Do Expats Need to File California State Taxes in 2025?

Good news first: If you’re a non-resident of California, you pay zero state tax on investment income (interest, dividends, capital gains) and retirement distributions. But here’s the catch—California makes it surprisingly difficult to become a non-resident, even after you move abroad. 

You need to file California state taxes if: 

• You’re still considered a California resident (even while living abroad), OR 
• You have California-sourced income, like rental property, business income, or wages from California employers 

You likely don’t owe California taxes if: 

• You’ve successfully established non-residency AND 
• Your only income is from investments, foreign employment, or retirement accounts 

The challenge? California is a “sticky state” that assumes you’re still a resident unless you prove otherwise. Simply moving abroad isn’t enough—they’ll look at your driver’s license, voter registration, property ownership, bank accounts, and family ties to determine if you’ve truly left. 

This matters because California residents pay state tax on worldwide income (yes, even your foreign salary), while non-residents only pay tax on California-sourced income. The difference can be thousands of dollars. 

Working Through California’s “Sticky State” Challenge 

Here’s something that catches a lot of people off guard. California’s reputation as a “sticky state” comes from how aggressively it pursues former residents. But here’s the important point—thousands of expats successfully break their California tax ties every year by taking deliberate, well-documented actions. 

Why California earned its sticky reputation: 

• They assume your move abroad is temporary unless you prove otherwise 
• They look at comprehensive residency factors, not just where you’re physically located 
• They tax worldwide income for anyone they consider a resident 
• They keep detailed records and actively pursue former residents 

If you haven’t moved abroad yet (this is the ideal scenario): Consider establishing residency in a tax-free state like Florida, Texas, or Nevada before leaving the U.S. This creates a clear paper trail showing you’ve already severed California ties. 

If you’re already living abroad, don’t worry—you can still successfully break your California residency. You need to address each residency factor systematically and maintain detailed documentation. 

Moves that show you mean business: 

• Sell your California home or convert it to a rental property with professional management 
• Close or transfer all California bank accounts and financial relationships 
• Cancel your California driver’s license and get an ID in your new country or another state 
• Remove yourself from the California voter rolls 
• Move professional licenses and registrations outside California 
• Cancel California club memberships and join organizations in your new country 
• Establish healthcare relationships abroad 
• Document your overseas employment and living arrangements 

Here’s something that might surprise you: California’s sticky nature actually works both ways. While they’re aggressive about claiming residents, they also recognize clear evidence of permanent departure. The key is being proactive and thorough rather than hoping they won’t notice. 

How California Determines Your Tax Residency Status 

The state evaluates multiple factors to determine residency status, but you control most of these elements: 

Physical presence factors: 

• Time spent in California versus time abroad 
• Location of your spouse and children 
• Location of your primary residence 

Financial and legal connections: 

• Where you maintain bank accounts and conduct financial transactions 
• State of driver’s license and vehicle registration 
• Professional licenses and voting registration 
• Healthcare providers, accountants, and attorneys 

Social and professional ties: 

• Religious affiliations and club memberships 
• Professional associations and social connections 
• Real estate ownership and business investments 
• Permanence of work assignments 

California defines residency as “the place where you have the closest connections,” which is actually good news for genuine expats because it means you can definitively break your California ties through documented overseas living, even in this sticky state. 

California’s “Safe Harbor” Rule for Contract Workers 

Here’s a little-known rule that can be a game-changer for expats leaving California under employment contracts. You may qualify as a nonresident under the safe harbor if you’re outside of California under an employment-related contract for an uninterrupted period of at least 546 days (18 months). 

The 546-Day Safe Harbor Rule breaks down like this: 

• Work outside California under an employment contract for 546 consecutive days minimum 
• Spend no more than 45 days per calendar year in California during this period 
• Successfully establish non-residency for tax purposes 

This rule is particularly helpful for corporate expats on overseas assignments who want to maintain their California home. It’s like California saying, “Okay, we get it—this is a legitimate work assignment, not just an extended vacation.” 

