Can I use the Foreign Tax Credit for taxes paid to a U.S. state if I live abroad?

No, the Foreign Tax Credit applies only to income taxes paid to foreign countries or their political subdivisions. State income taxes paid to a U.S. state do not qualify for the FTC, even if you live abroad. State tax on U.S.-source income is handled on your state return, not through federal FTC rules.

Why state taxes don’t qualify for the FTC:

• FTC requires a foreign levy: U.S. states are not foreign governments
• Federal return separation: State taxes are deducted on Schedule A (if itemizing) or otherwise not creditable at the federal level
• FEIE does not reduce state tax in most states either

How expats handle state tax:

• Severe residency with the state before moving abroad (change driver’s license, voter registration, mailing address)
• File a final part-year return in the move year
• Move to a no-income-tax state (Texas, Florida, Washington, Nevada, South Dakota, Wyoming, Tennessee, Alaska, New Hampshire) before departure if practical
• Be aware that California, Virginia, New Mexico, and South Carolina are aggressive on expat residency

When state tax does offer credits:

• Some states allow a credit for foreign taxes on foreign-source income for state residents
• This credit is taken on the state return, not the federal return
• Rules vary widely by state

For state ties and residency planning, see our State Taxes for Expats.