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.

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

For the Other States you will generally only need to file a state income tax return when you are a no resident if you have income generating in the state while you are a nonresident of the state such as rental property or a business generating income in that state . You will then need to file a non – resident state tax return whereby the taxes due will be favorably less than if you were a sate resident. Additionally some states require a part year state tax return if you were a art year resident of the state during the year.

Each State tax laws needs to be analyzed accordingly in accordance to each individuals  residency status .

About the author...

Joshua Katz, CPA

After working for several accounting large firms, I founded Universal Tax Professionals because I knew I could give expats more personalized services at lower rates. Feel free to email me directly at josh@universaltaxprofessionals.com.

Joshua Katz, CPA