California Exit Tax in 2025: What Expats Need to Know 

Here’s the reality check you need: California doesn’t currently have an active exit tax, despite widespread confusion online. According to California’s official legislative records, the much-discussed “California exit tax” was part of Assembly Bill 259, a wealth tax proposal that died in committee in early 2024. But here’s what still matters for expats: California’s aggressive residency rules mean you could face ongoing tax obligations even after moving abroad if you don’t properly establish non-residency. 

The key distinction: There’s no one-time exit tax when leaving California, but there are potential ongoing tax obligations if California still considers you a resident. The real challenge for American expats isn’t an exit tax—it’s California’s “sticky state” status that makes it difficult to prove you’ve truly left. 

What this means for you: If you’re moving abroad from California, your focus should be on properly severing residency ties, not worrying about a non-existent exit tax. However, understanding what was proposed helps explain why proper residency planning is crucial for high-net-worth expats. 

Proposed California Exit Tax (AB 259): What Almost Happened 

Assembly Bill 259, introduced by Assemblyman Alex Lee in 2023, proposed a comprehensive wealth tax system that included what many called an “exit tax.” Here’s what it would have done: 

The Wealth Tax Structure: 

• 1% annual tax on worldwide net worth above $50 million ($25 million for married filing separately) 
• An additional 0.5% surtax on net worth above $1 billion 
• Applied to all California residents regardless of where their assets were located 

The “Exit Tax” Component: The proposed exit tax would have been 0.4% of net worth exceeding $30 million for individuals ($15 million for married filing separately) when leaving California. This was designed to capture unrealized capital gains before wealthy individuals could relocate to avoid California taxes. 

Why It Failed: 

• Governor Newsom opposed the measure 
• Died in committee in January 2024 
• Faced significant opposition from business groups 
• Constitutional concerns about interstate commerce 
• Practical implementation challenges 

What Actually Exists: California’s Ongoing Residency Tax Rules 

While there’s no exit tax, California’s existing tax system creates similar challenges for wealthy individuals moving abroad: 

Current California Tax Reality: 

• No exit tax on departure 
• Residents pay tax on worldwide income (including foreign earnings) 
• Non-residents only pay tax on California-sourced income 
• Aggressive pursuit of former residents who haven’t properly severed ties 

The Real “Exit Tax” Equivalent: For expats, the ongoing obligation to pay California taxes on worldwide income (if still considered a resident) effectively creates a worse situation than a one-time exit tax. 

Why This Matters for American Expats 

Understanding the difference between a proposed exit tax and actual California residency rules is crucial for expats: 

Immediate Concerns: 

• No exit tax means no immediate payment when leaving California 
• Focus shifts to proper residency establishment abroad 
• Ongoing compliance with both California and federal expat tax rules 

Long-term Planning: 

• Properly severing California ties prevents future worldwide income taxation. 
• Investment income planning becomes more important than exit tax avoidance 
• Foreign earned income exclusions and foreign tax credits remain primary protections 

Strategies That Actually Matter for California Expats 

Since there’s no exit tax to avoid, here’s what California expats should focus on: 

Before Moving Abroad 

Establish Clear Non-Residency: 

• Consider relocating to a tax-free state before moving abroad 
• Document your departure with official California agencies 
• Close California bank accounts and financial relationships 
• Cancel voter registration and driver’s license 

Asset Positioning: 

• Review investment account locations and management 
• Consider the timing of capital gains realizations 
• Understand California-sourced vs. foreign-sourced income rules 

After Moving Abroad 

Maintain Non-Resident Status: 

• Limit California visits to under 45 days per year 
• Avoid maintaining significant California ties 
• Document your foreign residence and employment 
• File proper non-resident returns for any California-sourced income 

Monitor for Future Proposals: 

• Wealth tax proposals may resurface 
• Stay informed about California tax law changes 
• Consider professional guidance for significant assets 

What About High-Net-Worth Expats? 

