Determining CA State Residency for Your Expatriate Tax Return

If you’re an American living abroad who came from California, you may not know whether your former state still considers you a resident. If that’s the case, you may need to file a state tax return along with your expatriate tax return. Pay close attention to how your former state home regards you in order to know whether you should file state tax returns. Otherwise, you may have back taxes in your near future.

How to Determine Whether You Need to File a CA State and Federal Expatriate Tax Return

The first thing you will need to determine is whether the state of California continues to consider you a resident. The state looks at various factors to make that determination, some of which may surprise you. Then, you will need to check your income-producing assets to see if any of these assets are located in California. Even as a non-resident of California, you may have to file a California state return to report your California-sourced income (for example, rental income). This will be in addition to your Federal Tax Return.

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California explains residency as “…the place where you have the closest connections.” If you want to make sure the state of California no longer considers you a resident, you should be careful to read their list of residency factors:

  • Amount of time you spend in California versus amount of time you spend outside California
  • Location of your spouse/RDP (registered domestic partner) and children
  • Location of your principal residence
  • State that issued your driver’s license
  • State where your vehicles are registered
  • State in which you maintain your professional licenses
  • State in which you are registered to vote
  • Location of the banks where you maintain accounts
  • The origination point of your financial transactions
  • Location of your medical professionals and other healthcare providers (doctors, dentists, etc.), accountants, and attorneys
  • Location of your social ties, such as your place of worship, professional associations, or social and country clubs of which you are a member
  • Location of your real estate property and investments
  • Permanence of your work assignments in California

Remember, the burden of proof is on you. Your tax records should include evidence that you severed enough of your strongest California ties on this list (or other factors that apply to your unique situation) to prove you are a non-resident of California.

If you have not severed all your California ties, be prepared to defend your position. They may want to use any of your California connections to require you to file a return as a California resident, subjecting you to California tax on your worldwide income. In California, as in most states, residents are taxed on all income no matter where it was earned or where the property is located.

California Residency

If you left California temporarily intending to return, the state of California would likely determine that your stay outside of the state was not permanent or indefinite. In that case, you would continue to be considered a California resident and would have to file a California state tax return in addition to your federal expatriate tax return, including all your income. If you were a California resident for part of the year, you have to file a California tax return for that year.

If you are a non-resident of California and have California-sourced income, you may have to file a California tax return. But take note: the following kinds of California income are not subject to California tax for non-residents:

  • Investment income such as interest, dividends, and capital gains from stocks or bonds. Generally, these are considered to have their source where you are a resident. However, if investment accounts are used in a trade or business located in California, or pledged as security for a loan and the loan proceeds are used in California, then you must file a state income tax return and report the income from these accounts.
  • A California retirement plan distribution to a non-resident is not subject to California tax. Since 1995, non-residents are not taxed by California on California-sourced pensions, lump sums from qualified plans, and IRAs.

If all of your California income falls into one or both of these kinds of income, as a non-resident, you do not have to file a California tax return.

If you are a California non-resident and receive any other kind of income from property located in California, such as rental property, income from a California partnership or LLC, gain from the sale of land in California, etc., you should file a California state tax return. Again, this is in addition to your US Federal Tax Return. Note that you may be entitled to deductions or exemptions to offset the California income. However, even if you expect not to owe taxes, you should still comply with the filing requirements and file the California tax return.

The “Safe Harbor” Rule

For those leaving California under employment-related contracts, it is possible to break tax residency even if you are still considered domiciled in California (that is, your permanent home is in California). To do this, you would need to be outside of California under an employment-related contract for an uninterrupted period of at least 546 days (18 months). It is possible to visit the state during this time; however, no more than 45 days per calendar year can be spent in California without triggering your tax residency. Once more than 45 days are spent in California, you would be required to file resident returns again, reporting your worldwide income.

Need Help With Your State and Federal Expatriate Tax Return?

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Originally published in 2012; updated October 1, 2019.

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