Most U.S. citizens living abroad do not owe state income tax, but that depends entirely on whether they have formally ended state residency and whether they still have state-sourced income. Expats pay state taxes when their former state still considers them a state resident for tax purposes, or when they continue to earn income tied to that state.
Understanding whether expats pay state taxes requires knowing how each state determines residency, how worldwide income is treated, and how to sever ties properly to avoid unnecessary state taxes while living abroad.
When Expats Do and Do Not Need to Pay State Income Tax?
U.S. citizens living abroad fall into four situations that determine whether they must file state taxes or pay state income tax.
1. You Do Not Owe and Do Not Need to File State Taxes
You do not need to file state taxes and you do not pay state income tax if your former state has no personal income tax or if you ended state residency and have no state-sourced income.
This is the most common situation for expats.
This applies to individuals who:
• Lived in a no income tax state such as Florida, Texas, Washington, Nevada, Wyoming, Alaska, South Dakota, Tennessee, or New Hampshire
• Properly terminated state residency before moving abroad
• Have no state-sourced taxable income during the tax year
2. Your Former State Still Treats You as a Resident
This scenario applies only if your former state imposes a state income tax.
If the state still considers you a tax resident, you may owe state income tax on your worldwide income, even while living in a foreign country. Federal expat benefits, such as the foreign earned income exclusion or the foreign tax credit do not eliminate state-level taxation.
You are likely still considered a state income tax resident if you maintain:
- A valid driver’s license from the state
- Voter registration
- A home or property you can return to
- A mailing address with relatives
- Active bank accounts or financial accounts
- Business connections or professional licenses
- A spouse or dependents living in the state
These constitute significant ties. In income-tax states, they often trigger state tax obligations, even after several years of living abroad. States like California, New York, Virginia, South Carolina, and New Mexico aggressively enforce these rules.
Important Clarification:
If your former state has no state income tax, you cannot owe state income tax on worldwide income, even if you are technically still a resident.
You may still owe property taxes or other local taxes if you own real estate, but not personal income tax.
3. You Are a Nonresident but Have State-Sourced Income
Even if you properly ended state residency, you may still need to file state taxes and pay state income tax if you receive state-sourced income. This applies regardless of where you live.
State-sourced income includes:
• Rental property income from real estate in the state
• Capital gains from selling property in the state
• Business income tied to state operations
• LLC or partnership distributions connected to the state
• Royalties linked to state assets
• Certain state-taxable retirement payments
This is not a different tax. It is how state income tax applies to nonresidents. Expats pay state taxes only on income tied to that former state.
Example:
A nonresident living in China with a rental property in California must file a CA nonresident return every tax year and pay tax on that rental income.
Income not considered state-sourced:
- Foreign wages
- Foreign rental property income
- Foreign business income
- Foreign investment income
States do not tax foreign income unless you are still a state income tax resident.
4. You Lived in the State for Part of the Year
If you moved abroad during the tax year, most states require you to file as a part-year resident.
This typically means:
- You pay state income tax on worldwide income for the portion of the year you lived in the state
- You pay state income tax only on state-sourced income for the remainder of the year
If you changed states before moving abroad, you may need to file multiple state income tax returns for that tax year.
Part-year residency rules are especially important in sticky states, which may dispute your residency end date and assess additional tax based on your intent, domicile factors, and documentation.
How to Check If You Need to File State Taxes While Living Abroad
Many citizens living abroad are really asking one core question: do expats pay state taxes or not in my situation? The simple checklist below helps you decide whether you need to file or can safely stop.
Work through these questions for the current tax year:
- Did your former state have a state income tax?
- If your former state has no personal income tax, you do not need to file state taxes or pay state income tax, regardless of income sources.
- Do you still look like a resident on paper?
- Do you keep a driver’s license from your former state?
- Is your voter registration still active there?
- Do you use a mailing address in that state (family home, friend’s address, etc.)?If yes, your state residency and tax residency may still be in that state, and you may need to file state tax returns and pay state taxes on worldwide income.
- Do you have income from that state during the tax year?
- Examples: rental property income, business income, partnership or LLC distributions, royalties, or gains from selling property in that state.
- If yes, you may need to file state returns as a nonresident and pay state income tax only on that state-sourced income.
- Did you move abroad partway through the year?
- If you were moving abroad mid-year, you may be treated as a part-year tax resident: you pay taxes on worldwide income for the months you lived in the state and on state-sourced income after you left.
