Americans working overseas still owe state tax

Stuttgart Law Center
USAG Stuttgart

Don’t assume that working overseas precludes you from paying state taxes

Every American citizen has a legal state of residence.  A taxpayer arriving to a new overseas duty station and home does not lose their state residency status. Some states opt to treat military pay as non-taxable under strict criteria, but the exemption does not apply to military spouse or Defense Department civilian earnings overseas.

For example, Maryland tax law states: “Military and other individuals whose domicile is in Maryland, but who are stationed or work outside of Maryland, including overseas, retain their Maryland legal residence. Such persons do not lose Maryland residence just because of duty assignments outside of the state.”

Every DOD employee, military and civilian, is covered by the Joint Ethics Regulation, DOD 5500.7-R, which sets forth the standards of ethical conduct expected and demanded of Executive Branch federal employees. Principles of Ethical Conduct Number 12 states, “Employees shall satisfy in good faith their obligations as citizens, including all just financial obligations, especially those — such as federal, state, or local taxes — that are imposed by law.”

It is up to a taxpayer to accurately identify their legal state of residence. A state’s tax publication or revenue department can assist in determining the correct filing status. Community members should not assume that they are not obligated to file a state income tax return merely because they are not working within the state. DOD employees working overseas are only doing so on a temporary basis.

Do not get caught in an ethics situation, possibly owing back taxes, interest and penalties, because of avoiding the rules.

For more information, call the Stuttgart Law Center at 421-4152/civ. 0711-729-4152.