You may already know that all US citizens must file a federal tax return each year regardless of where they live. However, there is an equally important requirement for some expats that can easily be overlooked: filing state taxes.
Do you have to file state taxes if you live abroad? That depends on a few factors.
If you are planning a move abroad, this guide will help you make smart tax decisions in advance of your transition out of the US. If you’ve already moved abroad, this guide will help you know what filing requirements you face and make decisions about cutting ties to avoid more tax obligations.
Let’s get started!
Key Takeaways
Some US expats are required to pay state taxes even after moving overseas depending on the state where the expat has residency.
Taxpayers can change or terminate their state residency to erase their state tax obligations.
Certain states make it much harder for expats to change their residency status than others.
Do US Expats Pay State Taxes?
The answer is yes— If you’re living abroad, you might not realize that you’re still considered a resident of your home state and are subject to paying state taxes. This includes income tax, property tax, and sales tax.
The first thing to understand is that most states in the US have a reciprocity tax treaty with other countries. This means that if your home state has a reciprocal agreement with your new country of residence, all of your home state’s income tax obligations are transferred to your new state of residence. For example, if you lived in Florida but moved to Canada, all of your income tax obligations would be transferred over to Canada.
If your home state does not have a reciprocal agreement with your new country of residence, then there are still ways for you to avoid paying double taxation on any income earned abroad. You can do this by applying for an exemption certificate from the IRS through the FBAR system (Foreign Bank Account Report).
Do I Need to File State Taxes If I Live Abroad?
Whether or not you will need to file state taxes while living abroad depends on the state you lived in previously and if you still have ties to that state. But, you may not need to file a state tax if you live abroad. In fact, some states don’t levy state income taxes at all.
Here’s how to know if you must file state taxes while living abroad.
1. Determine If You’re a Resident of the State for Tax Purposes
Residency requirements are determined by the individual state, but most states consider you a non-resident if you live outside the state for more than half a year. In addition to this, you may be considered a resident if any of the following are true:
You lived in the state at any point during the tax year
Your immediate family lives in the state while you’re overseas
You return to the state each time you return to the US to live
You maintain an abode in the state (a permanent place of residence)
You keep your driver’s license or ID card, or voting rights in the state
If you are considered a resident of a given state, you will generally have to file a state tax return. Of course, there are exceptions, such as in states with no income tax. (More on this below.)
If you have income earned from working in a state, you will generally have to report that income and pay taxes on it regardless of whether you are a resident. Some forms of income, such as a pension or government benefits, may only be taxed if you’re a state resident.
Which States Are Income Tax-Free?
Not all states have an income tax. If you were formerly a resident of one of these states, it won’t matter whether you’re a resident or have an income at all—you won’t be taxed either way. These states will still have some form of taxation, such as a property tax or sales tax, but these usually won’t apply to Americans living abroad.
Currently, the following states have no income tax:
Alaska
Florida
Nevada
South Dakota
Texas
Washington State
Wyoming
Additionally, Tennessee and New Hampshire only assess income tax on dividends and interest income.
The IRS tax code is 7,000 pages. Want the cliff notes version for expats? Let us help.
Which States Require Americans Living Abroad to File Income Taxes?
Typically, most states only require you to file a state tax return if you lived in the state during the year. However, a filing requirement doesn’t necessarily mean you will have to pay a tax debt. Usually, only tax income generated within a state is taxable. View your state’s government website to learn more.
However, there are exceptions to this Sometimes, income from sources received while living abroad may be taxed in the state, such as retirement payments or investment income (interest and dividends). Be mindful of state-sourced income when planning your tax for expats since that income could create a tax-filing requirement for you.
“Sticky States” Make It Tough to Get Out of State Taxes Abroad
There are five states with less clear rules when it comes to taxation. These are called sticky states because they make it harder than usual for residents to change their residency status. For example, sticky states may consider you a resident for simply having any of the following:
Property in the state
A state driver’s license or ID card
Bank accounts or investment accounts held in the state
Voter registration (even absentee ballots)
Mailing address in the state (even if this address is a P.O. box or a relative’s home)
Dependents remaining in the state, such as a spouse or children
The five states most commonly considered sticky states are:
All four of these states have very stringent residency definitions compared to other states, and they tax worldwide income. In most cases, you would need to report all income on your state tax return and pay taxes to the state, even if you didn’t live in the state during the year.
