California Domicile vs. Residence: Can You Have Both?
Do you have to file a California tax return after moving overseas? For many Americans living abroad, the answer to that question will hinge on whether you have a domicile or residence in California. But what does that mean? What is a domicile? How is it different from a residence?
To answer those questions, let’s look at how California defines domicile vs. residence.
Key Takeaways
- In California, a domicile is your permanent home, while a residence is any place you stay, whether temporarily or permanently.
- You can have both a domicile in California and residence elsewhere.
- If you have a domicile in California, you will have to file a state tax return and report your worldwide income.
Difference Between Domicile vs. Residence in California
Under California law, a domicile is your permanent legal home. It’s where you have the strongest local connections. It’s where your friends and family live. It’s the place you always intend to return to after you’re away.
On the other hand, a residence refers to any place you stay, whether temporarily or permanently. This includes your domicile, but it can also mean:
- A summer home
- A hotel
- An Airbnb
- The home of a friend or family member you’re staying with
Because your domicile is your primary home, you can only have one at a time. Residences are defined more broadly and can have multiple residences.
Can you have both a domicile and a residence in California? Yes, you can. Having a permanent home—your domicile—does not stop you from having another temporary residence elsewhere.
What Residency Means in California
To be considered a resident of California, you must have a domicile in the state. Even if you have a residence in the state, you will not qualify as a legal resident unless it is your permanent home. However, if you do have a domicile in California, you will still be considered a resident, even if you have a temporary or transitory residence somewhere else.
How California Determines Domicile vs. Residence
When determining whether a residence counts as a domicile, California weighs several factors. Your home will likely be considered a domicile if one or more of the following are true:
- You have plans to return to your home in California and stay there indefinitely.
- You spend significant amounts of time there.
- You have close ties to family, friends, and community in the local area.
- Your children attend school there.
- You are employed in the area.
- You have a California state driver’s license listing that residence as your home address.
- You are registered to vote there.
- You maintain a bank account in the area.
The more of these that apply, the more likely you will be considered a permanent resident of California.
Temporary vs. Transitory Residence
Unlike your domicile, a mere residence will be temporary or transitory.
- A temporary residence is someplace you stay only temporarily before returning to your permanent home. This may include a family member’s house or a vacation home.
- A transitory residence is someplace you stay while traveling from one location to another. This might mean a hotel, campground, or Airbnb.
Tax Implications of Domicile vs. Residence in California
If you have a domicile in California, you will be considered a resident for tax purposes. This can have a big impact on your expat taxes. Even if you only have a temporary residence, you may still have tax obligations in California.
State Taxes with a Domicile in California
If you have a domicile in California, you will have to file a state tax return and report your worldwide income every year. This includes any wages, investment income, or capital gains you receive, no matter where it comes from.
You may be able to claim certain tax benefits to reduce or erase your state tax bill, such as California’s Other State Tax Credit. This will give you a dollar-for-dollar credit for income taxes paid to another state or country.
Many expats rely on the foreign tax credit and tax treaties to reduce their federal tax bill. However, California does not allow the use of foreign tax credits or the use of any foreign tax treaties to reduce California state income taxes.
State Taxes with a Residence in California
If you have a residence in California but it is not your domicile, you will likely not be subject to California state taxes on income earned outside the state. However, any income earned within California, such as wages from a California-based job, will still be subject to state taxes.
You may need to file a nonresident or part-year resident return if you have a temporary or transitory residence in California. This allows you to report income earned within the state and claim deductions or credits.
Establishing or Changing Your Domicile
If you want to avoid being taxed on your worldwide income in California, you will have to establish a new domicile somewhere else. This can be tricky, as California is known for trying to retain the taxing rights of former residents. You may have to:
- Sell any property you own in California
- Transfer your US driver’s license to another state (or void it completely)
- Close any bank accounts in California
- De-register to vote in California
In short, you must prove that you have severed ties with California and established strong connections somewhere else. Even if you move out of California and establish a new domicile elsewhere, you may still have California tax obligations for the year of the move.
When moving abroad, keep detailed records of your intent to establish or change domicile. This can include moving receipts, updated legal documents, and evidence of new social ties.
Safe Harbor Rule
California has a safe harbor rule that, if met, means you won’t be subject to California income taxes outside the state. To meet this rule, you must be out of the state under an employment-related contract for at least 546 consecutive days. The safe harbor rule lets you return to California for up to 45 days for most situations. There are some nuances to this safe harbor rule, so it is best to speak to a tax professional to ensure you qualify.
Get Help with Your State Taxes from Greenback!
We hope this guide has helped you understand the differences between a California domicile vs. residence. If you still have questions, we have the answers!
Greenback is an American company founded in 2009 by US expats for expats. We give Americans around the world the support they need to manage their US and foreign taxes.
Whether you are a soon-to-be expat or have lived abroad for years, Greenback will take the time to understand your unique situation. No matter your needs, we can help.
Have questions about the process or next steps? Contact us, and one of our Customer Champions will happily address all your concerns.
