For Americans living abroad, filing a federal income tax return with the IRS is a given. But what about state taxes? Do you still need to file state tax returns if your primary residence is now in a foreign country? Understanding your state residency status and income sources is critical—especially if you’re from one of the so-called “sticky states.”
In this guide, we’ll break down when U.S. citizens living abroad need to pay state income tax, how to avoid double taxation, and what you can do to legally reduce or eliminate your state tax obligations.
Do I Need to File State Taxes If I Live Abroad?
In most cases, U.S. expats do not need to file state taxes if:
- They no longer reside in or earn income from their former state, and
- They have severed significant ties to that state
However, this isn’t true for everyone—especially those from “sticky states” like California.
If you maintain a state driver’s license, are registered to vote, own property, or keep bank accounts or investment accounts in your former state, you may still be considered a resident for tax purposes, even while living abroad.
California Exception: Taxing Foreign Income
California is particularly strict. It does not recognize the Foreign Earned Income Exclusion that reduces or eliminates federal tax liability on foreign earnings. That means:
Even if you exclude your foreign income from your federal tax return, California can still require you to pay state income tax on that same income.
If you’re still classified as a California resident—based on domicile or significant ties—your foreign salary, self-employment income, and even passive income could be fully taxable by California, despite living in a foreign country full-time.
Which States Don’t Require Expats to File State Taxes?
Two categories of states generally don’t require U.S. expats to file state tax returns:
1. States with No State Income Tax (No Filing Required for Anyone)
These nine states do not levy a state income tax, so expats never need to file a state return—regardless of ties or income:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington
- Wyoming
- Tennessee (taxes interest/dividends only; no tax return required unless thresholds are met)
- New Hampshire (same as Tennessee)
⚠️ Even in Tennessee and New Hampshire, most expats don’t need to file unless they earn significant interest or dividend income.
2. States That Typically Don’t Require Expats to File If They Have No State-Sourced Income and Have Severed Ties
These states have an income tax but generally don’t require expats to file if:
- You are no longer a resident (i.e., you changed your domicile), and
- You have no income sourced to that state.
These include:
- Illinois
- Colorado
- Oregon
- Arizona
- Minnesota
- Michigan
- Indiana
- North Carolina
- Wisconsin
- Massachusetts
- Pennsylvania
- Idaho
- Montana
In these states, once you’ve given up your residency (driver’s license, voter registration, address, etc.) and have no state-based income, you’re typically not required to file.
⚠️ Caution: Sticky States That May Still Require Expats to File
The following states often pursue expats aggressively and may still require a return if you haven’t formally changed residency or if they consider your move abroad “temporary”:
- California
- New York
- Virginia
- South Carolina
- New Mexico
These states may still tax your worldwide income, especially if you:
- Maintain property or financial accounts
- Keep a driver’s license or voter registration
- Have family or dependents in the state
California: A Unique Challenge for Expats
California does not recognize the Foreign Earned Income Exclusion, unlike the IRS. So even if you exclude your foreign earnings on your federal tax return, California may still require you to pay state income tax on your worldwide income.
Additionally:
- California applies strict domicile and residency rules
- The Safe Harbor Rule is limited and doesn’t apply to everyone
- You could owe state tax even if your only income is from a foreign employer
Tip: If you’re a California resident considering a move abroad, it’s wise to change your state of residency before departing. Read our full guide here: How to Change State of Residence Before Becoming an Expat
Understanding State Residency Rules for Expats
States determine tax residency using one of two main methods:
1. Domicile-Based Residency
Your domicile is your permanent legal home—the place you intend to return to. You might still be considered a state resident if you:
- Keep a home or own property in the state
- Maintain a mailing address
- Retain a driver’s license or voter registration
If your state considers you domiciled, you may still be required to report worldwide income and pay state taxes, even while living in a foreign country.
2. Statutory Residency Test
Some states apply a statutory residency test—usually based on the number of days you spend in the state (e.g., more than 183 days per tax year). Even a temporary return could trigger taxable income filing requirements. To avoid this, keep a record of travel days and avoid prolonged stays in your former state.
How to Change Your State of Residency Before Moving Abroad
Here are a few critical steps to establish residency in a tax-free state:
- Get a state driver’s license
- Register to vote in your new state
- Update your mailing address to a physical location (not just a P.O. Box)
Read the full guide: How to Change State of Residence Before Becoming an Expat
Plan Ahead to Avoid State Tax Headaches as an Expat
Living in a foreign country doesn’t always mean you’re free of state tax obligations. If you don’t properly change your state residency, you might still be on the hook for paying state taxes, even on taxable income earned abroad.
At 1040 Abroad, we help U.S. expats navigate the complexities of both federal and state tax laws. If you’re unsure whether you need to file state taxes, or how to reduce your tax burden, reach out to our team—we offer free tax advice via email.
