Do Expats Pay State Taxes? Complete 2025-2026 Guide

One of the most frequently asked questions by Americans moving abroad is: "Do I still have to pay state taxes if I'm living overseas?" The answer is: it depends. While the Foreign Earned Income Exclusion (FEIE) can eliminate or reduce your federal tax liability, it does nothing for state taxes if you maintain domicile in a state with income tax.

Many expats mistakenly believe that moving abroad automatically terminates their state tax obligations. In reality, certain states—particularly California, New York, Virginia, South Carolina, and New Mexico—continue to tax your worldwide income even after you've left the country, unless you formally terminate your domicile and establish residency in a zero-tax state. This guide explains which states tax expats, how to legally exit state residency, and strategies to eliminate state taxes while living abroad.

The Short Answer: It Depends on Your Domicile State

Whether you owe state taxes as an expat depends on your state of domicile—your permanent legal residence. Even if you live abroad for years, most states will continue to tax your worldwide income unless you take specific steps to terminate your domicile.

States That Tax Expats' Worldwide Income

The following states are most aggressive about taxing former residents who move abroad:

• California – Most aggressive; audits thousands of expats annually
• New York – Requires clear and convincing evidence of domicile change
• Virginia – Presumes you remain a resident if you maintain ties
• South Carolina – Difficult to change domicile; scrutinizes expat claims
• New Mexico – Requires formal abandonment of NM domicile

If you're domiciled in any of these states and move abroad without formally changing your domicile, you'll continue to owe state income tax on your worldwide income—even if you claim the FEIE on your federal return.

States With Zero Income Tax (Safe for Expats)

The following states have no personal income tax and are ideal for expats:

• Florida
• Texas
• Nevada
• Washington
• Wyoming
• South Dakota
• Tennessee (no tax on wages; taxes interest and dividends at 1-2%)
• Alaska
• New Hampshire (no tax on wages; taxes interest and dividends at 5%)

If you establish domicile in one of these states before moving abroad, you will not owe state income tax on your foreign earnings.

Understanding Domicile vs. Residency for Expats

To understand your state tax obligations as an expat, you need to understand the difference between domicile and residency.

What is Domicile?

Your domicile is your permanent legal home—the place you intend to return to whenever you're away. You can have only one domicile at a time. Most states define domicile as:

• The place where you have your true, fixed, permanent home
• The place you intend to return to after being away (even if you're abroad for years)
• Your "legal residence" for voting, tax, and legal purposes

Critical point: Moving abroad does not automatically change your domicile. If you grew up in California, lived there for 20 years, and then moved to Portugal without formally terminating your California domicile, California will continue to tax you as a domiciliary.

What is Residency?

Residency is determined by physical presence. Most states define you as a resident if you spend more than 183 days (roughly 6 months) in the state during a tax year.

As an expat living abroad full-time, you typically won't meet the 183-day residency threshold for any U.S. state. However, if you're still domiciled in a high-tax state, you'll be taxed as a domiciliary resident on your worldwide income, even though you're physically absent.

How State Taxes Work for Expats: Three Scenarios

Scenario 1: You're Domiciled in a Zero-Tax State

Best case scenario. If you established domicile in Florida, Texas, Nevada, or another zero-tax state before moving abroad, you owe zero state income tax on your foreign earnings, regardless of how much you earn or where you work.

Example: Maria established Florida domicile in January 2025 by renting an apartment in Miami, getting a Florida driver's license, registering to vote, and filing a Declaration of Domicile. In March 2025, she moved to Spain for work. She earns $150,000 working remotely. Her tax obligations:

• Federal: She can exclude $126,500 using the FEIE, paying federal tax only on the remaining $23,500
• State: $0—Florida has no income tax

Scenario 2: You're Domiciled in a High-Tax State and Don't Change It

Worst case scenario. If you're domiciled in California, New York, or another high-tax state and move abroad without formally changing your domicile, you'll owe state tax on your entire worldwide income.

