State Income Tax Return Residency – How Do I Determine State Residence When Residing Overseas?
Many overseas taxpayers have questions about their filing requirements and potential tax liability as it pertains to filing a state income tax return during periods when they are residing overseas. Most have the assumption (incorrect) that if residing overseas, they are no longer considered a state resident regardless of their preceding state residency. If the state that you resided in prior to moving overseas was in a state that has no state income tax, such as Nevada and Florida, then you will continue to have no state income tax filing requirements.
However, if you previously lived in a state with income taxes, the answer is not always clear-cut and this assumption is not always correct. The state income tax return residency rules for taxpayers that reside overseas vary greatly from state to state and there are numerous ways in how each state makes this determination.
Some states use a “time based” test, while other states, such as California, look at whether you are considered to have “tax domicile” in the state. This is often not as simple as whether you are physically present in the state or not. There are many criteria used in determining whether the state is a taxpayer’s domicile. Each state has their own definition. It is true that one of the common determinants is prolonged physical presence. Some states base their determination on other factors, including where the individual has family ties, where he or she has been filing resident tax returns, where he or she is registered to vote or has a driver’s license, where he or she owns property, or where the person has bank accounts or other financial holdings.
Tax Samaritan encourages taxpayers to review their state tax filing requirements and state residency with their tax professional to determine if they are considered a resident, part-year resident or non-resident state taxpayer. A non-resident, according to most states’ definitions, is an individual who earns income sourced within the specific state but does not live there, or is living there for only part of the year (usually fewer than six months).
Individuals are generally considered residents, and are thus fully liable for taxes, if they are domiciled in the state or if they are living in the state (usually at least six months of the year) but are not domiciled there.
There are currently seven states with no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. In addition, New Hampshire and Tennessee have no tax on personal income but do tax profits from the sale of bonds and property.
Taxpayers should keep in mind that states could challenge the residency status of a taxpayer and that this is not unusual with some of the more aggressive states. To reduce your risk of future demands of state tax returns or liability, it is important that you research your state tax filing requirements and make the necessary changes prior to departure to have increased certainty that your filing choice will not be challenged in the future. If you maintain a home in the state, a state-issued drivers’ license, financial accounts, voter registration status, etc.; it is possible that some states may use that as proof that you were a resident of that state while living abroad.
For further assistance with determining your state income tax residency as part of an engagement for services, please be sure to contact Tax Samaritan or your tax professional. If you are preparing you own return, we recommend checking the regulations with the relevant state tax authority.
We are experts in filing both state income tax returns and federal returns. With Tax Samaritan, your state income taxes are prepared in an efficient and streamlined manner, so that we can quickly determine your state tax residency.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.