Do I Have to File State Taxes If I Live Outside the U.S.?

The tax requirements for Americans who live abroad tend to be much more complicated than those for domestic citizens or residents. Many of the same filing requirements still apply to U.S. citizens who live in another country, as the government taxes Americans based on citizenship, rather than geographic location. In general, this means that expats file federal tax returns with the Internal Revenue Service, but the question of whether they must file a return with a particular state is a bit tougher to answer. If you’ve found yourself asking, “Do I have to file state taxes if I live outside the U.S.?” the experts at U.S. Tax Help can provide an answer; read on to learn more.

State Tax Filing Requirements for American Expats

If you or someone you know lives abroad and has been wondering what obligations, if any, they may have to file state taxes this year, they should know that the requirements can vary widely from state to state. In the majority of cases, much of the determination will rest on which state the taxpayer lived in last, especially within the current tax year. If you lived in one of the seven states that do not have a state-level income tax, however, you may just have to file at the federal level; these states are Alaska, Florida, Washington, Nevada, Texas, Wyoming, and South Dakota. For those who lived in a state not on this list, the exact requirements for filing state taxes are typically listed on the state government website.

The first question you must answer is whether the state considers you a resident for tax purposes. This will depend on what ties you may still have to the state – whether you have a state driver’s license, own property in the state, have close family there, or usually return to the state when you come back to the U.S., to name a few examples. The weight given to each of these ties can, predictably, vary from state to state, so be sure to check the requirements for whichever state you lived in last.

The second question that can affect your tax status is whether you earned any income in the state over the current tax year. This can include passive sources of income, such as if you rent out your house while living abroad or collect a pension as an expat. If you do not, most states will treat you as a non-resident and release you from your tax obligation, as long as you can show that your primary residence was elsewhere for at least six months.

Other Tax Requirements for Americans Living Abroad

As mentioned above, most U.S. expats have to file a federal income tax return with the IRS, but their filing requirements often extend beyond Form 1040. Americans living abroad must also report a long list of assets to the government, especially expat financial accounts valued above certain thresholds. The two primary concerns for expat financial disclosures are the Report of Foreign Bank and Financial Accounts (FBAR) and the Foreign Account Tax Compliance Act (FATCA).

  • Taxpayers must file an FBAR if they have a stake in, or authority over, one or more accounts that, combined, reached a value of $10,000 or more at any point during the calendar year. This form, also called FinCEN Form 114, must be electronically filed with the Financial Crimes Enforcement Network, a division of the Dept. of Treasury.
  • The reporting thresholds for FATCA are significantly higher than those for the FBAR, and they vary based on whether you are filing your tax return individually or jointly with a spouse. For single taxpayers living abroad, you must file Form 8938 with your tax return if you have certain financial assets outside the country worth $200,000 at the end of the year or $300,000 at any point during the year; for married couples filing together, those thresholds are doubled.

Filing your taxes as an expat isn’t all reporting income and assets, however; there are a few advantages to living abroad that can significantly reduce your tax burden in some circumstances. The most popular of these provisions is the foreign earned income exclusion, which allows you to deduct more than $100,000 from your taxable income, as long as that money was earned through active employment in another country. Similarly, there is a tax provision that allows you to subtract your housing costs from your tax burden, either through the foreign housing exclusion or the foreign housing deduction (the difference lies in whether you are a self-employed expat or work for someone else).

Regardless of what country you live in or what your finances are like, you almost certainly face a protracted tax filing process if you’re a U.S. citizen living abroad. The consequences of failure to comply can be severe, often in the form of interest payments, fines, and other penalties that can seriously hurt your wallet. In a situation like this, the knowledge and experience of an international tax specialist can make all the difference.

International Tax Experts Helping U.S. Expats File Federal and State Taxes

The team of professionals at U.S. Tax Help has decades of firsthand experience helping those who live abroad to navigate – and ultimately conquer – the American tax system. Ted Kleinman, CPA, has spent more than 30 years working in international tax preparation and planning for U.S. expats, and he and his team are ready and willing to use those skills on your behalf. To find out more about how a qualified international tax specialist can make your life easier, visit U.S. Tax Help online or call (541) 362-9127 today.