California’s ‘Source Tax’ Hits Home With Retirees

If you plan to spend your retirement in a no-tax state, be advised that something called the “source tax” is being eyed by some revenue-hungry states as a way to pay their bills without angering local voters.

Under the source tax, already being used by California, your former state of residence can go after your federal or private pension, even if you have moved to another state or foreign country.

Some ex-Californians, who have moved to where there are no state taxes, have been tracked down and told they owe back taxes on their pensions, and that they will be taxed in the future by California, the source state, even though they no longer live there or use its services.

The National Assn. of Retired Federal Employees has put its half-million members on guard lest other states get the source-tax fever.

The source tax allows politicians to get revenue from people who, because they no longer live in that state, can’t take it out on politicians at the ballot box.

Federal retirees and their survivors are prime targets. Their benefits are typically higher than private-sector retirees, and they are easy to find because their names, addresses and payment levels are already in government computers.

Although all retirees are subject to federal taxes, many choose to move to states where living costs, including taxes, are lower, or where there is no state tax.

This list shows (as of late 1988) where retired federal workers live, and their monthly benefits:

* California has 221,000 U.S. government retirees and survivors. They get $195 million a month, plus another $32 million paid monthly to survivors of retirees.

* Florida, 146,000 retirees getting $141 million.

* Texas, 122,000 retirees getting $106 million.

* Virginia, 115,000 retirees getting $125 million, plus $20 million to survivors.

* Maryland, 107,000 retirees getting $121 million, plus another $19 million to survivors.

* New York, also 107,000 retirees getting $81 million.

* Pennsylvania, 100,000 retirees getting $83 million.

* Ohio, 65,000 retirees getting $58 million.

* Illinois, 59,000 retirees getting $49 million.

* Massachusetts, 50,000 retirees getting $39 million.

* Washington, 53,000 retirees getting $47 million.

* District of Columbia, 45,000 retirees getting $43 million, plus another $5 million to survivors of retirees.

Tennessee, North and South Carolina, Alabama, Michigan, Minnesota, Georgia, Arizona, Oregon, New Jersey, Indiana, Hawaii, Oklahoma, Tennessee and Colorado also have large numbers of retired federal workers or their survivors.

There are even 30,000 U.S. retirees living in foreign countries, many in Mexico and the Philippines, who get $14 million a month.

Many of those retirees, especially those in low-cost, low- or no-tax Sun Belt states, could be future targets of the source tax if their home states decide to implement it.