How to Avoid State Taxes While Living Abroad
Depending on what state you formerly resided in, you may not have too much trouble removing your state tax obligations—if you have any at all. For example, if you are moving out of a tax-free state, you won’t have to expect any tax liability at all.
Even if your former state does tax income, you can still erase your state tax obligations. Here are a couple of ways in which you may be able to remove your state tax obligations:
1. Terminate Your State Residency
The first option for removing your state tax burden is to terminate your residency in the state you formerly lived in. While the residency laws of each state are unique, taking the actions below can help ensure you won’t end up paying state taxes for expats when living abroad.
Sell your old home and purchase (or lease) a new residence somewhere else
Close your US financial accounts and open new ones overseas
Get an identification card in your country of residence
Move your family abroad with you if possible
Join local associations (e.g., business or social clubs)
Find a new family doctor to see regularly in your new home
Register to vote as an absentee voter
Sell your car or change your auto registration
2. Establish Residence in an Income Tax-Free State
There are a few situations where it might be better to transfer residence to another US state rather than sever your ties to the US completely. For example, if you live in a sticky state, you might find it easier to establish residency in a different state before moving abroad.
Sticky states generally consider moving abroad as a temporary leave of absence unless you can remove your ties to the state. These states only recognize a change to another state (not another country) as a change in residency. This makes it critical to set up new residency in an income-tax-free state before moving abroad.
Plus, there are benefits to keeping a US bank account, state voter registration, and more when moving abroad. By moving to a tax-free state, you can enjoy those perks while still removing your state tax obligations.
The rules for establishing residence in a new state are similar to establishing residence in a new country. This will revolve around:
Where you own or rent your home
Where you work
Where you spend most of your time
Where your family lives
Where your family doctor is located
Where you open your financial accounts
Where you maintain social and professional ties
Where you are most active in the local community
By moving the most important aspects of your life to a new state, you can establish residency there. Then, you can choose to either maintain that residency while living abroad or terminate it later on.
Moving Abroad? Plan Ahead for Your State Taxes
If you are planning to move abroad, it’s essential to plan ahead for your state tax obligations. State tax laws vary widely, and failing to address your state tax situation properly can result in unexpected tax bills and penalties.
One critical factor to consider is your state residency status. Depending on the state, you may need to take specific steps to change your residency status, such as obtaining a driver’s license or registering to vote in your new country of residence. Failing to do so can result in your home state continuing to consider you a resident and subjecting you to state income taxes.
Another consideration is your family situation. If you have family members who remain in your home state, you may still be considered a resident for tax purposes, even if you are living abroad. It’s essential to understand the rules governing residency and to take steps to ensure that you are in compliance.
Cutting ties to your home state as much as possible can also help prevent the need to file state taxes while living abroad. This can include selling your home, closing bank accounts, and canceling memberships to clubs or organizations that tie you to your state.
What If I’m Behind in My Taxes?
If you weren’t aware that you were required to file state taxes as an expat, don’t panic. You’re not alone. Many Americans living overseas are unaware that they have any US tax obligations at all. (After all, the US is one of the only three countries in the world that taxes citizens regardless of where they live—the others being Eritrea and North Korea.)
To help reduce the tax penalties for expats, the IRS provides an amnesty program you can use to get caught up on your taxes: the Streamlined Filing Compliance Procedures. Unfortunately, this program won’t protect you from penalties accrued due to delinquent state taxes. However, it can erase any penalties for failing to file your federal returns—which are likely to be much higher, anyway.
To use the Streamlined Filing Compliance Procedures, all you have to do is:
Self-certify that your failure to file was an accident, not a willful refusal
File the last three delinquent income tax returns and pay any delinquent taxes you owed during that time (with interest)
File Foreign Bank Account Reports (FBARs) for the last six years
This will bring you into compliance with IRS regulations.
Still, Have Questions about Filing State Taxes from Abroad?
Hopefully, this guide has helped you understand whether you must file state taxes while living abroad.
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The answer is yes— If you're living abroad, you might not realize that you're still considered a resident of your home state and are subject to paying state taxes. This includes income tax, property tax, and sales tax.
Known as the Safe Harbor rule, expats who move abroad for at least 546 consecutive days on an employment contract are not considered state residents for tax purposes.
Do I Have to File a California State Tax Return If I Live Abroad? In California, as in most states, residents are taxed on all income no matter where it was earned or where the property is located. Those living abroad who are considered residents of California will have to file California taxes for expats.