If you would have been subject to the proposed exit tax (net worth above $30 million), you still need specialized planning: 

Current Considerations: 

• California’s existing high tax rates (up to 13.3%) 
• Aggressive residency enforcement 
• Complex asset valuation and reporting requirements 
• Potential future wealth tax proposals 

Strategic Planning: 

• Trust structures for asset protection 
• Proper international tax planning 
• State residency optimization 
• Ongoing compliance monitoring 

Real-World Scenarios for Expats 

Tech Executive Moving to London 

Net worth: $45 million, mostly in stock options 

• No exit tax concerns: Focus on properly establishing UK residency and maintaining California non-resident status
• Key actions: Exercise stock options strategically, establish foreign tax residence, and document departure from California
• Result: Avoids California worldwide income taxation without any exit tax 

Retired Entrepreneur in Portugal 

Net worth: $80 million, diversified investments 

• No exit tax payment required: Emphasis on investment income sourcing and Portuguese tax benefits
• Key actions: Utilize Portugal’s tax programs, maintain clear California non-residency, and optimize worldwide tax efficiency
• Result: Benefits from Portugal’s favorable tax treatment without California exit tax complications 

Digital Nomad with California Investments 

Net worth: $5 million, tech industry background 

• Below proposed exit tax threshold: Focus on standard expat tax compliance and California non-residency
• Key actions: Manage California-sourced income, maintain nomadic lifestyle documentation, optimize federal expat benefits
• Result: Clean separation from California taxes through proper residency planning 

Filing Requirements and Compliance 

Current California Obligations 

For Non-Residents: 

• File Form 540NR for California-sourced income only 
• Report rental property, partnership income, and employment in California 
• Investment income is generally not taxable if truly non-resident 

For Those Still Considered Residents: 

• File Form 540 reporting worldwide income 
• Subject to California’s highest-in-nation tax rates 
• Must prove non-residency to avoid this obligation 

Federal Expat Tax Coordination 

Key Benefits Available: 

• Foreign Earned Income Exclusion ($130,000 for 2025) 
• Foreign Tax Credit for taxes paid to other countries 
• Foreign Housing Exclusion for qualifying expenses 

Coordination with California: 

• California doesn’t recognize FEIE—residents pay tax on excluded income 
• Foreign tax credits may offset California taxes for non-residents with California-sourced income 
• Proper planning prevents double taxation 

What’s Next: Monitoring Future Proposals 

Legislative Trends 

Likely Future Developments: 

• Revised wealth tax proposals 
• Modified exit tax structures 
• Enhanced residency enforcement 
• Federal coordination efforts 

What to Watch For: 

• New assembly bills targeting wealthy residents 
• Changes to residency determination rules 
• Enhanced reporting requirements 
• Interstate tax coordination efforts 

Planning Recommendations 

Immediate Actions: 

• Confirm your California residency status 
• Document your expat life abroad 
• Optimize current tax position 
• Monitor legislative developments 

Long-term Strategy: 

• Maintain a clear non-resident status 
• Plan for potential future changes 
• Consider professional guidance 
• Build flexible tax structures 

Your Next Steps: Real Tax Planning vs. Exit Tax Myths 

If You’re Planning to Leave California 

Focus on Reality: 

1. Establish clear non-residency through documented actions 
2. Plan your departure timing around income recognition 
3. Understand ongoing obligations for California-sourced income 
4. Coordinate with federal expat tax planning 

Don’t Focus on Fiction: 

• Worrying about non-existent exit taxes 
• Planning around failed legislative proposals 
• Ignoring actual residency requirements 
• Assuming departure equals automatic non-residency 

Professional Guidance Recommendations 

When to Seek Help: 

• High net worth requires complex planning 
• Significant California-sourced ongoing income 
• Uncertainty about residency status 
• Multiple state tax obligations 

What to Look For: 

• Expat tax specialization 
• California state tax expertise 
• International planning experience 
• Ongoing compliance support 

Peace of Mind for Your California Departure 

The absence of a California exit tax simplifies your departure planning, but it doesn’t eliminate the need for careful residency and tax planning. Focus on the real requirements: properly establishing non-residency, optimizing your ongoing tax position, and maintaining compliance with both California and federal expat tax rules. 

No matter how late, messy, or complex your California departure and federal expat returns may be, we can help. You’ll have peace of mind, knowing that your taxes were done right. 

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

Need specific advice on your California tax situation? You can also get a consultation with one of our expat tax experts. 

Additional resources: 

• California state taxes for expats – Complete guide to ongoing California tax obligations for expats 
• Changing your state residency while living abroad – Step-by-step guide for establishing non-residency 

Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.

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