41 C.F.R. § 302-17.41

Applicable State marginal tax rate and effect on the RITA and an employee's State tax return(s)

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If two or more States that are involved in an employee's relocation impose an income tax on relocation benefits, then the employee's relocation benefits may be taxed by both States. Most commonly, the old and new duty stations are in the two States involved. The following table lays out the possibilities:

Table 1 to § 302-17.41
If:	But:	The agency will use the following as the State marginal tax rate in the CMTR:	The RITA will include an appropriate allowance for:	Employee's action:
Only one involved State has a State income tax		The marginal tax rate of the one State that taxes income	Taxes incurred in that State	Pay the taxes required by the State that taxes income.
Each involved State taxes a different set of the relocation benefits, with no overlap		The average of the marginal tax rates for each State involved	Taxes incurred in all involved States	File tax returns in each involved State, and pay the applicable taxes.
Two or more involved States tax some of the same relocation benefits	All involved States allow an adjustment or provide a credit for income taxes paid to other States	The marginal tax rate of the State that has the highest State income tax rate	Taxes incurred in all involved States	File tax returns in each involved State, take the appropriate credits and/or adjustments, and pay the applicable taxes.
Two or more involved States tax some of the same relocation benefits	One or more involved States does not allow an adjustment or provides a credit for income taxes paid to other States	The sum of all applicable State marginal tax rates	Taxes incurred in all involved States	File tax returns in each involved State, and pay the applicable taxes. This may result in paying taxes in more than one State on the same relocation benefits.