Do states follow the Foreign Earned Income Exclusion on state tax returns?

Most U.S. states that tax income conform to the federal Foreign Earned Income Exclusion because state taxable income usually starts with federal adjusted gross income (IRS: Foreign Earned Income Exclusion). California, New Jersey, Pennsylvania, Alabama, Hawaii, Mississippi, and a few others do not honor the FEIE.

State-by-state FEIE treatment:

• States that conform: New York, Massachusetts, Virginia, North Carolina, Georgia, Oregon, most others (because state taxable income starts with federal AGI, which is reduced by FEIE).
• States that do not conform: California, Alabama, Hawaii, Mississippi, New Jersey, and Pennsylvania (they start from different baselines or have their own rules).
• No-tax states: Florida, Texas, Nevada, Washington, Wyoming, Alaska, South Dakota, Tennessee, New Hampshire (no state income tax).

In non-conforming states that still have residency rules, expats may owe state tax on foreign wages even though the federal return shows $0. Foreign tax credit at the state level (where available) may offset this.

Best strategy: break residency with a non-conforming sticky state before leaving. Florida, Texas, and Nevada offer clean exits with no FEIE conformity issue because they have no income tax at all.

For more, see our State Taxes for Expats guide.