Author Topic: Do I need to file a state return?  (Read 279 times)

Geographer

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Do I need to file a state return?
« on: March 02, 2021, 11:31:05 AM »
I'm currently living overseas for a position I took with a US-based company, and have been overseas for the entire 2020 year. All of my earned W2 income is tax-excludable under the Foreign Earned Income Exclusion (FEIE). I just had my federal taxes prepared by a professional service, and they say I don't need to file a state (Virginia) return because I've broken residency and now live abroad.

However, everything I see online says that Virginia is one of the "sticky" states for residency and requires income returns to still be filed. I have no ties to Virginia except my driver's license, as it was the last state I lived in before leaving in 2019.

Do I need to file a Virginia state tax return although I don't live there and all of my income was earned overseas? Thanks in advance!

reeshau

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Re: Do I need to file a state return?
« Reply #1 on: March 02, 2021, 12:00:15 PM »
If you haven't established residency in another state, then you are a resident of the last state you were in.  (for background, I lived in Ireland from mid-2018 until mid-2020; moved from Michigan, but established residency in no-state-income-tax Texas, as we knew that is where we would return)

There is no hard and fast rule.  But, you haven't changed or turned in your Virginia driver's license.  What about your voter registration?  What property (personal or real estate) do you have in the US, and where is it?  Do you have a US mailing address?  If so, where is it?

I can't contradict an accountant / tax service.  I don't know Virginia at all.  Some states follow Federal income net of the FEIE, and some don't.  I  am skeptical when they tell you that you have broken residency--makes me think they have no idea.  From the below, I would say they are fully wrong.  (bolding mine)

From the Virginia Tax agency:

"Virginia Residents
There are two types of Virginia residents: actual and domiciliary.

Actual Residents: Individuals who are physically present in Virginia, or who maintain a place of abode here for more than 183 days during the taxable year are actual residents. The period of residency does not have to be consecutive days.

It is possible to be an actual resident of Virginia and a domiciliary resident of another state. For example, dual status commonly occurs when a resident of another state enrolls in a Virginia school and lives here during the school year.

Domiciliary Residents: Individuals whose state of legal residence in the technical sense is Virginia are domiciliary residents. Most domiciliary residents actually live in Virginia. Examples of individuals who are domiciliary residents but who do not live in Virginia are shown below:

An individual who enters the military from Virginia (i.e., claims Virginia as his/her home of record) will remain a domiciliary resident of Virginia, unless appropriate steps are taken to abandon Virginia as the state of domicile.
A student who attends school in another state, but maintains Virginia as his/her legal state of residence, is a domiciliary resident.
A resident of Virginia who accepts employment in another country is a domiciliary resident, unless appropriate steps are taken to abandon Virginia as the state of domicile.

If you are a Virginia resident, file your income tax return on Form 760. Some points you should keep in mind:

A Virginia resident return must include income from all sources.
No subtractions are allowed for income reported to other states. Income taxes paid to other states are addressed through tax credits.
No tax credits are allowed for income taxes paid to foreign countries, except on foreign source pension income. In addition, no tax credits or deductions are allowed for taxes paid to any city, county or other local government or to the federal government.
If you are a resident and your spouse is a nonresident, you may not file a joint return (see Mixed Residency)."
« Last Edit: March 02, 2021, 12:21:36 PM by reeshau »

bacchi

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Re: Do I need to file a state return?
« Reply #2 on: March 02, 2021, 12:21:34 PM »
Looking at Form 760, it uses the federal AGI.

https://www.tax.virginia.gov/sites/default/files/taxforms/individual-income-tax/2020/760-2020.pdf

The federal AGI is from 1040 line 11, which comes after the FEIE is applied from Schedule 1. If your AGI is <$11950 for single status, you owe $0 to Virginia.

But you probably should still file it because they'll expect it.

reeshau

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Re: Do I need to file a state return?
« Reply #3 on: March 02, 2021, 12:24:53 PM »
Yes, thanks for finishing the story @bacchi .  FEIE impacts AGI, so could go through.  If you made enough / were taxed enough that you wanted the Foreign Tax Credit instead, you would be out of luck.  (I used FTC, as Ireland is a high-tax country and I had no risk of different state rules in Texas)

Geographer

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Re: Do I need to file a state return?
« Reply #4 on: March 03, 2021, 12:27:05 AM »
Thanks for the thorough responses! Thanks to FEIE my AGI is less than <$11,950, so I'll owe no Virginia taxes anyways, and the Virginia tax site (https://www.tax.virginia.gov/who-must-file) states you are not required to file if you are below the taxable income threshold and owe nothing. Would it be smart to file the state taxes anyways preventing any confusion on their end down the road?

MustacheAndaHalf

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Re: Do I need to file a state return?
« Reply #5 on: March 03, 2021, 02:13:25 AM »
If Virginia is a "sticky" tax state, they look for signs you plan to return.  Do you own a house, car or have stuff in storage there?  The left that's ready for your return, the more your move looks permanent.

Geographer

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Re: Do I need to file a state return?
« Reply #6 on: March 03, 2021, 02:48:28 AM »
If Virginia is a "sticky" tax state, they look for signs you plan to return.  Do you own a house, car or have stuff in storage there?  The left that's ready for your return, the more your move looks permanent.

Nope, I have no property, vehicles or storage in Virginia. Only a driver's license... oh and also I voted in the federal election last year.

That being said, I plan to move to Florida this year to cut all Virginia ties.

reeshau

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Re: Do I need to file a state return?
« Reply #7 on: March 03, 2021, 03:31:35 AM »
If Virginia is a "sticky" tax state, they look for signs you plan to return.  Do you own a house, car or have stuff in storage there?  The left that's ready for your return, the more your move looks permanent.

Nope, I have no property, vehicles or storage in Virginia. Only a driver's license... oh and also I voted in the federal election last year.

That being said, I plan to move to Florida this year to cut all Virginia ties.

If you have firm plans to move, and wouldn't otherwise owe taxes, I would not file in Virginia.  Make sure and move everything that has an address there; DL and voters registration are probably most important, but also mailing addresses.

When I worked in Ireland, we were setting up a new office.  We had a bit of a rivalry going, as we had one row of new Florida residents next to a row of new Texas residents.

SeattleCPA

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Re: Do I need to file a state return?
« Reply #8 on: March 03, 2021, 02:26:31 PM »
Just this comment about Virginia... as a CPA, I have seen some really crummy behavior by Virginia Department of Revenue.

Total bullies to taxpayers who weren't residents but couldn't afford to fight with Virginia and so ended up paying the taxes.