When You Must File California Returns 

California Residents Living Abroad 

If California still considers you a resident, you must file reporting worldwide income. This includes: 

• Expats who maintain significant California ties 
• Temporary expats planning to return to California 
• Part-year residents who lived in California for any portion of the tax year 

Non-Residents with California Income 

Even as a non-resident, you may need to file for specific California-sourced income: 

• Rental income from California property 
• Business income from California partnerships or LLCs 
• Gains from selling California real estate 
• Income from California-based employment 

Income That’s NOT Taxed for Non-Residents 

Here’s some relief for expats. California provides substantial exemptions for non-residents on investment and retirement income: 

• Investment Income Exemptions: Interest, dividends, and capital gains from stocks and bonds are generally not subject to California tax for non-residents. These are considered to have their source where you live, not where you used to live. 
• Retirement Income Exemptions: Since 1995, California has not taxed non-residents on California-sourced pensions, lump sums from qualified plans, and IRAs. This is significant for retirees living abroad. 

If all your California income falls into these exempt categories, you may not need to file a California return at all. That’s right—zero filing requirement, zero tax liability. 

Real-World Scenarios: What You’ll Actually Owe 

Low-Tax Country Expat Example 

American teacher in Thailand with California rental property 

• Uses Foreign Earned Income Exclusion for teaching salary ($130,000 for 2025 tax year) 
• California taxes only net rental income after expenses 
• Typical result: minimal California liability due to property depreciation and expenses 

High-Tax Country Expat Example 

American executive in Germany with California investment income 

• Investment dividends and capital gains: $0 California tax (non-resident exemption) 
• Only employment income from California clients would be taxable 
• Often results in zero California liability 

Digital Nomad Example 

Location-independent consultant with former California clients 

• Income sourcing depends on where services are actually performed 
• Physical presence outside California supports non-residency 
• Proper documentation eliminates most California tax exposure 

Step-by-Step: Breaking California Residency 

1. Document your expat life: Maintain detailed records of time spent abroad, employment contracts, and foreign housing arrangements 
2. Update legal status: Change driver’s license, voter registration, and professional licenses to your new location 
3. Relocate financial relationships: Move primary bank accounts and investment advisors outside California 
4. Sever social connections: Join professional and social organizations in your new country of residence 
5. Address property ownership: Consider the tax impact of maintaining California real estate 

Filing Requirements and Critical Deadlines 

California follows federal deadlines with automatic extensions for expats: 

Key Dates for 2025: 

• April 15: Original due date 
• June 15: Automatic extension for expats (no form required) 
• October 15: Extended due date with proper federal extension filing 

Required Forms: 

• Form 540: California resident return 
• Form 540NR: Non-resident and part-year resident return 

What If You’re Behind on California Filing? 

The situation is completely manageable. California offers reasonable solutions for good-faith compliance: 

Available Relief: 

• Voluntary disclosure programs minimize penalties 
• Penalty abatement available for reasonable cause 
• Installment payment plans for any amounts owed 

Most expats who address California filing gaps proactively find the process straightforward and penalties minimal, especially when combined with proper federal expat tax compliance. 

Managing Specific California Income Types 

Rental Property Income 

Property expenses, depreciation, and management fees often significantly reduce taxable California income. Many expats discover their net rental income results in surprisingly low tax liability. 

Business Partnership Income 

California taxes partnership income based on the business location and activities. Remote work performed outside California typically isn’t California-sourced income. 

Stock Options and Equity Compensation 

These require careful analysis based on when and where services were performed. Specialized guidance applies to equity-based compensation. 

Your Next Steps: Getting It Right 

If you’re uncertain about your residency status: 

1. Review the residency factors against your specific overseas situation 
2. Document your foreign residence and California connection changes 
3. Consider professional guidance for complex situations 

If you need to file California returns: 

1. Determine your actual California-sourced income 
2. Apply available non-resident exemptions for investment income 
3. Calculate your liability (often much less than expected) 

If you’re behind on filing: 

1. Gather documentation for unfiled years 
2. Take advantage of voluntary compliance programs 
3. Address the situation promptly for the best results 

Peace of Mind for Your Expat Journey 

California tax obligations for expats are rarely as burdensome as they initially appear. The combination of non-resident exemptions, foreign tax protections, and reasonable compliance options means most Americans living abroad either qualify for non-residency status or find their California tax liability minimal. 

At Greenback, we get it. We’re an American company founded in 2009 by US expats for expats. We’ve focused exclusively on expat taxes and always have. Many of our CPAs and Enrolled Agents are expats themselves, and because they live in 14 time zones, they experience firsthand the challenges of living abroad. They have the knowledge and patience to help you handle the complicated U.S. tax system and your state tax obligations. 

No matter how late, messy, or complex your California and federal 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: 

• State tax return preparation – Our flat-rate pricing makes it simple to get your California returns filed correctly 
• Changing your state residency while living abroad – Comprehensive guidance for establishing non-residency status 

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.