While many US expats have US federal taxes on the radar, state tax requirements sometimes get missed. Even if you think that you no longer need to file in your former home state while living abroad, you may have state income tax filing requirements that you aren’t aware of.
Do Expats Have to Continue to Pay State Taxes While Living Abroad?
The answer will vary, depending on which state you lived in before moving abroad, how long you lived in that state, whether you resided there long enough to be classified as a resident, and whether the state has an income tax. Each state which imposes an income tax has its own set of tax laws and regulations.
States with income tax requirements consider several factors to help determine whether a person would be classified as a state resident, including:
- Where you are registered to vote
- Where you have a driver’s license or state ID, and whether it is expired or current
- Where your car is registered
- Where you maintain an abode, where you own or rent out a property, or have mortgage/lease payments
- Where your family resides
- The duration of your assignment abroad
Some states require expats to pay state income tax on any income derived from that state, regardless of whether they qualify as residents or not. Income earned from working in a state is almost always taxable in that state – for example, if you returned to the US on vacation and spent a few days working in your home state. Other income derived from a state, such as rental income, pension income, investment income or government benefits, may also be taxable.
Which States Currently Have No Income Tax?
- South Dakota
New Hampshire and Tennessee only tax residents on interest and dividend income.
Which States Are the Toughest To Break Residency From?
The following states are sometimes referred to as “sticky states” because the state regulations are complex and not the clearest on how to break state residency:
- New Mexico
- New York
- South Carolina
Additionally, all of these states tax residents’ worldwide income. It may be beneficial for expat residents in sticky states to consider taking concrete steps to break their residency there and establish residency in an income tax-free state, or at least one that more easily enables breaking residency while living abroad.
Need Help Catching Up with Your State Taxes?
Universal Tax Professionals, Inc. charges a flat fee for preparing a state income tax return.