If you’re an American citizen planning to move abroad, understanding how to change state of residence is essential. This decision has long-term consequences for your tax obligations, especially when your current or former state has a state income tax. Certain states, like California, do not recognize the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC). That means you could end up paying state taxes even while living overseas. To avoid this, the best strategy is to move to a no-income-tax state—such as Florida or South Dakota—before leaving the U.S.
Here’s a clear, step-by-step guide to changing your state residency the right way, so your former state can’t claim you owe taxes long after you’ve moved.
Why Residency Matters for Tax Purposes
Each state has its own rules for determining residency status and whether you’re subject to state income tax. Some states are aggressive in maintaining that you remain a resident—and therefore owe taxes—even if you haven’t lived there for years. The burden is on you to establish residency in a new state, cut ties with your former state, and maintain proper records for tax purposes.
The United States requires its citizens to file a federal return and pay federal taxes no matter where they live. However, to legally stop paying state taxes, you must fully change state residency and establish domicile elsewhere.
How to Change State Residency Before Moving Abroad
Below are the key steps to formally change your state residency, protect yourself from dual residency issues, and eliminate unnecessary state income tax exposure.
1. Choose a No-Income-Tax State
Your first move is to pick a new state that doesn’t levy a state income tax and establish a new domicile there. These include:
- Florida
- South Dakota
- Texas
- Nevada
- Washington
- Wyoming
- Alaska
Most expats opt for Florida or South Dakota because they make it easier to maintain residency while living abroad. These states have simplified processes for vehicle registration, voting, and obtaining a driver’s license remotely or during a short visit.
2. Obtain a New Address in the New State
You must have a physical or legal mailing address in your new state. Options include:
- A residential lease or a house purchase
- A relative’s address (with proper documentation)
- A commercial mailbox service
Use this address consistently across all official and financial documents.
3. Get a New Driver’s License
Obtain a driver’s license from the new state as soon as possible. Most states require proof of residency to issue one, such as a utility bill, lease, or insurance statement tied to your new address.
Having a local driver’s license is one of the strongest indicators of state residency.
4. Register to Vote in the New State
Go to your new state’s election office or website and register to vote. Cancel your voter registration in your former state.
Voting registration is a significant factor in determining your residency status for tax purposes.
Ready for Departure: Leave Without Looking Over Your Shoulder
Once you’ve taken these steps to establish residency in a no-income-tax new state like South Dakota, you’re ready to leave the U.S. for your new residence abroad. You have:
- Secured a new address
- Obtained a driver’s license
- Changed your voter registration
- Updated your legal documents
You can now spend your time abroad without worrying that your old state will try to claim you still owe state taxes. By following all applicable rules and maintaining clear, consistent records, your change in residency status is complete and legally defensible.
You’ve done the work to avoid dual residency claims and any confusion over your permanent residence. You’ve eliminated risk, simplified your taxes, and secured your financial future.
U.S. Expat Taxes: What to Keep in Mind
Once you establish residency in a no-income-tax new state like South Dakota, your old state no longer has a claim to your income. You’ve avoided dual residency, ended unnecessary state taxes, and taken proper steps for compliance before heading to your new location overseas. These actions protect you from aggressive claims by your former home state and clarify your tax obligations moving forward.
Federal Tax Filing Is Still Required
U.S. citizens must file federal tax returns each calendar year regardless of where they reside. This includes income earned from foreign employment, U.S. sources, and applicable investment or business income. Even if you claim exclusions or credits, filing is necessary to remain compliant. Failure to file can result in penalties and scrutiny from the IRS.
Use the Foreign Earned Income Exclusion (FEIE)
You can exclude over $126,500 of foreign income if you meet the physical presence test or establish tax residency abroad. This reduces your U.S. taxable income significantly while living overseas. Many states ignore FEIE, so changing your state residency before departure helps you avoid unwanted state tax obligations. Establishing a clear new address and residence in a tax-friendly state strengthens your position.
Claim the Foreign Tax Credit (FTC)
If you pay foreign income taxes, the Foreign Tax Credit can offset your U.S. tax liability on the same income. This helps prevent double taxation on foreign earnings.
Conclusion
When you’re boarding that flight abroad—whether it’s for a few years or forever—you want the assurance that your home state won’t follow you across borders trying to collect taxes you don’t owe. By changing your state residency to a zero-tax state, and ensuring all your records, addresses, and legal documents reflect this, you can move forward confidently.
You’ve taken control of your residency, optimized your position for tax purposes, and can now focus on your new life abroad—not your old tax bills.
If you want help from a tax professional who understands the ins and outs of U.S. expat taxes, 1040 Abroad is here to provide free tax advice to all US expats—no strings attached.
