What You Should Know: State Taxes and Residency For Expats

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Author: Perez Clark

It’s common knowledge that the U.S. tax code obligates all U.S. citizens by law to file their federal tax returns each year regardless of their residency. 

But what about expats, do citizens living abroad have to file state taxes?

That’s a complicated question with answers that depend on several factors. Though, that’s where we come in. This article will give you everything you need to know about state taxes and residency regulations as an American living abroad. 

What You Should Know: State Taxes and Residency For Expats

Everything You Need To Know About Taxes As A U.S. Expat

Do U.S. Expats Pay State Taxes?

Yes – Your home state still considers you a resident and, thus, requires you to pay state taxes even though you may live abroad. That includes property tax, sales tax, and income tax. You also should understand that most states have a reciprocity tax agreement with other countries. 

That means if your home state holds a reciprocal treaty with the new country where you live, all your home state’s tax regulations follow you to the new location you reside. So, for instance, let’s say you lived in Texas but moved to Belgium, it means all your state income taxes will follow over to Belgium.

Must U.S. Expats Still Pay State Taxes If They Live Abroad?

Whether you have to file taxes as an expat depends entirely on the state you previously lived in and whether you still possess ties to that state. However, certain conditions may mean you don’t have to file state taxes as an expat. What’s more, some states don’t even levy state income taxes!

Here’s a short guide to know if you must pay state taxes as an expat;

Do You Have Income In The State?

If you earn income from working or operating a business in a state, you will have to report your income and pay taxes regardless of your residency status. However, some income forms, like government benefits and pensions, may only be taxed if you identify as a state resident. 

Do You Qualify As A Resident Of The State?

Individual states determine their residency requirements, but most regard you as a resident if you have lived in the state for over half a year. This same logic applies the other way around. Most states identify you as a nonresident if you have lived abroad for over half a year.

Besides these considerations, a state MAY consider you a resident if you match any of the following;

  • Your immediate family resides in the state while you’re abroad.
  • You live in the state at any point in the tax year.
  • You reside in the state each time you return to the country. 
  • You maintain your ID card, driver’s license, or voting rights in the state. 
  • You possess a permanent residence building or area in the state.

If your state operates any of these criteria and considers you its resident, you’ll have to file your state tax return. There are exceptions, though, like in states that don’t levy an income tax. So let’s explore more on that. 

What States Are Income-Tax Exempt?

Not every state levies income tax. In such states, it doesn’t matter at all whether you identify as a resident, a former resident, or whether you possess income in that state. These states usually levy other tax forms, like sales and property tax, but such obligations don’t typically apply to individuals living overseas.

These states don’t levy any income taxes;

  • Florida.
  • Texas.
  • Alaska.
  • Wyoming.
  • South Dakota.
  • Nevada.
  • Washington State.

In addition, New Hampshire and Tennessee only levy income tax on interest income and dividends.

What States Require U.S. Citizens Living Abroad To Pay Income Taxes?

Most states that levy income tax only require you to file state taxes if you reside there at any point of the year. Although, your requirement to file doesn’t automatically mean you’re required to pay a tax debt. Only income generated within the state is usually taxable.

There are some exceptions, however. For example, some states may levy taxes on income received while living overseas, like investment income and retirement payments.  

“Sticky” States And Their Complicated Tax Nature

On another note, five states are commonly referred to as “Sticky states” due to residents’ difficulties when trying to change their residency status. Sticky states, for example, can consider you a resident for any of the following reasons;

  • Owing a state ID card or driver’s license. 
  • Owning property in the state.
  • Having dependents residing in the state, including children and spouses.
  • Owning bank accounts or investment accounts held in the state.
  • Owning a mailing address in the state
  • Registering as a state voter.

The five sticky states are;

  • New Mexico.
  • Virginia.
  • South Carolina.
  • New York.
  • California.

All five states tax worldwide income and regulate stringent residency definitions that differ from other states. In most scenarios, you would have to pay state taxes and report all income on your tax return even if you didn’t reside in the state throughout the year.

Final Thoughts

U.S. state taxes and taxation rules can prove complicated even for the most seasoned and experienced expats. Therefore, we advise seeking the help of a proven tax advisor who specializes in expat-tax regulations for technical information and explanations regarding U.S. state residency and taxation laws. 


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