Soar Into Savings: Pilots and State Income Tax Planning

Ines Zemelman, EA
Ines Zemelman, EA
• 01.11.21 • 5 min read
Soar Into Savings: Pilots and State Income Tax Planning

Do you work for an airline carrier? Then you worked hard to earn your wings. Now let us help you soar into savings on your airline pilot taxes — while you learn more about pilots and state income tax planning! You are the expert in the air but your flight hours/route may be more important to your taxes than you think!

Do Federal Rules Limit a State’s Ability to Tax?

On occasion, we tax advisers find special rules limiting a state’s ability to tax earnings. Since a pilot or flight attendant is an airline employee, the good news is you have a federal rule that limits state taxation of airline pilots.

49 U.S.C. § 40116(f)(2), referred to as the “more-than 50 percent rule”, is a state tax relief provision that deals with the pay of an air carrier employee having regularly assigned duties on aircraft in at least two states. Note this rule does not benefit all employees. It benefits only employees on the aircraft. And these workers are subject to the income tax rules of the states, or political subdivisions of the states in:

  1. The state that is the residence of the employee;
  2. The state in which the employee earns more than 50 percent of the pay received from the carrier.

The test for allowing a state, other than your home state, to tax you is mathematical – asking if you earn more than half of your pay in that state. This airline pilot tax test is generally focused on flight hours.

Airline Pilot State Taxes: How Do Flight Hours Affect the Rules?

Is more than half of your flight time spent in a state other than your state of residence? If yes, then that state’s tax rules may apply. And you may be required to fill out multi-state income tax returns. Otherwise, you can challenge the state tax under the more-than 50 percent rule.

The income tax benefit here is limited to your pay from the air carrier. It does not apply to other types of income outside your state of residency.

A State Tax Example: Do You Live in Massachusetts?

A Massachusetts directive as of April 2, 2008 discusses the taxation of nonresident flight crew. The statute acknowledges the United States limitation imposed on Massachusetts and applies to all states. The more-than 50 percent rule says airline pilots qualify for state tax limitations when scheduled flight time of the employee in the state is more than 50% of the total scheduled flight time of the employee when employed during the calendar year.

If the tax rule applies, Massachusetts authorities prefer you report the exact amount of pay for services performed in Massachusetts. However, they also sanction apportionment based on workdays in the state as a fraction of total workdays.

Massachusetts goes on to say that you count as “in-state work” (a) a particular day when the flight was out of Massachusetts, and (b) other days unless the taxpayer can prove that he or she worked outside of Massachusetts for more than half the day. The state defines “total work days” as all days the airline employee flies or is required to be on duty.

In addition, corporate jets are not required to obtain an air carrier certificate under federal law. These jets are denied the state tax limitation protection of the more-than 50 percent rule. For example, private jet flight attendants and pilots are taxable in Massachusetts, though their earnings are calculated at about 14% taxability in the state — and applies to in-state layovers, those days of departure from the state, or rest days in the state.

In a nutshell, Massachusetts tax rules tend to be tough on air carriers without a certificate. If the private jet flight crew were protected under the more-than 50 percent rule, the Massachusetts taxability allocation would have been 0% rather than 14%.

Where Is the Airline Pilot’s Tax Home?

You worked your flight hours and now it is time to fly home. But it is not all rest at home for the travel weary pilot. It is nearly April 15th — and it is time to fill out your resident state income tax return.

Pilots are subject to state income tax in their state of residency. In tax jargon, it is called the airline pilot’s tax home. A resident is defined by the state’s tax rules.

For example, California has an entire booklet devoted to whether you’re a resident under their rules, Guidelines for Determining Resident Status, FTB Pub. 1031. But the state tends to emphasize that:

You’re a resident if either apply:

  • Present in California for other than a temporary or transitory purpose
  • Domiciled in California, but outside of California for a temporary or transitory purpose.

Under a state’s rules, the level of pilot out-of-state travel will generally not determine resident status.

The resident of any state (with a state income tax) usually pays tax on all sources of income. But you may qualify for tax relief, a tax credit, when you file multiple state returns — yet the relief may be limited, particularly when the other state has high rates. A low-rate state is not likely to give you relief above their tax rates.

Are Airline Pilot Expenses Subject to Favorable Deduction Rules?

No. An airline employee may incur job-related expenses that are classified as “ordinary and necessary” business expenses. But these are basically nondeductible under current restrictions. “Miscellaneous itemized deductions” are currently not deductible prior to the year 2026, with few exceptions.

Per diem payments (e.g. meal reimbursements) can exceed IRS guidelines. A portion of these reimbursements may end up on the pilot’s W-2. Generally such expenses are not tax deductible. Often the airline may exclude per diems and reimbursements from the pilot’s taxable wages on Form W-2 — in an amount not to exceed federal per diem rates.

Included in Form W-2 can be non-overnight trips and amounts in excess of federal per diem allowances and is reported as the pilot’s taxable income.

Do Airline Pilots Need a State Tax Navigator?

Navigating taxes on the federal and state level can be difficult. Airline pilot taxes have an important, but often neglected, financial element – state taxes.

State tax planning often yields worthwhile savings. Under current law, state and local income taxes are deductible when itemized, but with a maximum deduction of $10,000. Itemizing in alternate years can enhance deductions, including state income taxes.

The most desirable route to savings is minimizing your state taxes. If possible, plan to avoid a state’s ability to tax your pilot wages. States have detailed and varying tax rules that significantly affect your personal finances. Seeking professional tax advice can be your critical first step to avoid unnecessary payments. Your professional tax adviser can help you understand multi-state tax rules affecting you — as well as help you plan for real tax savings!