Work overseas? Even U.S. expats pay
taxes—state and federal.
"If I work overseas, do I file taxes?"
"Do U.S. citizens living abroad need to file state taxes?"
"How do taxes for expats work?"
These are common questions most Americans have when they leave U.S. soil to live life abroad, and not understanding the answers can lead to years of financial regret.
Despite what you might think, American expats pay U.S. taxes on income earned overseas.
Unlike almost everywhere else in the world, American expats still need to file U.S. income taxes while living abroad—and that also may include state taxes. The fact is, if you remain a U.S. citizen or green card holder who works abroad, you are still required to file U.S. taxes and report your income every year.
Expat tax rules say taxable foreign income for U.S. citizens living abroad includes:
- Rental Income
However, this doesn't mean that you'll necessarily pay tax twice on the same income. That's because certain rules and benefits are available to expats, such as the Foreign Earned Income Exclusion and Foreign Tax Credit, which can help you avoid double taxation.
Want a quick summary of federal taxes for expats? We distilled what you should know into 20 things you should know about taxes for expats.
Do expats pay state taxes?
Do U.S. citizens living abroad need to file state taxes? It depends on the state you last lived, if you're considered a resident of that state, and if you make income in that state.
State residency while living abroad is a tricky topic. Each state has different definitions of who qualifies as a resident and some states (like Florida) don't even have income tax requirements. On the other end of the spectrum are states (like New York) that require you pay expat state taxes on income earned worldwide.
Some factors that can affect whether you're considered a state resident include:
- Where your car is registered
- If you have a driver's license or state ID
- Where you are registered to vote
- If you own any property or have mortgage/lease payments on any property
in the state
- If you pay any utility bills in the state
- Where your family lives
- The permanence of your overseas assignment
- Your financial assets and accounts within the state
Even if you don't qualify as a resident, some states require expats pay taxes if they have any income from that state. Not sure what applies in your situation? Our expat tax advisors can help you determine if you are still required to file a state income tax return or not.
What's the best state for expat taxes?
This question is right up there with "what's the best place to live abroad?" The answer is the same—it depends. The best state residency for expats depends on your life situation, your needs, and what's most important to you.
States with no income tax for expats
Some states have no income tax. Those states are:
- South Dakota
States that only tax U.S. expats on interest and dividends
- New Hampshire
States with other considerations
While all states have rules on who qualifies as a resident, some states have more specific considerations:
- New Mexico
- South Carolina
- New York
Some expats refer to these states as "sticky" states because of the specific considerations. If you're unsure about your residency or your state's qualifications, it's best to leave your tax filings to an expert.
Do expats need to pay federal and state taxes for past years?
If you're reading this article and just realized you should have been filing and paying U.S. federal and state taxes as an expat, don't panic—we've helped thousands of expats in this situation. There are special rules, called Streamlined Foreign Offshore Procedures, that let expats catch up on back taxes.
To qualify, you must:
- Have lived in a foreign country without a U.S. abode for at least 330 days during one of the last three years
- Confirm it was an honest mistake that you failed to file U.S. tax returns and FBAR
File and pay your federal and state taxes for expats with H&R Block
Now that you know that expats do need to pay taxes abroad, it's also important to understand that they can be more complicated than filing in the U.S. You can rest assured that your H&R Block expat tax advisor will help you file your expat state taxes accurately. Plus, your advisor will be there every step of the way.
Find out more about H&R Block's Expat Tax Services today.