If, after this review, you have no state residency, no state-sourced income, and your former state has no personal income tax, then you are usually in the group that does not need to file state taxes and does not owe state income tax.
State Categories That Determine Whether Expats Must File State Taxes
U.S. expats fall into three state categories for state income tax purposes. Knowing which category your former state belongs to makes it easier to determine whether you must file state taxes or pay state income tax while living abroad.
1. States With No State Income Tax
These states do not impose personal income tax, so expats do not file state tax returns and do not pay state taxes on any income:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington
- Wyoming
- Tennessee
- New Hampshire
If you lived in one of these states before moving abroad, you are not subject to state income tax obligations, regardless of residency ties.
2. States That Stop Taxing You After You End Residency
These states have an income tax, but expats do not need to file and do not pay state taxes once:
- They have ended state residency (driver’s license, voter registration, mailing address, etc.), and
- They have no state-sourced income in the tax year
These states include:
- Illinois
- Colorado
- Oregon
- Arizona
- Minnesota
- Michigan
- Indiana
- North Carolina
- Wisconsin
- Massachusetts
- Pennsylvania
- Idaho
- Montana
Once residency is terminated and no state-sourced income exists, expats generally have no need to file and no state income tax exposure.
3. Sticky States That Often Continue Taxing Expats
These states aggressively enforce tax residency rules and may still require expats to file and pay state income tax even after moving abroad, unless residency is fully severed with strong documentation:
- California
- New York
- Virginia
- South Carolina
- New Mexico
These “sticky states” frequently challenge residency changes, audit expats years later, and may tax worldwide income if they decide the expat did not properly end residency.
If you lived in one of these states, changing residency to a no-income-tax state before leaving the U.S. is often the most reliable way to avoid long-term state tax obligations. Read our full guide here: How to Change State of Residence Before Becoming an Expat
How to Break State Residency and Stop Paying State Income Tax
If you still live on paper in a state that imposes personal income tax, your goal is to break residency so you no longer pay state taxes on worldwide income while living abroad.
Key steps to strengthen your case for ending state residency for tax purposes:
- Change your driver’s license
- Surrender your old driver’s license and get a license in a new state, ideally a no income tax state.
- Keeping a license from a high-tax state (for example, where California taxes apply) is a classic red flag.
- Cancel or change voter registration
- End voter registration in your former state and register in your new state if possible.
- Voting as a resident of the old state undercuts your argument that you are no longer a tax resident.
- Update your mailing address and records
- Use a new, physical mailing address, not a relative’s address in your former state.
- Update the address with the Internal Revenue Service, banks, brokerage firms, insurance, and on every tax return you file.
Read the full guide: How to Change State of Residence Before Becoming an Expat
How Federal and State Taxes Interact for Expats
For citizens abroad, the interaction between federal and state taxes is often misunderstood. Your federal tax return goes to the IRS, and your expat tax position at the federal level is driven by the IRC. Your state, however, uses its own rules.
Key points:
- The foreign earned income exclusion and foreign tax credit can reduce federal tax income and help avoid double taxation with a foreign country, but many states do not offer equivalent tax credits.
- You can have zero federal taxes due and still owe state taxes if your former state treats you as a resident or if you have state-sourced taxable income.
- You may need to file a U.S. tax return federally and one or more state returns, creating multiple state tax returns in a single tax year if you moved between states before moving abroad.
Do Expats Need a Tax Professional for State Tax Issues?
State tax rules for expats are significantly more complex than federal rules. A qualified tax professional can help determine whether you need to file, whether you must pay state taxes, how to reduce your tax burden, and whether you qualify for state residency termination.
A tax professional is especially important if:
• You lived in South Carolina, California, New York, Virginia, or New Mexico
• You own rental property that generates rental property income
• You worry you may owe state taxes or have back taxes
• You want to ensure compliance with both federal and state taxes
Working with an expert ensures you do not accidentally trigger state income tax while living abroad.
Plan Ahead to Avoid State Tax Headaches as an Expat
Living in a foreign country doesn’t always mean you’re free of state tax obligations. If you don’t properly change your state residency, you might still be on the hook for paying state taxes, even on taxable income earned abroad.
At 1040 Abroad, we help U.S. expats navigate the complexities of both federal and state tax laws. If you’re unsure whether you need to file state taxes, or how to reduce your tax burden, reach out to our team—we offer free tax advice via email.
