41 CFR § 302-17.42
Which state marginal tax rate(s) does my agency use to calculate the CMTR if I incur tax liability in more than one state, and how does this affect my RITA and my state tax return(s)?
June 9, 2020
If two or more states that are involved in your relocation impose an income tax on relocation benefits, then your relocation benefits may be taxed by both states. Most commonly, your old and new duty stations are in the two states involved. The following table lays out the possibilities:
Open Table
| If: | But: | Your agency will use the following as the state marginal tax rate in the CMTR: | Your RITA will include an appropriate allowance for: |
Your action: |
|---|---|---|---|---|
| Only one involved state has a state income tax | The marginal tax rate of the one state that taxes income | Taxes you incur in that state | You pay the taxes required by the state that taxes income. | |
| Each involved state taxes a different set of your relocation benefits, with no overlap | The average of the marginal tax rates for each state involved | Taxes you incur in all involved states | You file tax returns in each involved state and pay the applicable taxes. | |
| Two or more involved states tax some of your same relocation benefits | All involved states allow you to adjust or take a credit for income taxes paid to other states | The marginal tax rate of the state that has the highest state income tax rate | Taxes you incur in all involved states | You file tax returns in each involved state, take the appropriate credits and/or adjustments, and pay the applicable taxes. |
| Two or more involved states tax some of the same relocation benefits | One or more involved states does not allow you to adjust or take a credit for income taxes paid to other states | The sum of all applicable state marginal tax rates | Taxes you incur in all involved states | You file tax returns in each involved state, and pay the applicable taxes. This may result in paying taxes in more than one state on the same relocation benefits. |
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