Do expats have to pay state taxes? Everything Americans abroad need to know in 2025

Many US expats assume that once they move abroad, they never have to think about a state tax again – yet audits and surprise bills prove otherwise. Whether you are a digital nomad dialing in from Bali, a retiree on Portugal’s Algarve coast, or a professional posted to London, you must know when expats pay state taxes so you can plan, budget, and stay compliant.

Why state taxes still matter when you live abroad

Federal and state systems overlap, but they do not mirror one another. The federal code taxes every American citizen worldwide, whereas each state decides how to define residency and how to treat income earned abroad.

Some states allow credits for foreign taxes, others reject them, and nine states have no personal state tax at all. Ignoring the state layer can leave an expat paying double despite flawless federal filing.

Key scenarios where expats may owe state taxes

Even after moving abroad, US expats might still be on the hook for state taxes. From lingering ties to stateside income, there are several ways you could stay connected – and taxed. Below are key scenarios where that might happen.

You’re still considered a resident

Ties that anchor you – an active driver’s license, a family home, voter registration, or school-age children – can keep you on the resident list. Because moving day alone does not create an automatic break, you may still need to pay state tax on worldwide income until every tie is severed.

You earn income from a state

Rental property income, pass-through profits, pensions, and US-based wages can create state tax obligations. Below are common examples:

• Rental property income – net rents and capital gains from property located in a state are always state-source and taxable there.
• Passthrough business profits (K1 state income tax) – partnerships, LLCs, and S-corps apportion profits back to the operating state, even while you live abroad.
• Pensions and state retirement plans – some states tax benefits from their own public systems, while private pensions may be exempt; verify the plan’s source.
• Wages and consulting fees tied to work performed in the state – day-based sourcing and "convenience of the employer" rules can apply even overseas.
• Several jurisdictions automatically withhold state tax from nonresident owners or contractors, so filing a nonresident return is required to reclaim any overpayment.

You moved abroad midyear (part-year residency)

Most states split the calendar so that income before departure is taxed as resident, and everything after is taxed as nonresident. Careful recordkeeping and precise date tracking are essential because errors here ripple through federal forms and foreign credits.

Which states are the most (and least) expat-friendly

Not all states treat expats the same. Some make it easy to cut ties and move on, while others continue taxing you long after you’ve relocated. Here’s how the most lenient – and the most persistent – states stack up.

No personal income tax

These states do not tax personal income at all, making them ideal for expats who want a clean break. Once you leave, there’s no annual state tax return required – unless you create a new filing obligation.

The states with no personal income tax are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

NOTE! While Washington has no wage-based personal income tax, a statewide 7% capital-gains tax on long-term gains took effect in 2022 and was increased for gains > $1 million in May 2025.

Limited tax states

Arizona, Illinois, Oregon, and Colorado allow expats to exit cleanly by abandoning domicile. However, they still tax income earned from sources within the state. If you have rental income, business activity, or remote work linked to these states, you’ll still have a filing obligation.

• New Hampshire – Interest and dividends tax repealed effective January 1, 2025
• Tennessee – Hall Tax repealed in 2021

These changes simplify the tax landscape for expats with prior ties to these states, removing the need to track or file for limited-income categories.

The toughest states for expats ("sticky states")

Even seasoned globetrotters can stumble when their old home state refuses to let go. Below are the main culprits and why they keep monitoring expats long after departure.

California

The Franchise Tax Board relies on a facts-and-circumstances test that looks beyond physical presence. Owning a house, maintaining local bank accounts, or returning for more than fleeting visits can revive residency. Because FEIE is not accepted, high earners often face a full CA state tax bill.

NOTE! California’s 546-Day Safe Harbor – If you leave California under an employment contract that keeps you abroad for at least 546 consecutive days and you spend no more than 45 days in the state during that period, California automatically treats you as a non-resident (FTB Pub 1031). This carve-out overrides the usual facts-and-circumstances test and is a powerful defense in audits.

New York

New York applies both a domicile analysis and a 184-day statutory test. Keep a permanent place of abode or cross the day line, and you become a resident for the entire year. The "convenience of the employer" rule snags remote workers abroad whose company sits in NY.

Virginia

Virginia treats a driver’s license or voter registration as strong evidence that you never left. Recent Ruling 2583 confirmed that even a decade abroad may not break domicile if those ties remain. Intention must be documented and matched by concrete actions. Unlike some sticky states, Virginia follows federal AGI and does allow the Foreign Earned Income Exclusion.

South Carolina

South Carolina insists you prove intent to stay abroad permanently, not just indefinitely. Owning a primary residence or keeping family members in-state can nullify your claim. Part-year options exist, but they often increase paperwork rather than cut liability.

New Mexico

New Mexico uses both a 185-day presence rule and a subjective domicile test. Many expats miscount travel days, assuming transit through Albuquerque does not matter – it does. Unlike many peers, NM offers limited credits for taxes paid elsewhere, making planning essential.

How to properly sever ties with your state

Severing ties with your former state isn’t just about packing up and leaving – it’s about proving you’ve truly relocated. Follow these steps to make a clean, audit-proof break.

Step 1: Cancel your driver’s license and vehicle registration, then obtain a foreign or new state ID within 30 days of moving. This concrete paperwork signals you no longer intend to use state services.

Step 2: Update voter registration by switching to overseas absentee status or enrolling in your new domicile. Leaving the old record active can undo all other efforts.

Step 3: Deal with property decisively – sell, or lease on an arm’s length basis, and remove personal effects. Casual Airbnb use often looks like continued personal occupancy in an audit.

Step 4: Limit physical presence to well below statutory thresholds, ideally under 30 days a year. Keep travel logs, boarding passes, and passport stamps to validate the count.

