Cross Border Income tax question

[Goldielocks]

For non-resident americans who file tax returns with the IRS --   

1. How much tax is owed?  Federal only or Federal plus some sort of state tax?

2.  Do you get foreign tax credits for taxes paid in your country of residence?

[reeshau]

1)  If you don't have some association with a state, then you are still a citizen of the State you last lived in.  This includes filing state income tax.  For that reason, many people leaving make sure to establish residency in a state that does not have state income tax, first.  I have no idea of the treatment for someone who has never actually lived in the US.

2)  You can generally choose between the Foreign Earned Income Exclusion and the Foreign Tax Credit.  You basically need to make six figures (In US dollars) to be a contest, but if so the FTC can be useful if you are working in a high-tech country.

https://1040abroad.com/blog/foreign-earned-income-exclusion-vs-foreign-tax-credit/

[Goldielocks]

Thanks!   I was afraid of that "last state" part.    Is there no end to the state tax?  The person I am helping has been non-resident in the US for 7 years now.

Any recommended easy weblinks for more info?

[reeshau]

The short answer is no.  The long answer is, you have to check with the State.

https://www.usexpattaxhelp.com/Expat-State-Tax-Return.php

Maybe one further question: is your friend a US citizen?  Green Card holder?

I'm sure if you were on a student visa or something, there is no need for ongoing commitment to a state.  But for a citizen, or someone looking to maintain their green card status, it is indefinite.


Even residency among states is subject to some interpretation.  But if your friend has retained a driver's license or has voted in a state, those are significant pieces of evidence on residency.  (and significant pieces of evidence that you have moved)  But even bank accounts, property (real or items in storage), etc. could count.

As an example, here is the detail for Michigan:
http://w3.lara.state.mi.us/GSA_Indexed/ORR/1613_2016-006TY_AdminCode.pdf

R 206.5 Residency; determination guidelines.
Rule 5. (1) A person who is domiciled in this state is a resident of this state. "Domicile" means the fixed, permanent, and principal home to which a person, wherever temporarily located, always intends to return. A person may have several residences or dwelling places but only may have 1 domicile at a particular time. Domicile, once established, is not lost until there is a concurrence of all of the following:
(a) The specific intent to abandon the old domicile.
(b) The intent to acquire a specific new domicile.
(c) Actual physical presence in the new state of domicile. Generally, the domicile of the wife follows that of the husband.
(2) To overcome the presumption of residency, as stated in subrule (1), a taxpayer shall present detailed factual data to the department. Factors to be considered in determining a taxpayer's residency or domicile include where he keeps his most important possessions, houses his family, votes, maintains club and lodge memberships, buys automobile licenses, maintains a mailing address and banks, operates a business, or sues for divorce. However, no one of these factors is controlling. The failure of a person to pay income taxes in the state to which he claims to have domicile is very significant.
(3) A person whose residency cannot be determined by the above guidelines shall be deemed a resident of Michigan if he lives within the state for not less than 183 days during the tax year or for more than 1/2 the days during a taxable year of less than 12 months. History: 1979 AC

And, for the purposes of establishing you have moved, here is Texas:  (which does not have a state income tax)

https://www.dps.texas.gov/DriverLicense/residencyReqNonCDL.htm

But in any case, you are always a citizen of *some* state, at least as far as my research has shown.  (for example, to vote you need to vote from somewhere; even if you register through the State Department at an embassy, they will ask for your US address to determine your voting district)  To be a resident of *no* state is something I do not know how to do.  Certainly, the publications and regulations are geared toward moving between states.

[Goldielocks]

Thanks.   It looks like "indefinite" is the correct term, unless she moves back to the US and establishes residency somewhere else.   I believe it is an "average" income tax state, though.

[reeshau]

To be fair, residency doesn't have to mean physical presence for a time--actually moving back.  Some States have changed their rules, adding in time periods and such, but evidence of residency can come down to voter registration, bank accounts, and even household goods in storage--things you could do on one or more visits, not with any significant time spent in a place.  But you also may be able to follow Federal results for foreign earned income exemption or foreign tax credits, which means you are filing (to stay legal) but not paying much, or anything.  In that case, it's probably easier to tolerate the paperwork than to commit the travel expenses to addressing it.

[terran]

Thanks.   It looks like "indefinite" is the correct term, unless she moves back to the US and establishes residency somewhere else.   I believe it is an "average" income tax state, though.

I have heard that South Dakota (no state income tax) requires a one night state and a drivers license renewal (although that might be harder than most for someone who hasn't lived in any state for awhile). It's pretty popular with RVers for this reason.