Whether Missouri Municipalities May Tax the Portion of Federal Salaries Voluntarily Contributed to the Thrift Savings Plan: Memorandum for James S. Gilliland, General Counsel, Department of Agriculture [November 10, 1993] [open pdf - 27KB]
"You have requested our opinion on the following question: must the National Finance Center ('NFC') of the Department of Agriculture ('USDA') withhold and remit local earnings taxes levied by the municipalities of St. Louis and Kansas City, Missouri, upon that portion of federal employees' salaries voluntarily contributed to the Thrift Savings Plan ('TSP')? The Financial Management Service ('FMS') of the Department of the Treasury ('Treasury') has taken the position that NFC should not withhold the Kansas City earnings taxes on TSP contributions of FMS employees because similar payments made by municipal employees are not subject to the earnings tax. As we explain in further detail below, we disagree with this approach because TSP contributions, which are held in trust for the contributors, can be distinguished from the deferred compensation plan payments that are exempt -- by a court ruling -- from earnings taxes. Thus, intergovernmental tax immunity does not preclude the Missouri municipalities from levying an earnings tax on voluntary TSP contributions. The St. Louis and Kansas City earnings taxes should be withheld and remitted."
United States. Department of Justice: http://www.justice.gov/