Author Topic: Working from home - move to a no income tax state and don't pay state?  (Read 848 times)

dividendman

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Hey Tax folks,

I work for megacorp and we're all working from home for a while. Can I move to like Florida or Nevada and then not pay income tax on those earnings for the months that I live there? Do I have to tell my employer or can I just move and then get the tax back from California after I move to a no state income tax state? The savings would be pretty big.

I'm looking on the interwebs but can't really tell.


MDM

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Can I move to like Florida or Nevada and then not pay income tax on those earnings for the months that I live there? Do I have to tell my employer or can I just move and then get the tax back from California after I move to a no state income tax state?
Highly unlikely.

California is known for attempting to tax people who have legitimately left the state for good, let alone someone who goes away for a few months and returns.

To change state of residence usually involves things such as changing driver's license, voter registration, mortgage or rental agreements, etc.

YttriumNitrate

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About two years ago I started working from home in one state for an LLC located in another state, and you are certainly right that the information out there is confusing. Generally, the answers you are looking for are on a state by state basis so you'll need to find someone quite familiar with California law.

While California may have a reputation for being tough, just be thankful your megacorp isn't in New York, they are downright insane about taxing as many people as possible.

Cpa Cat

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1. You do need to tell your employer. If your employer thinks you are living and working in California, they will report you wages to California as such. Good luck convincing California that you were not working in California if your employer reports that you are working in California, even if you can prove that you physically moved somewhere else.

2. Your move has to be permanent to count. Temporary absences don't absolve you of your state residency requirements. In other words, when you move somewhere for real, you give up your current home, get a new one in the new state, change your address, change your voter registration, change your driver's license, etc. If your plan is just to rent a house for three months then head back over, then you never really left.

It sounds like you're not contemplating a permanent move, in which case, the answer is no - it does not work.

Padonak

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What happens if you work remotely and move overseas? Can you stop paying state taxes in this case and also stop paying federal taxes on the first $105K of earnings?

terran

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What happens if you work remotely and move overseas? Can you stop paying state taxes in this case and also stop paying federal taxes on the first $105K of earnings?

My understanding is that you have to establish residency somewhere else to stop being taxed by a state. This could be a foreign country, but if you plan to travel around without establishing residency in another country (which can be difficult and might subject you to taxes there) then you'd be wise to establish residency in a no income tax state before leaving. No matter what you'll want to cut all ties with the former state and not move back for a good long time, especially with the aggressive states like CA, NY and surprisingly (if I'm remembering right) VA.

The $105k number sounds about right for the Foreign Earned Income Exclusion, but note that it's for earned income only (not investment income) and I think investment income is taxed as if the earned income wasn't excluded. If you pay taxes to a foreign country you can also get the foreign tax credit, so you'll effectively be paying either foreign or US taxes (whichever is higher). You'll have to do some extra work (establishing a foreign company) if you want to avoid self employment taxes if you're self employed. 

dividendman

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Thanks for the responses... well, I don't own a home, I rent. There are still > 6 months left in the year. I could go to another state for > 6 months and be a resident there I think.

Gotta look more...

FatFI2025

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What happens if you work remotely and move overseas? Can you stop paying state taxes in this case and also stop paying federal taxes on the first $105K of earnings?

I've done this and highly recommend, but you have to address a few big issues. First, you can't do it directly from "sticky" states CA, VA, SC, and NM. If you're a resident in those states, you need to establish residency in another state first. Second, you have to meet either the bona fide residence test or physical presence test for the FEIE. That generally means spending the first twelve months abroad and fewer than 30 days 35 days in the US if my memory serves (it's been a few years now) (I looked it up). Lastly there are tax treaties specific to each country that may have unique terms that you need to be familiar with, although if you're a digital nomad, then they aren't as applicable.

If you aren't willing to get into the weeds on tax law, you definitely have to consult a professional to develop a plan.

Basically short-term relocations (one year or 183 days are typical standards in various laws and regs) will not be able to change tax residency, either domestically or internationally, but if you're able to make longer-term moves, there are huge opportunities to save. I wonder if, as more companies go full remote, we'll see tax laws start to catch up with digital nomads and come after US-source income earned abroad.

ETA: Sorry OP a temp relo won't work. The FTB will crush you.
« Last Edit: May 19, 2020, 09:03:14 AM by FatFI2025 »

EricEng

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What happens if you work remotely and move overseas? Can you stop paying state taxes in this case and also stop paying federal taxes on the first $105K of earnings?
Done this while working overseas for years and couldn't get out of it.  Whatever last state you had residence in will still want your money, even overseas.  They don't have a homeless (in US) option.  You can get the federal tax credit, but can't dodge the state taxes.

Now I have also lived in one state and worked over 3 months in another.  My work tracked this and reported it for me.  Part of my year was taxed by home state (VA) and part where I worked (MA).

 


MustacheAndaHalf

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What happens if you work remotely and move overseas? Can you stop paying state taxes in this case and also stop paying federal taxes on the first $105K of earnings?
Done this while working overseas for years and couldn't get out of it.  Whatever last state you had residence in will still want your money, even overseas.  They don't have a homeless (in US) option.  You can get the federal tax credit, but can't dodge the state taxes.
If you move permanently overseas, your residency ends there.  If you leave money behind in California, interest and capital gains will still be taxed there.  It sounds like California considered your move temporary.  Do you know why?
https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html

There's a long list of dangers, like these listed on a lawyer's website:
https://www.palmspringstaxandtrustlawyers.com/frequently-asked-questions-california-residency-rules/
(scroll down to Question #7)
Quote
The weightiest factors for residency are as follows:
• Ownership or lease of real estate.
• Business interests or employment.
• Schools used by children.
• Membership in clubs or professional organizations.
• Bank accounts or safety deposit boxes.
• Use of professional services such as accountants, doctors, dentists and lawyers.
• Automobile registration and license.
• Family ties and social life.
• Appearance in telephone or social directories.
• Address used on federal tax returns and other tax documents.
• Social media and website identification of residency.
• Claims of homestead or principal residence tax benefits.
• Local resident discounts taken from business or municipal programs.
• Location of personal belongings such as clothing, family photo albums, fine art, “the good china”.
• Jury duty.

EricEng

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[quote author=MustacheAndaHalf link=topic=116302.msg2630512#msg2630512
If you move permanently overseas, your residency ends there.  If you leave money behind in California, interest and capital gains will still be taxed there.  It sounds like California considered your move temporary.  Do you know why?
https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html
[/quote]
While I was outside the US (which qualified me for fed) I did not have a permanent residency address overseas (or even supporting visas).  Contractor in a war zone for over three years.  Lived out of a ruck sack.  Had to keep a US address for mail and driver license.  Really should have tried to move registration to Florida before leaving.

FatFI2025

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If you move permanently overseas, your residency ends there.  If you leave money behind in California, interest and capital gains will still be taxed there.  It sounds like California considered your move temporary.  Do you know why?
https://www.ftb.ca.gov/file/personal/residency-status/part-year-and-nonresident.html

For the four sticky states, even if the move overseas is permanent they still consider you a tax resident of that state. It's not fair, but that's the way it is.

Before I moved overseas I sold my house in DC and stayed in Virginia for a few months. I considered switching to VA residency for those months to save a hundred bucks on income tax, but ultimately didn't. Found out VA was a sticky state long after I moved abroad and it would have cost me thousands of dollars if I had switched. Dodged a bullet on that one!

JoJo

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I basically posted the opposite question of this, if any of the posters here have an opinion...

https://forum.mrmoneymustache.com/taxes/working-remote-are-state-taxes-due-in-nonresident-state/