What Happens If US Citizens Don't File Their Taxes While Living Abroad? US citizens who don't file US taxes while living abroad may face penalties, interest costs, or even criminal charges. The IRS charges penalties for both late filing and late payments.
In general, yes — Americans must pay U.S. taxes on foreign income. The U.S. is one of only two countries in the world where taxes are based on citizenship, not place of residency. If you're considered a U.S. citizen or U.S. permanent resident, you pay income tax regardless where the income was earned.
The Foreign Earned Income Exclusion (FEIE, using IRS Form 2555) allows you to exclude a certain amount of your FOREIGN EARNED income from US tax. For tax year 2022 (filing in 2023) the exclusion amount is $112,000.
In general, businesses which provide a service that does not result in a tangible good are exempt from sales tax, as it only applies to goods. For example a freelance writer or a tradesperson is not required to remit sales tax, although a carpenter making custom furniture is so required.
You can file a state tax return even if you have no income from work — this includes seniors living off of Social Security — wrote tax board spokesperson Andrew LePage in an email.
Each state sets its own guidelines for what it defines as residency. It is true that you are considered a resident of California if you are in the state longer than 183 days (they are cumulative days, by the way, not consecutive), but the applicable “days rule” is more lenient in other states.
As an American citizen, you're required to file a US tax return even if you're living abroad. And if you already owe income tax to a foreign government, you could end up paying twice on the same income. Here's what you need to know about US double taxation—and how to avoid it.
The most convenient way to maintain a functional U.S. address while living abroad is to use a virtual mailbox service that you can activate online. This service scans, holds, and offers mail forwarding services for a few dollars per month.
State tax agencies have their own rule and many have more time to collect. For example, California can collect state taxes up to 20 years after the assessment date.
If you cannot find what you are looking for on this page, please email us at info@palazzotax.com or give us a call at 866-272-9224. *The following states do not allow the foreign earned income exclusion to be included on the state return: Alabama, California, Hawaii, Massachusetts, New Jersey, and Pennsylvania.
The Foreign Earned Income Exclusion (FEIE) is a US tax benefit that allows you to exclude from taxation a certain amount of foreign-earned income over $100,000. The maximum foreign-earned income exclusion for the 2022 tax year is $112,000.
TurboTax. TurboTax is designed specifically for US taxpayers living and working in America. This means that their support for US Expats is limited because they are “Tax Prep USA Support.” So questions like “how to pay us taxes from abroad” may be tricky for TurboTax to answer.
You must apply for a re-entry permit (Form I-131) before you leave the United States, or your permanent residence status will be considered abandoned. A re-entry permit enables you to be abroad for up to two years. Apply for a re-entry permit.
You may wonder why U.S. citizens pay taxes on income earned abroad. U.S. taxes are based on citizenship, not country of residence. That means it doesn't matter where you call home, if you're considered a U.S. citizen, you have a tax obligation.
Another effective way to avoid being double taxed is by applying for an S corp tax status. The IRS grants certain companies S corp tax status since the two entities have the same advantages of limited liability.
Who Does Not Have to Pay Taxes? Generally, you don't have to pay taxes if your income is less than the standard deduction, you have a certain number of dependents, working abroad and are below the required thresholds, or are a qualifying non-profit organization.
Do US Citizens Have to Pay Taxes on Foreign Property? All US citizens must file a yearly tax return regardless of where they live in the world. When filing your return, you must report your worldwide income. This includes any gain or loss from selling a foreign property and rental income.
Generally, you must file an income tax return if you're a resident , part-year resident, or nonresident and: Are required to file a federal return. Receive income from a source in California.
If you are age 55 or older, you may have a significant equity in your home. California provides a special homestead exemption for seniors age 65 and over, people who are disabled, and people age 55 and over with low incomes. (A homestead is your primary residence.)
As a nonresident, you pay tax on your taxable income from California sources. Sourced income includes, but is not limited to: Services performed in California. Rent from real property located in California.
Non-wage payments to nonresidents of California are subject to 7% state income tax withholding if the total payments during a calendar year exceed $1,500. California nonresidents include: Individuals who are not residents of California.
Tax evasion in California is punishable by up to one year in county jail or state prison, as well as fines of up to $20,000. The state can also require you to pay your back taxes, and it will place a lien on your property as a security until you pay taxes.
The “simple” answer to the question is, yes, you can work in California without being considered a resident. However, generally, you are still required to pay taxes on income for services performed in California. So while you may not be a resident, you may still owe the state taxes for the work performed there.
