Do Expats Pay State Taxes? What to Know About Residency

Many American citizens living abroad, often called expats, mistakenly believe moving overseas eliminates all U.S. tax obligations, particularly at the state level. While federal tax obligations generally remain due to citizenship-based taxation, state tax requirements are far more nuanced. Each state has its own distinct criteria for determining who is considered a resident for tax purposes. This variation means an individual’s state tax situation can differ significantly from their federal one, often leading to unexpected liabilities if not properly understood and managed.

Determining State Tax Residency

Unlike federal tax rules, state tax residency rules vary considerably across the United States. States generally use two primary concepts to determine an individual’s tax residency: domicile and statutory residency. Understanding these distinctions is important for expats to assess their potential state tax liabilities.

Domicile refers to an individual’s true, fixed, and permanent home, the place to which they intend to return whenever they are absent. States assess intent by examining various factors. These include voter registration, driver’s license and vehicle registration, primary bank accounts, professional licenses, family ties, property ownership, and where an individual spends significant non-working time. Even if an expat is physically absent from a state for an extended period, maintaining significant ties can mean they are still considered domiciled there for tax purposes.

Many states also employ statutory residency rules, which are based on physical presence within the state. These rules define a resident as someone who spends more than a certain number of days in the state during the tax year, often 183 days, while maintaining a permanent place of abode. An individual can be a statutory resident of a state even if their domicile is elsewhere. This means an expat could inadvertently become a statutory resident by spending too much time there, even if they consider another location, or even a foreign country, their permanent home.

Applying these concepts to expats is complex. Even with minimal physical presence, retaining financial or personal connections can lead to continued domicile. Some states, known as “sticky” states (e.g., California, New York, Virginia, South Carolina), aggressively pursue former residents. They may assert tax jurisdiction if individuals have not taken sufficient steps to sever ties. Conversely, states like Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not impose a state income tax, simplifying matters for expats who establish residency there.

Income Subject to State Taxation for Non-Residents

Even if an expat is not a U.S. state resident for tax purposes, they may still owe state taxes on certain income types. States generally tax non-residents only on income sourced within that specific state. This means merely having a connection to a state does not automatically make all worldwide income taxable there.

Several common types of income are considered state-sourced and taxable for non-residents. These include rental income from property within the state, income from a business or profession carried on within the state’s borders, regardless of where the expat resides. Wages for services performed physically in the state are also subject to state taxation, even if the individual is paid while living abroad.

Other examples of state-sourced income include gambling winnings or lottery prizes received from the state, and gains from the sale of real property located within the state. These income types are directly tied to economic activity or assets within the state’s jurisdiction.

Conversely, passive income like interest, dividends, and capital gains from securities are generally not subject to state tax for non-residents. This exclusion applies unless these income streams are directly connected to a business actively carried on within that state. This distinction is important for expats managing investment portfolios.

Steps to Terminate State Residency

Expats seeking to eliminate U.S. state tax obligations must take deliberate actions to sever ties with their former state. These actions support abandoning domicile and establishing a new one, potentially in a foreign country or a different U.S. state. No single action is conclusive; a combination of clear and documented steps is necessary.

To demonstrate a change in primary residence, expats should:
Change voter registration to a new jurisdiction.
Update driver’s license and vehicle registration to a new state or country.
Notify banks, financial institutions, and credit card companies of a new foreign address.
Change professional licenses or registrations to a new jurisdiction.
Sell or relinquish a permanent home in the state and acquire one elsewhere.
Move personal belongings out of the state.
Change mailing addresses and update subscriptions to reflect a new foreign address.
Actively establish new social and community ties in the foreign country of residence.

It is important to document all these changes thoroughly. This evidence may be required in the event of a state tax audit.

State Tax Filing Requirements for Expats

Even after understanding state residency and income sourcing, expats must navigate state tax filing mechanics. A state return might be required if the expat is still considered a resident by domicile or statutory presence, or if they have state-sourced income as a non-resident.

States typically have different forms for residents and non-residents, such as a resident income tax return or a non-resident income tax return. Expats should consult official state departments of revenue websites for correct forms and instructions. These websites are the authoritative source for state-specific tax guidance.

State tax deadlines generally align with federal deadlines, typically April 15 of the year following the tax year. States often grant extensions, which may be automatic if a federal extension is filed. Payment methods vary but commonly include online payments, direct debit, or mailing a check.

Given the variation and complexity of state tax laws, seeking professional tax advice is highly recommended. Tax professionals experienced in international taxation can provide tailored guidance, ensuring compliance and identifying strategies to minimize liabilities. This professional assistance can be particularly valuable for expats from “sticky” states known for their stringent residency rules.