Step 5: Move spouse, children, and pets; shift schooling, medical, and insurance records abroad. Document these life anchors to bolster the narrative of permanent relocation.

Step 6: Close or transfer local bank accounts and safe deposit boxes, redirect mail to a foreign address or digital mailbox. Financial footprints can outweigh your new lease in the eyes of auditors.

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Common mistakes expats make with state taxes

Have you ever wondered why so many diligent filers still receive residency questionnaires years after moving abroad? The answer usually lies in small, preventable oversights.

• Believing that filing Form 2555 at the federal level eliminates any obligation to pay state tax, which it rarely does.
• Letting a driver’s license autorenew "just in case" is a signal to auditors that you still rely on state benefits.
• Ignoring part-year filing rules and failing to report early-year income generated before departure, leading to late payment penalties.
• Discarding boarding passes, lease agreements, and other evidence that prove both foreign presence and reduced ties to the state.

Special cases that add complexity

Some expats face unique tax twists that go beyond the typical rules; these special cases can quickly complicate state tax compliance if not handled carefully.

Military personnel stationed abroad

Military personnel stationed abroad often retain a homeofrecord that guides state tax treatment, yet claiming exemption requires strict adherence to Defense Department documentation. Some service members mistakenly assume combatzone exclusion applies at the state level, an error that can snowball into penalties. States differ widely, so coordinating with both JAG and a civilian preparer is prudent.

Students studying abroad

Students who study abroad while their parents remain in a sticky state face dualresidency pitfalls. In many jurisdictions, your dependency status links you back to the household for tax purposes. Scholarships, stipends, and parttime remote work can therefore bring unexpected state tax bills.

Digital nomads and freelancers

Digital nomads see clients across time zones, but if invoices list a former state address or a US LLC files there, sourcing rules may label income as instate. The convenienceoftheemployer doctrine extends this risk when a client’s headquarters sits in NewYork. Prudent entity structuring before boarding the plane can prevent years of double taxation.

Remote employees working abroad

Remote employees hired by US firms often discover that payroll systems default to the company’s home state unless HR updates records. Wage sourcing then triggers withholding even while work is performed entirely abroad. Catching this early saves interest and refund delays.

How federal expat tax benefits impact state returns

Federal tax breaks for expats don’t always carry over to the state level. Understanding how key benefits are treated can prevent costly surprises at tax time.

1. Foreign Earned Income Exclusion (FEIE) – Most sticky states disallow FEIE, so salary excluded federally may remain fully taxable at the state tax level. Careful projection ensures you are not blindsided during filing season.
2. Foreign Tax Credit (FTC) – Only a handful of states grant credits for taxes paid abroad, and even then, caps apply. Understanding the interplay prevents you from overcrediting at the federal level only to undercredit on state forms.

Because rules diverge, an expat can owe sizable state tax even after optimizing federal benefits, making coordinated planning essential.

Strategic state tax planning for expats

Smart state tax planning starts before you leave – and continues long after. These strategies can help expats avoid unexpected tax bills and maintain a clean break.

Before you move abroad

Choosing a zerotax state such as Florida or Texas before departure provides the cleanest break. Gathering leases, moving receipts, and new employment contracts fortifies your domicile shift.

After you’ve moved

Continually audit any lingering ties – bank accounts, property, voting – to ensure you do not drift back into residency status. File nonresident returns for rental or business income to keep your compliance record clean.

Why the IRS isn’t in this state tax guide

The Internal Revenue Service deals solely with federal income tax, so its manuals have no bearing on whether – or how – an expat must file at the state level.

• Jurisdiction – Congress empowers the IRS to administer federal law, while each of the fifty states operates its own revenue department and sets unique residency and sourcing tests.
• Rulemaking authority – Agencies such as California’s Franchise Tax Board and New York’s Department of Taxation craft regulations that frequently diverge from federal concepts like the substantial presence test.
• Enforcement power – Only a state auditor can issue residency questionnaires, levy state tax liens, or audit nonresident returns; the IRS has no role in these actions.
• Guidance sources – IRS documents, including Publication 54, cover the Foreign Earned Income Exclusion and Foreign Tax Credit exclusively in a federal context and never address state rules.
• Practical focus – Because this article explains when expats pay state taxes, it cites state statutes, court cases, and agency bulletins rather than federal circulars.

Expat state tax checklist

Moving abroad isn’t always enough to cut state tax ties. This checklist will help you stay organized – and ahead of any potential audits.

Is the federal expat filing deadline the same as the state deadline?

The IRS gives Americans abroad an automatic two-month extension to 15 June to file and pay federal tax, and you can still request the usual October extension. Many – but not all – states keep the standard 15 April deadline unless you file a separate state extension:

• California gives Americans abroad until June 17, 2025, to file and pay without penalty. Use Form FTB 3519 only to submit payment; filing is automatically extended to December 16, 2025. Interest runs from April 15 if unpaid by June.
• New York follows the federal two-month rule, giving expats until June 16, 2025, to file. You must submit Form IT-370 by that date to request an additional extension through October.
• Virginia keeps the May 1 payment deadline (if tax is owed) and grants an automatic six-month filing extension to November 1, but no extra time to pay.

Because rules differ, always check your former state’s revenue department website well before the federal expat due date.

When and how to get professional help

Complex moves, aggressive notices, or significant in-state income are clear cues to bring in a specialist like TFX who interprets residency statutes, aligns federal and state strategies, and shields you from audit missteps. Ultimately, avoiding penalties is cheaper than fixing them.

At Taxes for Expats, we are ready to guide you through every twist so you can live abroad with confidence.

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