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Americans Filing Taxes From Abroad: It Can Differ Depending on Your State

March 1, 2018

While many overseas filers don’t realize it, you probably have to file a state return (unless you are from one of the seven states with no state income tax, or perhaps from one of the two that tax only investment income. When you move overseas you still have a domicile in the US, normally the last state where you lived before moving overseas. That requirement applies to forty-one of the fifty states.


Potentially you have further complications depending on what state you are from. Six states don’t allow the foreign earned income exclusion. If you are from California, Maine, Massachusetts or New Jersey you have to limit your days in those states each year or they will want state tax on your foreign earned income. If you are from Pennsylvania and don’t own a residence there you can escape their state tax; otherwise pay up. If you are from Alabama they don’t have any exceptions, but a tax professional may be able to help you escape tax even there.

We had clients from California who didn’t believe us when we told them to limit their days in California. When they reported more than 45 days in the state and we prepared the return showing California state tax due on the return, they elected for us to NOT file the return. They prepared and sent in their own return. The California Franchise Tax Board is notorious for its persistence in attempting to collect tax. As all states receive copies of federal returns that use an address in that state, when California received the federal return showing days in the US as about two and one-half months in the summer and another two weeks over the year-end holidays, they sent a tax deficiency notice taxing the foreign earned income. When the taxpayers were not able to PROVE that they were NOT in California for less than 45 days, they ended up paying state tax on all of their foreign earned income. They subsequently returned to us as clients, and now keep proof of where they are each day they are in the US.

New Jersey is another difficult state. If you maintain a residence there generally you have to pay tax on your foreign earned income, regardless of days in New Jersey during the year. If you are domiciled there, don’t maintain a permanent residence there, do maintain a permanent residence elsewhere, and spend 30 days or less there, you can file as a nonresident. We had clients for whom we prepared tax returns, including a New Jersey return showing all of their foreign earned income subject to New Jersey state tax. They maintained a home there and were stuck. They became very irate with us, and went to a CPA firm in New Jersey hoping for better results. The results were the same. They returned to us as clients and did what we recommended – put the house up for rent. They were stuck paying New Jersey tax for one year only. They remain overseas, still are domiciled in New Jersey, but no longer pay state tax there.

You may run afoul of a state’s tax law due to changes in those laws. Formerly if you were domiciled in Michigan or Oregon and you lived outside the state for an entire year, you were exempt from filing a state tax return. Both states changed their laws, and now if Michigan or Oregon is your domicile, even if you don’t spend any time in the state during a year, you are still required to file a state tax return. Because both recognize the federal foreign earned income exclusion for many of our clients that is not a problem, but for some higher earners, they now have to file, and pay, state tax in those states.

There may also be issues with whether or not your state tax return is filed in a timely manner. While some states recognize the federal automatic extension of time to file for overseas filers, not all do. And while some states recognize the federal extension to October 15th, others require that a separate state tax return extension be filed. The safest thing to do is to get a start on preparing your tax returns to see if you owe money, file both a federal and state extension, and pay any amounts due. Then you have until October 15th to file the returns. That doesn’t mean you should delay your filing until October – it is easy to forget you haven’t filed after the subject of taxes is off of your mind for several months. Pay timely, and then file as soon as you are sure the returns are complete.


If you have questions you may want to contact a tax professional. Email: info@globaltaxonline.net for more information or go to www.globaltaxonline.net.

This article was submitted by Global Tax.