Tax Talk Thursday: Should You File a State Return as an Expat?

Living abroad doesn’t always mean you’re done with U.S. state taxes. While many expats focus on their federal tax obligations, some overlook a crucial question: Do I still have to file a state return? The answer depends on where you last lived, your ongoing ties to that state, and whether the state considers you a resident.

1. State Tax Residency Rules Are Different from Federal

The federal government taxes U.S. citizens and green card holders on worldwide income—regardless of where they live. But states each have their own rules about when someone is considered a resident or domiciled for tax purposes. Some states, like California, New York, Virginia, and New Mexico, are notoriously aggressive about holding on to residents for tax purposes. Others, like Texas, Florida, and Nevada, have no state income tax at all—so if you left from one of those, you're in the clear.

2. Key Factors That Can Trigger a State Filing Requirement

Even if you’re physically abroad, a state may still consider you a resident if:

• You maintain a home or property there

• You vote, hold a driver’s license, or register vehicles in that state

• Your dependents live there

• You have bank accounts, investment property, or a state-based employer

• You have intent to return (the concept of “domicile”)

States use these ties to determine whether your move is temporary or permanent. For example, California looks at where your closest connections remain, not just your physical absence.

3. Changing Your Domicile Can Be Challenging

To cut state ties cleanly, you often must:

• Establish residency in a new state or country

• Give up your state driver’s license and voter registration

• Close local bank accounts and move your mailing address

• Sell or rent out your former home

• Avoid returning to that state for extended visits

If you don’t take formal steps, your old state may assume you still intend to return—and bill you accordingly.

4. What If You Don’t File?

If you don’t file a state return but the state believes you owe, you could face:

• Penalties for failure to file or pay

• State audits (yes, even abroad!)

• No statute of limitations—some states can go back indefinitely if you never filed

It’s much safer to file a “zero” or “final” return and formally declare your departure than to ignore it.

5. State Return Filing Strategy for Expats

If you’re an expat, consider these steps:

• File a final return with your state the year you move abroad

• Attach a statement explaining your change in domicile

• Avoid any financial or legal ties that imply continued residency

• Speak to a tax professional who understands both state and expat rules

Expats often assume state taxes are off their plate—but many states beg to differ. The key is understanding your state’s rules, cutting ties when possible, and documenting your intent to establish a permanent home abroad. Filing a state return—even a “final” one—can save you years of audit stress down the line. If you have any questions about your state residency you can reach out to may.sung@mkhstaxgroup.com.