What States Do Pilots Have to Pay Taxes In?

Editorial team of TFX

• 13.10.21 • 5 min read

Did you know that a pilot's tax home is a place where they earn more than 50 percent of their income? It is very common for an airline pilot to spend a lot of time away from their permanent residence. This means they are liable to pay taxes in more than one state. So an obvious question is what states do pilots have to pay taxes in?

In this article you will learn about the tax home, how to determine it, the state taxation of airline pilots, and how tax home affects the state taxation of pilots.

What is a tax home and why is it important?

Extensive traveling is inherent when an individual chooses to be an airline pilot. They remain away from their permanent home for a long period while performing their duties. The state where they spent most of their time working will become their tax home.

The IRS defines the tax home as follows:

"Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home."

This means your primary residence can be located in one state and your tax home can be in another state, e.g. if you live in Austin, Texas, and work in Oklahoma City, then your tax home is in Oklahoma. 

It is important to designate your tax home so that you can deduct your business-related travel expenses. Moreover, if your tax home is in a foreign country you might qualify to claim a few tax benefits.

How to determine a tax home for airline pilots’ state taxes?

If you are a pilot and work in multiple states,  then the IRS requires you to consider three things when determining your tax home.

According to the IRS,

"In determining your main place of business, take into account the length of time you normally need to spend at each location for business purposes, the degree of business activity in each area, and the relative significance of the financial return from each area. However, the most important consideration is the length of time you spend at each location."

Your tax home can be within the United States or in a foreign country. Sometimes, a US citizen living in a foreign country can qualify for the Foreign earned income exclusion (FEIE). Two tests determine whether or not your tax home is in a foreign country. If you pass either one of them then the foreign country you are stationed at will be considered your tax home.  

1. Physical Presence Test: This test requires you to spend 330 days out of 365 days outside of the United States. According to the IRS

“Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period including some part of the year at issue. You can count days you spent abroad for any reason, so long as your tax home is in a foreign country.”

2. Bona Fide residence Test: This test requires you to establish your residency outside the United States. You have to live there for an entire tax year to make it your tax home. The IRS states that

"You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. If you are a calendar year taxpayer, an entire tax year is from January 1st through December 31st. "

It is important to note that where your tax home is located will depend on the length of time your assignment is expected to last. If the assignment you take is expected to last one year or less then you are considered to be on a temporary duty assignment and your tax home will not change.

However, if you are stationed at a location for an indefinite time within the United state then this new location becomes your tax home. In case you take an assignment in a foreign country for an indefinite period and your abode is not in the United States, your tax home is in the foreign country and you will be eligible to claim tax benefits such as Foreign Earned Income Exclusion.

How does tax home affect the state taxation of airline pilots?

Once tax home is determined then you can figure out the following:

Whether or not you have to file multiple state tax returns:   

An air carrier employee, such as a pilot who performs duties in more than one state, is obligated to pay income tax in the state where he is a resident and the other state where he has earned more than 50 percent of his total income.  According to the, 49 U.S.C. 14503 - Withholding State and local income tax by certain carriers,

“An employee is deemed to have earned more than 50 percent of pay in a State or subdivision of that State in which the time worked by the employee in the State or subdivision is more than 50 percent of the total time worked by the employee while employed during the calendar year.”

As a pilot, you might be required to file:

• A resident tax return: You file this where your primary residence is. You have to report your total income from every source. 
• A non-resident tax return This is filed in the state where you work. This is your tax home because you spent a lot of time there working and earn more than 50% of your income. Here you only need to include the income you earned in your tax home.

It is noteworthy that some states have reciprocal agreements with each other which make sure that your taxes are not withheld twice. Even if no such agreement exists you will not be taxed twice on the same income as per the US Supreme Court Decision in Controller of the Treasury of Maryland v Wynne in 2015. 

Which of your work-related expenses are deductible 

When an airline pilot travels away from their tax home they can deduct their meal expenses if their business trips involve a layover. i,e, a resting period. 

Additionally, if you are on a temporary assignment then you can deduct commuting expenses. Note that if the assignment is expected to last for an indefinite period, the work-related expenses will become non-deductible.

Moreover, if you decide to donate your services to a recognized charitable organization you can claim directly attributable oil and fuel costs incurred as deductible expenses if they are unreimbursed. Note that the value of your services to the charitable organization is not an allowable deduction.         

Whether or not you qualify to claim any Foreign Earned Income Exclusion and other tax benefits

Airline Pilots may be eligible to claim certain tax benefits. According to the IRS

In addition to the foreign earned income exclusion, you can also claim an exclusion or a deduction from gross income for your foreign housing amount if your tax home is in a foreign country and you qualify under either the bona fide residence test or the physical presence test.

For pilots, it is important to determine where their tax home is. Doing so will let you get all the deductions that you are entitled to and claim all the benefits you are eligible for. If you face challenges in figuring out where your tax home is, you can always consult a tax professional or use CPA online services to get expert guidance.