To file for divorce in California, either you or your spouse has to have lived in California for the past 6 months and in your current California county for the past 3 months. You can file for a legal separation as soon as one of you moves to California.
You must be continuously physically present in California for more than one year (366 days) immediately prior to the residence determination date of the term for which you request resident status.
If you are a resident of both the United States and another country under each country's tax laws, you are a dual resident taxpayer. If you are a dual resident taxpayer, you can still claim the benefits under an income tax treaty.
U.S. immigration law assumes that a person admitted to the United States as an immigrant will live in the United States permanently. Remaining outside the United States for more than one year may result in a loss of Lawful Permanent Resident status.
One of the many benefits of becoming a U.S. citizen is that it's a stable status. Unlike the situation for lawful permanent residents (green card holders), a U.S. citizen can't lose citizenship solely by living outside of the United States for a long time.
However, U.S. citizens who live and work abroad may be considered tax residents of another country if they meet certain criteria, such as spending a certain number of days in that country or having a permanent home there.
If you omitted more than 25% of your gross income from a tax return, the time the IRS can assess additional tax increases from three to six years from the date your tax return was filed. If you file a false or fraudulent return with the intent to evade tax, the IRS has an unlimited amount of time to assess tax.
The law requires you to file every year that you have a filing requirement. The government can hit you with civil and even criminal penalties for failing to file your return.
If you fail to file, we may file a substitute return for you. This return might not give you credit for deductions and exemptions you may be entitled to receive. We will send you a Notice of Deficiency CP3219N (90-day letter) proposing a tax assessment.
You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during any period of 12 consecutive months including some part of the year at issue. The 330 qualifying days do not have to be consecutive.
Many states that collect income taxes use the 183-day rule to decide who is considered a resident of their state. According to the rule, if you spend at least 183 days of a year in a state — even if you have established your domicile in another state — you are considered a resident of the state for tax purposes.
The goal of many countries has been to reduce barriers to international capital flows and to increase the competitiveness of domestically headquartered multinational firms. Today, only four OECD countries—Chile, Israel, Korea, and Mexico—operate a fully worldwide tax system for corporations.
Do I still need to file a U.S. tax return? Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.
As a U.S. taxpayer, you can face penalties for failing to report your foreign-earned income even if you don't owe any federal income tax. The IRS penalizes both failures to report and failures to pay and the penalties for reporting violations can be substantial.
Form 2555 is the form used to claim Foreign Earned Income Exclusion (FEIE). You will need to provide your amount of foreign-earned income, foreign address, employer's address and the dates you have travelled to the U.S. during the year.
If you are a U.S. citizen or resident alien living or traveling outside the United States, you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States.
Some American expats who work abroad may also need to pay US social security and Medicare taxes on their earned income, especially if they are self-employed or work for a US-based employer. For the 2022 tax year, the rate for expat employees is 7.65%. For self-employed expats, however, the total is double, at 15.3%.
Do I still need to file a U.S. tax return? Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live.
Remote workers do not have to file nonresident state tax returns unless they physically travel to another state and perform work while they are there. In certain cases, a reciprocity agreement may protect workers from taxes in different states.
You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during any period of 12 consecutive months including some part of the year at issue. The 330 qualifying days do not have to be consecutive.
As an American citizen, you're required to file a US tax return even if you're living abroad. And if you already owe income tax to a foreign government, you could end up paying twice on the same income. Here's what you need to know about US double taxation—and how to avoid it.
Despite the fact that some remote employees can work from anywhere, many still choose to live and work from home in the same state as their employers. In this case, they will owe income taxes to the state where they work remotely, provided the state collects income tax.
In California, it's 45 days. Some states have a first-day rule, which means that if you work there for even one day, you owe state income tax. So, working remotely in your new home and traveling back to your old office could open you up to tax liability in both states.
1. Do expats pay taxes? Yes, you file a U.S. tax return if you're a U.S. citizen and make over the general income threshold — regardless if you live abroad or Stateside.
TurboTax. TurboTax is designed specifically for US taxpayers living and working in America. This means that their support for US Expats is limited because they are “Tax Prep USA Support.” So questions like “how to pay us taxes from abroad” may be tricky for TurboTax to answer.
You are a tax resident if you were physically present in the U.S. for 31 days of the current year and 183 days in the last three years, including the days present in the current year, 1/3 of the days from the previous year, and 1/6 of the days from the first year.
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