What is the State Tax for Expats Living Abroad?
Many Americans living and working abroad who must file US expat taxes are surprised to learn that they are also required to file a state tax return in addition to their Federal tax return. Generally, you must file a state tax return if you are considered a resident of that state or if you have taxable income in that state. Any income you receive from assets located in a state can generate state taxable income. As you start to prepare the necessary steps to file your US expat taxes, read on for more information and tips regarding how to minimize your state income tax.
Income Tax-Free States
There are several states that do not have state income tax and therefore have no state filing requirements. For you this means two things: 1) it doesn’t matter if you are a resident of one of these states, and 2) receiving income from assets located in these states is not subject to state income tax.
Not all states are equal. The following states are considered more “friendly” because they do not require state income tax filing:
US States with No State Income Tax
States with Stricter Residency Requirements
While filing your US expat taxes may seem daunting at times, determining whether a state still considers you a resident or not may prove more challenging. Whether a state considers you a resident or a non-resident can determine whether or not you have to file or pay income tax to that state. The following states have been known to have stricter guidelines regarding how they determine residency:
US States with Stricter Residency Requirements
If one of these states was the last place you lived in the US, and you no longer consider yourself a resident of that state, you should make sure the state agrees with you before filing your US expat taxes. Here is more information from each of those states to help you.
Filing US Expat Taxes With California Residency Status
California considers the following factors to determine “the place where you have the closest ties,” which is what they consider as your place of residency.
- Amount of time you spend in California versus amount of time you spend outside California.
- Location of your spouse/RDP 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.
This is only a partial list of the factors to consider. Consider all the facts of your particular situation to determine your residency status.
Filing with New Mexico Residency Status
If you are a former New Mexico resident and you plan to return to your home state someday that may be enough for them to continue to tax you as a New Mexico resident. In fact, your former state requires you to be able to “show that you have abandoned [your New Mexico domicile] and established a new domicile outside the State of New Mexico.” They consider your domicile to be “the place you intend as your permanent home.”
Filing with South Carolina Residency
South Carolina combines some of the requirements found in California and New Mexico to determine who is a resident of their sunny southern state. This excerpt from South Carolina’s Individual Income Tax guide explains their rules:
You are a South Carolina resident, even if you live outside South Carolina, when:
- Your intention is to maintain South Carolina as your permanent home; and
- South Carolina is the center of your financial, social and family life; and
- South Carolina is the place to which you intend to return.
You are a non resident if your permanent home is outside South Carolina all year round and none of the above applies.
Filing with Virginia Residency Status
For Virginia, it is a matter of not only your residency but also your “legal domicile.” If you maintained a home in Virginia for more than 183 days in a year you are a resident of Virginia. In addition, if you have not abandoned your legal domicile in Virginia and established legal domicile in another state, you remain a domiciliary resident of Virginia, even if residing in another jurisdiction for a number of years.
In determining domicile, Virginia considers many factors, which can include: voter registration, motor vehicle and personal property registration; business pursuits; expressed intent; conduct; leaseholds and sites of real property owned.
For most of the other states you will probably not have tax issues because of residency if you have lived away from your state for the period of time required by that state.
If you are a state non-resident who receives income that is subject to state tax the most important question for you to ask may be, “What is included in my state income?” New Hampshire and Tennessee tax only interest and dividends, which is a nice reprieve for taxpayers with other kinds of income in those two states. Some states allow non-residents to deduct set amounts for exclusions and/or deductions, which may reduce your state income taxes in those states, maybe even all the way to $0.
Suffice it to say that because you do not live in a state does not necessarily mean you are not subject to income tax in a state, and taxes in US states are not all created equal.
More Help on Tax for Expats Living Abroad
We have state-specific US expat taxes guides for determining residency in the four stricter states:
If you have any questions about your US expat taxes or state taxes, or if you’d like to learn about our expat tax services, please contact us.