Do Expats Pay State Taxes? Complete Guide for Americans Abroad (2025) 

It depends on your former state and whether you’ve properly severed ties. According to USAFacts, forty-one states and Washington, DC, collect income taxes every year—and nine states collect no income tax at all—but many expats don’t realize their ongoing obligations until it’s too late. 

Good news for most expats: If you lived in one of the nine states with no income tax (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, or New Hampshire), you won’t owe state taxes regardless of your expat status. For everyone else, your obligations depend on residency rules and income sources. 

Here’s what you need to know to stay compliant and avoid unexpected tax bills. 

Three Scenarios Where Expats Pay State Taxes

Understanding when you owe state taxes comes down to three distinct situations:

Scenario 1: You’re Still a State Resident

If your former state still considers you a resident, you’ll owe taxes on your worldwide income, including all foreign earnings. This happens when you haven’t properly severed ties or live in a “sticky state” that makes it difficult to change residency status.

Red flags that keep you on state tax rolls:

• Maintaining a driver’s license or state ID
• Keeping property ownership
• Having dependents who live in the state
• Using relatives’ addresses for mail or banking
• Staying registered to vote (even absentee)

Scenario 2: You Have State-Sourced Income

Even if you’re not a resident, you may owe taxes on income earned within a state. This applies to non-residents who maintain economic ties to their former state.

Common state-sourced income includes:

• Rental property income
• Business income from state operations
• Partnership or LLC distributions
• Capital gains from state property sales
• Some retirement payments (varies by state)

Scenario 3: Part-Year Residency

If you moved abroad mid-year, you’ll typically file as a part-year resident, reporting worldwide income for the portion of the year you lived in the state and only state-sourced income afterward.

The Nine Income Tax-Free States: Your Escape Route

If you lived in any of these states before moving abroad, congratulations—you have no state income tax obligations:

Complete exemption states:

• Alaska
• Florida
• Nevada
• South Dakota
• Texas
• Washington
• Wyoming

Limited tax states:

• Tennessee (dividends and interest only)
• New Hampshire (dividends and interest only)

The “Sticky States” That Won’t Let You Go

Five states have earned reputations for aggressively pursuing expat taxes, making it extremely difficult to terminate residency:

California: The Most Aggressive

California’s Franchise Tax Board actively audits expats and uses sophisticated methods to maintain tax jurisdiction. They’re particularly focused on high earners and will challenge residency changes years after the fact. Learn more about California state taxes for expats.

California’s residency traps:

• Property ownership (even investment property)
• Business interests or professional licenses
• Family members remaining in the state
• Maintaining any California financial accounts

New York: Strict Domicile Rules

New York distinguishes between residency and domicile, making it possible to be taxed even if you spend minimal time in the state. They focus heavily on your “intent” to return.

New York’s sticky factors:

• Maintaining a “permanent place of abode”
• Near and dear items (family heirlooms, artwork)
• Social and business connections
• Professional relationships

Virginia: The “Temporary” Assumption

Virginia often considers overseas moves “temporary” unless you can prove otherwise. They require substantial evidence that your move abroad is permanent.

South Carolina: Documentation Requirements

South Carolina requires extensive documentation to prove non-residency and may challenge claims years later.

New Mexico: Stringent Tie-Breaking Rules

New Mexico uses complex formulas to determine residency when you have connections to multiple states.

State-Sourced Income: The Hidden Tax Trap

Many expats assume that living abroad eliminates all state tax obligations. That’s not true if you maintain income-producing assets in the United States.

What Counts as State-Sourced Income

Real Estate Income:

• Rental property income (even if managed by a company)
• Capital gains from property sales
• Real estate partnership distributions

Business Income:

• Income from businesses operating in the state
• Professional services performed in the state
• Royalties from intellectual property registered in the state

Investment Income:

• Some partnership and LLC distributions
• Trust income (depending on trust location and type)
• Certain retirement account withdrawals

What Doesn’t Count

Foreign-sourced income:

• Wages earned while working overseas
• Foreign investment income
• Foreign business income
• Foreign rental property income

Generally exempt for non-residents:

• Social Security benefits (in most states)
• Federal pensions
• Investment income from securities (stocks, bonds)

Common Expat State Tax Mistakes That Cost Money

Mistake #1: The “Clean Break” Assumption

The myth: Moving abroad automatically ends state tax obligations.

The reality: States require specific actions to terminate residency, and some won’t recognize foreign moves as permanent.

Case study: Jennifer moved from California to London for work, assuming her tax obligations ended. Two years later, California audited her and demanded taxes on her UK salary because she maintained a California driver’s license and bank account.

Mistake #2: Ignoring State-Sourced Income

The myth: Non-residents don’t owe state taxes.

The reality: Income earned within a state is taxable regardless of residency status.

Case study: Mark moved from New York to Singapore but kept his Manhattan rental property. He didn’t file New York non-resident returns for three years, accumulating penalties and interest on the unreported rental income.

Mistake #3: Partial Tie-Severing

The myth: Cutting most ties to a state is sufficient.

The reality: Maintaining even one significant connection can preserve tax residency.

Case study: Sarah moved from Virginia to Germany but kept her Virginia driver’s license “for convenience.” Virginia continued taxing her worldwide income, including her German salary.

Mistake #4: Poor Documentation

The myth: States will accept your word that you’ve moved permanently abroad.

The reality: The burden of proof is on you, and states can audit years later.

