Several comments noted the lack of GSA guidance on state and local taxes. This final rule is not imposing any new requirements on agencies regarding knowledge of state and local tax laws. The current Part 302-17 requires that the employees find and provide the applicable state and local marginal tax rates. In the past, GSA published state and Puerto Rican tax tables, but those tables were estimates. The current process will be more accurate if the actual rates are used instead of the GSA-produced tax tables, which are based on $25,000 income increments and therefore have inherent inaccuracies because different states have different tax brackets and rules. GSA is unaware of any agencies that currently have problems with local tax rules, including those for relocation, for their employees being paid through payroll and therefore should be able to understand the new tax processes related to relocation. The relationship between multiple states and localities as to tax payments are the employee's responsibility and would have to be known in order to certify their RITA claims. GSA is unaware as to which states or localities share reciprocity. Moreover, GSA does not certify the agreements between jurisdictions. Thus, there is no change from the regulations that are currently in place with regards to state and local taxes. Having GSA keep a record of reliable state and local tax guides as one commenter suggested is not a viable option due to staffing, expertise, and cost. For these reasons, GSA will not be able to do so.
Two comments suggesting having the WTA cover state and local taxes. While this is intriguing, it cannot be done because the tax burden is on the employee, and ultimately it is the employee's responsibility to pay, even if they are reimbursed for substantially all of the WTA through the process.
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What does my agency do if a state treats an expense as taxable even though it is nontaxable under the Federal IRC?
If one or more of the states where you have incurred tax liability for relocation expenses treats one or more relocation expenses as taxable, even though it (they) are nontaxable under Federal tax rules, you may be required to pay additional state income tax when you file tax returns with those states.
