Do US Citizens Living Abroad Pay State Taxes?
United States citizens who live in other countries tend to face more complicated tax requirements than citizens who reside in the United States. Citizens of the United States who live in other counties are subject to the same tax filing requirements since the government taxes Americans based on their citizenship, not their physical location. United States expats must file federal tax returns with the IRS, but figuring out whether they must file state taxes is much more complicated. Continue reading to learn more about whether you have to pay state taxes if you’re a U.S. citizen living abroad and how the international tax experts from U.S. Tax Help can help you.
State Tax Filing Requirements for US Citizens Living Abroad
If you or someone you know is a United States citizen who is living abroad, you’ll likely have to file state taxes for any given tax year. Figuring out whether you have to pay taxes depends on a few factors.
The State You Last Lived In
Whether or not you’ll have to pay state taxes as a U.S. expat depends on the state you lived in before you moved abroad. If you lived in one of the states that doesn’t have state-level income taxes (Alaska, Florida, Washington, Nevada, Texas, Wyoming, and South Dakota), you would have to prepare your federal tax return only. If you lived in a state that does have state-level income taxes, you’d likely have to pay state taxes, depending on whether you meet other requirements.
Whether or Not You are A Resident
Another factor that will determine whether you should pay state taxes is if you meet the criteria for being a resident. This depends on the ties that you still have to the state that you used to live in before you moved abroad. You qualify as a resident by having a driver’s license, owning property, having close family, and returning to your state on a regular basis. The criteria for being a resident vary for each state.
The Income You Earned in the Current Tax Year
The state in which you earned income also determines whether or not you will have to pay state taxes. Making passive income (such as renting your house while you’re gone or collecting pension) may mean that you’ll have to pay state taxes. If you didn’t make any income in any states while living abroad, you may be treated as a non-resident and will be released from your tax obligation.
Other Tax Requirements for US Citizens Living Abroad
Nearly all United States expats must file a federal income tax return with the IRS. However, there are other requirements based on their assets and financial accounts. The following are other important tax considerations that United States expatriates must make.
Report of Foreign Bank and Financial Accounts (FBAR)
United States citizens (and corporations, partnerships, LLCs, trusts, and estates) who live overseas must file an FBAR if they have a stake in or authority over one or more foreign bank accounts that have a combined value of $10,000 or more during any point of the calendar year. Taxpayers can file their FBAR using a form called the FinCEN Form 114, which must be filed with the Financial Crimes Enforcement Network. FBARs do not need to be filed if the foreign financial accounts are owned by a government entity, owned by an international financial institution, maintained by a United States military banking facility, held in an IRA, held in a retirement plan, or part of a trust of which you are a beneficiary. FBARs are due along with other taxes on April 15th.
Taxpayers are expected to keep records of each of their accounts that establish the name on the account, the account number, the name and address of the bank that maintains the account, the type of account, and the account’s maximum value during the tax year. These records should be kept for five years following the filing of the FBAR.
Foreign Account Tax Compliance Act (FATCA)
The Foreign Account Tax Compliance Act (FATCA) requires some U.S. taxpayers who hold financial assets outside of the United States to report foreign financial assets to the IRS. Taxpayers can use Form 8938 to do so. Single taxpayers that are living abroad have to file Form 8938 if they have financial assets outside of the United States that are worth either $200,000 at the close of the year or $300,000 at any given time throughout the year. The thresholds for filing Form 8938 is doubled when it comes to married taxpayers. FATCA also requires some financial institutions (banks, investment entities, brokers, and some insurance companies) to report information about their financial accounts to the IRS.
How an International Tax Specialist Can Help You
Regardless of your country of residence, your income, or your assets, filing taxes while living abroad can be a complicated process. Failing to comply with tax laws in both the United States and the country you’re residing in can have severe penalties that can be, above all, expensive. Don’t risk making a mistake by choosing to do your taxes yourself if you’re a United States expat. Get in touch with an experienced international tax expert to help you prepare your tax returns.
International Tax Experts Helping U.S. Expats File Federal and State Taxes
The experts who work with U.S. Tax Help have decades of experience helping United States taxpayers living in other countries with their federal and state taxes. Ted Kleinman, CPA, is eager to put his accounting experience to use to help U.S. expats prepare and plan for their taxes. To learn more on how qualified international tax accountants from U.S. Tax Help can answer all of your questions related to international taxes, call U.S. Tax Help at (541) 362-9127 today.