Best practices for documentation:

• Keep detailed records of your move abroad
• Document all tie-severing actions with dates
• Maintain proof of foreign residence establishment
• Save evidence of minimal time spent in the former state

Special Situations That Complicate State Taxes

Multiple State Complications

Some expats must navigate multiple state tax systems:

Common scenarios:

• Working in one state while living in another
• Moving between states before going abroad
• Having income sources in multiple states
• Spouse remaining in a different state

Reciprocity agreements: Some states have agreements to prevent double taxation, but these don’t always apply to expats.

Military Overseas

Military personnel have special protections under the Military Spouses Residency Relief Act, but these don’t always extend to civilian expats.

Students Abroad

Students studying abroad may maintain residency in their home state, especially if they plan to return after graduation.

How Federal Tax Benefits Interact with State Taxes

Your federal expat tax benefits don’t automatically protect you from state taxes:

Foreign Earned Income Exclusion (FEIE)

• Federal benefit: Exclude up to $130,000 of foreign earned income (2025)
• State impact: Most states don’t recognize the FEIE and tax the full amount

Foreign Tax Credit (FTC)

• Federal benefit: Dollar-for-dollar credit for foreign taxes paid
• State impact: Few states offer similar credits for foreign taxes

Planning opportunity: The interaction between federal and state taxes can create planning opportunities. Sometimes, choosing the FTC over FEIE for federal purposes can reduce overall tax liability when state taxes are considered.

State Tax Planning Strategies for Expats

Before Moving Abroad: Proactive Planning

1. Research your state’s rules before moving
2. Consider establishing residency in a tax-free state first
3. Plan the timing of your move to minimize part-year residency complications
4. Restructure income sources to minimize state-sourced income

After Moving Abroad: Damage Control

1. Audit your current residency status in all states
2. Identify and address any remaining ties to former states
3. Review income sources for state tax implications
4. Establish foreign residency documentation

Ongoing Compliance

1. Monitor state law changes that might affect you
2. Keep detailed records of your foreign residence
3. Review annually whether you need to file any state returns
4. Stay informed about your former state’s enforcement activities

When to Seek Professional Help

State tax rules are complex and constantly changing. Consider professional assistance if you:

• Lived in a sticky state (California, New York, Virginia, South Carolina, New Mexico)
• Have significant state-sourced income
• Need to file returns in multiple states
• Face audit or enforcement action from a state
• Want to establish new state residency before moving abroad
• Have been non-compliant and need to catch up

Red flags that demand professional help:

• Receiving correspondence from state tax authorities
• Owing significant amounts in back taxes
• Facing audit or enforcement action
• Having complex multi-state situations
• Needing to restructure business or investment arrangements

For guidance on how to properly change your state residency, see our detailed guide on changing state residency while living abroad.

State Tax Compliance Checklist for Expats

Annual Review Process

Step 1: Determine residency status

• Review ties to all potential resident states
• Confirm you’ve maintained non-resident status
• Document any changes in circumstances

Step 2: Identify income sources

• List all US-sourced income by state
• Review any new investments or business activities
• Check for any overlooked income sources

Step 3: Determine filing requirements

• Research filing thresholds for each relevant state
• Identify which returns you need to file
• Note filing deadlines (often different from federal)

Step 4: File required returns

• Gather necessary documentation
• Complete and file all required state returns
• Pay any taxes owed by the deadline

Documentation to Maintain

• Proof of foreign residence establishment
• Records of all tie-severing actions
• Documentation of time spent in each state
• Income source documentation
• Professional licenses and membership changes

Looking Ahead: State Tax Trends for Expats

Increasing Enforcement

States are becoming more aggressive in pursuing expat taxes due to budget pressures and improved technology for tracking taxpayers.

Technology-Driven Audits

States increasingly use data analytics to identify non-compliant expats, matching federal tax returns with missing state returns.

Interstate Cooperation

States are sharing information more effectively, making it harder to fly under the radar.

Legislative Changes

Some states are considering or have passed laws specifically targeting expats, making residency termination more difficult.

Your Next Steps

If you’re planning to move abroad:

1. Research your state’s residency rules thoroughly
2. Develop a comprehensive tie-severing strategy
3. Consider establishing residency in a tax-free state before moving
4. Document everything meticulously
5. Consult professionals for complex situations

If you’re already abroad:

1. Audit your current state residency status immediately
2. Identify any state-sourced income you may have overlooked
3. Review compliance history and catch up if necessary – if you’re behind on filing, the Streamlined Filing Procedures may help you get current without penalties
4. Plan future moves to minimize state tax complications
5. Stay informed about changes in relevant state laws

Red flag situations requiring immediate attention:

• You haven’t filed state returns since moving abroad
• You maintain significant ties to a sticky state
• You have unreported state-sourced income
• You’ve received correspondence from state tax authorities

Knowledge Is Your Best Protection

State tax obligations for expats are often overlooked but can be costly to ignore. Unlike federal expat taxes, where most Americans abroad owe little or nothing thanks to the Foreign Earned Income Exclusion and Foreign Tax Credit, state taxes offer fewer protections and can result in significant liabilities.

Remember: state tax authorities are becoming more sophisticated in tracking down non-compliant expats. The cost of professional help upfront is almost always less than the penalties, interest, and back taxes you might face for non-compliance.

Hopefully, this guide has helped you understand whether you must file state taxes while living abroad. 

If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions. 

This article is for informational purposes only and should not be considered tax advice. State tax laws are complex and change frequently. Always consult with a qualified tax professional about your specific situation.