover age65orper- manently disabled, or who have a spouse who is permanently disabled, may under certainconditions be eligible forMaryland’s maximumpensionexclusionof $22,600 for 2006. Also, all individuals age 65 or older are entitled to an extra $1,000 personal exemption in addition to the regular $2,400 personal exemption available to all taxpayers. Social Security is not taxed. See the worksheet and instructions for Maryland Form 502. MASSACHUSETTS: Distributions made to a retiree froma federal employee contributory plan are excluded from Massachusetts gross income. MICHIGAN: Federal government pen- sions are exempt from taxation in Michigan. For tax year 2007, pensionben- efits included intheAGI fromaprivatepen- sion systemor an IRAare deductible up to amaximumof $42,240 for a single filer, or $84,480 for joint filers. Senior citizens age 65 or older may be able to deduct part of their interest, dividends and capital gains that are included in AGI. For 2007, the deduction is limited to a maximum of $9,420 for single filers and$18,840 for joint filers. However, the maximum must be reduced by the pension subtraction. MINNESOTA: Generally all pensions are taxable, but single taxpayers who are over age 65 or disabledmay exclude some income if the federal AGI is under $33,700 and non-taxable Social Security is under $9,600. For a couple, the limits are $42,000 for the AGI and $12,000 for non-taxable Social Security. MISSISSIPPI: Social Security and qualified retirement income from federal, state and private retirement systems are exempt fromMississippi tax. MISSOURI: Up to $6,000 is exempt if pension income is less than$32,000when married filing jointly, $16,000 ifmarried fil- ing separately, or $25,000 for a single or head-of-household filer. This $6,000 is reduceddollar for dollar by the amount the income exceeds these income limitations. MONTANA: There is a $3,600pension- income exclusion if AGI is less than $30,000. This exclusion canbe claimedby A F S A N E W S