How to make your retirement less taxing — literally

Many people retire in the same area they spent the last years of their federal career. Maybe its because of friends, kids, grandchildren. Or the house is paid for. Or you just don’t want to move again. Ever. But lots of people who live in high tax states relocate for that very reason. They’ve run the numbers and they know that they can live as well or better if they move. And that’s a major decision because a major portion of the federal civilian workforce is concentrated in states with high taxes. When they retire, many feds move to states such as Florida, Nevada and Texas.

Years ago a friend retired from the General Services Administration. Although born in the Midwest with long-time ties to the Washington, D.C. area, he moved to Washington State because it has no personal taxes. He now does all his shopping, food, clothes, gets haircuts, you name it, across the Columbia River in sales-tax-free Oregon.

The lesson here? If legally avoiding taxes is your thing, you can get very creative thanks to the variety of state tax rules, laws and loopholes.

In addition to checking up on current state tax laws, it pays to follow the news too. For example, a recent Supreme Court decision could benefit thousand of current and future federal retirees when they decide to move to a new state. The biggest winners are current and former firefighters and law enforcement personnel who move to states that exempt the pensions of retired state workers from state taxes.


In February the high court unanimously agreed to block West Virginia from exempting retired state and local firefighters and law officers pensions from state taxes while taxing the annuities of retired federal law enforcement and firefighters. In Dawson v. Steager, the court with one voice said:

“The West Virginia law that taxes the retirement income of federal marshal but exempts from taxation state and local law enforcement officers unlawfully discriminates against federal employees, in violation of 4 U.S.C. § 111. In a unanimous opinion authored by Justice Neil Gorsuch, the Court found that the state law confers a benefit to state and local retirees that federal retirees cannot receive and that there are no ‘significant differences between the two classes’ of employees that justify differential treatment. The Court found unpersuasive the state’s arguments that the law affects too few people to meaningfully interfere with federal government operations and that the statute is not intended to harm federal retirees. The prohibition on discrimination, 4 U.S.C. § 111, applies to any state tax, not only those that are cumbersome, and the state’s purpose in adopting the discriminatory tax is irrelevant. With no meaningful distinction between retired federal marshals and state law enforcement retirees, the state cannot treat the two classes of retirees differently for purposes of taxation.”

Over the years starting in 1819, the court has generally said that states cannot discriminate in taxes between their own employees and federal workers. The 19th-Century case involved the State of Maryland’s efforts to tax the Bank of the United States.

West Virginia is a favorite vacation and retirement spot for many people on the East Coast. Now it is likely to be even more popular with the region’s large population of law enforcement personnel.

The April issue of National Active and Retired Federal Employees Association Magazine is always a must read for current feds and retirees who want to minimize their tax bite. NARFE is published monthly for members of the National Active and Retired Federal Employee Association and the April issue is always popular because of its in-depth coverage of the ever-changing tax situation both at the federal level and among the 50 states.

It also reports in-depth on the West Virginia tax case impacting federal law enforcement officers. The dues NARFE members pay include a subscription to the magazine. Today, NARFE is providing Federal News Network readers the chance to check out its tax issue, minus the ads. Enjoy it, pass it on to a friend and if you are not a NARFE member, maybe ask yourself why not?

For the state-by-state tax guide click here.

Nearly Useless Factoid

By Alazar Moges

Americans spend on average just under $1,000 on gifts during the Christmas season according to the National Retail Federation. Last year, total retail sales in November and December reached $717.45 billion.

Source: National Retail Federation

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