State Tax Obligations for US Expats

How to Know Your State Tax Obligations as an Expat?

Expats sometimes assume moving and establishing a residence overseas eliminates their obligation to file State income tax returns.  Although this is true for many states, for many others, it is not. Some states are quite “sticky” in their interpretation of breaking residency. Examples include California, New Mexico, South Carolina, and Virginia. 

While some states will determine residency based on days presence in the state; some states, known as Domicile states, have rules for residency that are more difficult to break if the taxpayer continues to have substantial ties to the state.  Definitions of “substantial ties” varies for the domicile states but can include the following:  retaining a home in the state, having family dependents who still live in the state, state driver license, bank accounts or investment accounts in local state banks, voter registration in the state, state vehicle registrations.

For states that tie residency requirements to physical presence the majority will consider you a non-resident if you’ve lived outside the state for over six months, but these requirements vary. It is also important to understand that some states don’t recognize the Foreign Earned Income Exclusions or the Foreign Tax Credit when calculating state income tax liability.   

Given all the nuances for establishing your obligation to file a state income tax return, it is important to work with a tax professional to determine your filing requirements, which may change as you move around the world.