41 CFR 302-17.4: -17.4 Where to file relocation expenses for State taxes.

In most cases, the State tax return for the State an employee is leaving should reflect the reimbursement or allowance, if any, for househunting expenses and the reimbursement or direct payments to vendors for real estate expenses at the home the employee is leaving. All other taxable expenses should be shown as income on the tax return filed in the State into which the employee has moved. However, the employee and the agency must carefully study the rules in both States and include everything that each State considers to be income on each of the state tax returns.