A U.S. expat may need a state tax filing for several reasons, depending on their circumstances and their former state's tax laws. Here’s a breakdown:
1. State Residency Rules
- Some U.S. states have very strict definitions of residency and may consider you a resident even while living abroad if you maintain significant ties to the state. These ties can include:
- Owning property in the state.
- Maintaining a driver's license or voter registration.
- Having dependents or a spouse living in the state.
- Returning to the state frequently.
2. State Tax Obligations
- If your former state of residence taxes its residents on worldwide income (e.g., California, New York), you may still have to file a state return unless you’ve severed all ties and established residency elsewhere.
3. Source Income in a Specific State
- If you earn income from a U.S. state while living abroad, such as rental income from property, business income, or investments sourced from that state, you may need to file a state return to report and pay taxes on that income.
4. Part-Year Residency
- If you moved abroad mid-year, you might need to file a part-year resident state tax return to report income earned while you were a resident.
5. Severing Ties
- Filing a final state tax return can be a way to formally document the end of your residency in that state. This helps ensure the state won’t mistakenly consider you a resident in subsequent years.
6. States Without Income Tax
- If you lived in a state with no income tax (e.g., Florida, Texas, Nevada), you generally don’t need a state filing. However, if you lived in a state that does tax income before moving, you must confirm you’ve met all exit requirements to avoid future complications.
7. Reciprocity and Credits
- If your new country of residence taxes your worldwide income, you might claim foreign tax credits on your U.S. federal and state returns. Understanding your state filing requirements is essential to ensure proper credit and avoid double taxation.
8. Compliance and Penalties
- Some states actively pursue taxes from former residents. Failing to file when required can result in penalties, interest, or legal action. States like California and New York are particularly aggressive in pursuing expats for back taxes.
