Individual State Tax

As a U.S. expatriate, you may assume that you have cut ties with your U.S. home and are not obligated to file a state return alongside your federal return (as all expats still have to do). This is not always true, however. And in the case of a few states, avoiding the state tax, even after years of living abroad, may seem almost impossible. In order to escape the state tax, there are several things you must do. It’s important to complete these tasks before moving overseas.

Do I have to file a state income tax return if I am living overseas?

If you are a US Citizen or resident alien living abroad not only do you have to ensure you file an income tax return with the IRS each year if you meet the minimum filing requirements, you may have to file a state tax return.

Depending on which state you most recently lived in before your move, you may need to file a non-resident state income tax return even if you are living abroad. Do not assume that since you have left the US you are not obligated to file a state tax return. Each state has its own set of rules about whom it considers a “resident” and their own minimum filing requirements. Most states, but not all, also allow the foreign earned income exclusion in determining taxable income.

If you are like many expats and green card holders, you may have kept your home in the US when you moved overseas and started renting it. States want to tax individuals on the income they earn in that state. So the income from your rental property will be taxed in the state that the property is located in. So if you meet the minimum filing requirements for that state, you will have to file a state income tax return. Also depending on how much you earn on your rental property, it may be wise to make estimated tax payments to the state and the IRS.

Not sure if you must file a state income tax return?

We will assist you in determining if you have a state income tax filing obligation or not. Most states will allow you to be released from you residency status if you can prove your residency somewhere else for more than six months of the year.

Only four states make ending your residency very difficult:
• California
• New Mexico
• South Carolina
• Virginia

If you moved from one of these states, it is unlikely you have been released from your filing obligation. In each of these states you must prove that you will not return to the state. If you cannot prove this, you must file a state income tax return. They look at several different factors to determine if you may return to the state at some time. These factors among others include: property mortgages, leases, voter registration, driver's license, and utility bills.

If you have moved from a state that does not collect an individual state income tax, consider yourself lucky not having to deal with the hassle and cost of preparing and filing a state income tax return. The states that do not impose a state income tax are:
• Alaska
• Florida
• Nevada
• South Dakota
• Texas
• Washington
• Wyoming

Two states have a limited income tax on individuals. The tax is based on income received in the form of dividends and interest only.
• Tennessee
• New Hampshire

Only a CPA or IRS Enrolled Agent with knowledge of your situation can advise you if you need to file a state return.


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