Federal Income Often Used By States

Income tax treaties do not cover state income taxes. However, many states define income based on federal taxable income or federal adjusted gross income.

Some states allow students and scholars to exempt the same amount of income from state taxes and, in other states, they must add back in the treaty exclusion. Some of the states that do not allow treaty benefits are: Alabama, Arkansas, California, Connecticut, Hawaii, Kansas, Kentucky, Maryland, Mississippi, Montana, New Jersey, North Dakota, and Pennsylvania. Contact your state tax department to determine the allowance of tax treaty benefits when calculating state income tax.

The India treaty allows students to claim the standard deduction on their federal return. Since some states base the state income tax on the federal adjusted gross income, Indian students do not always benefit from their treaty provisions on the state returns.

Note: The forms may change after this material becomes available. Screen shots may depict a previous year's version of the forms or software. Publication 4491X, VITA/TCE Training Supplement, will be released in January to notify volunteers of any tax law and software updates.