Example: John lived in California his entire life. In 2025, he moved to Thailand for a tech job earning $150,000. He did not change his California domicile (kept his CA driver's license, voter registration, etc.). His tax obligations:

• Federal: He can exclude $126,500 using the FEIE, paying federal tax only on $23,500
• California: He owes CA state tax on the full $150,000 (approximately $13,000-16,000 depending on his bracket), because California taxes domiciliaries on worldwide income

Total state tax savings if John had established FL domicile first: ~$15,000/year.

Scenario 3: You Change Domicile to a Zero-Tax State Before or After Moving Abroad

Smart planning scenario. If you formally terminate your domicile in a high-tax state and establish domicile in a zero-tax state, you can eliminate state taxes going forward.

Example: Sarah lived in New York but moved to Florida in February 2025. She properly established Florida domicile (bought a condo, FL driver's license, voter registration, Declaration of Domicile). In April 2025, she moved to Portugal. Her tax obligations for 2025:

• Federal: FEIE exclusion on foreign earned income
• New York: Part-year resident tax on income earned January–February 2025 while living in NY
• Florida: $0 (no state income tax)

For 2026 and beyond, Sarah owes zero state income tax.

Which States Are Most Aggressive Toward Expats?

Some states are notoriously difficult to leave, even for expats who have been abroad for years. Here are the most aggressive:

California

California is the most aggressive state for taxing expats. The California Franchise Tax Board (FTB) audits thousands of expats annually and uses extensive tools to track your location:

• Credit card transactions
• Cell phone GPS data
• Social media posts
• Flight records and border crossings
• Mail forwarding services

California presumes you remain a domiciliary unless you provide clear and convincing evidence that you've changed your domicile. Simply moving abroad is not enough. You must demonstrate you've severed all ties to California and established a new domicile elsewhere (preferably in a zero-tax state).

For a detailed guide, read our article: How to Leave California Residency.

New York

New York uses a similar approach to California. The NY Department of Taxation and Finance scrutinizes domicile changes and requires extensive documentation. If you maintain a home in New York, keep a NY driver's license, or have family there, NY will argue you're still domiciled in the state.

New York also has a statutory residency rule: if you maintain a "permanent place of abode" in NY and spend more than 183 days anywhere in the world (not just in NY), you're taxed as a resident. This is less common for expats but can apply if you return to NY frequently or maintain a home there.

Virginia

Virginia taxes domiciliaries on worldwide income and presumes you remain a Virginia domiciliary unless you prove otherwise. Virginia looks at factors like:

• Where your family lives
• Where you're registered to vote
• Where your driver's license is issued
• Where you maintain bank accounts and professional licenses

Virginia is particularly strict with military members and government employees who are stationed abroad but maintain Virginia ties.

South Carolina

South Carolina requires you to affirmatively establish domicile in another state to terminate SC domicile. Simply moving abroad without establishing a new U.S. domicile may not be sufficient.

New Mexico

New Mexico taxes domiciliaries on worldwide income. To terminate NM domicile, you must establish domicile in another state and sever ties to New Mexico.

How to Terminate State Domicile as an Expat

If you're domiciled in a high-tax state and plan to move abroad, follow these steps to legally terminate your state domicile and establish domicile in a zero-tax state:

Step 1: Choose a Zero-Tax State for Your New Domicile

Select one of the following zero-tax states as your new domicile:

• Florida (most popular for expats; strong homestead laws)
• Texas (business-friendly, no income tax)
• Nevada (no income tax, close to West Coast)
• South Dakota (very expat-friendly, easy to establish residency)
• Wyoming (privacy-focused, low regulation)

Step 2: Physically Move to Your New State (Even Briefly)

You must physically be present in your new state to establish domicile. Ideally:

• Spend at least 1-2 months in your new state
• Rent or purchase a residence
• Establish ties (driver's license, voter registration, bank accounts)

Can you establish domicile remotely? Technically no, but some states like South Dakota and Wyoming are more lenient. However, for audit protection, it's best to physically visit and establish ties in person.

Step 3: Get a Driver's License in Your New State

This is the single most important step. Obtain a driver's license in your new state and surrender your old state license. Many states will mail your new license to a foreign address if you're already abroad, but it's better to do this in person.

Step 4: Register to Vote in Your New State

Register to vote in your new state and cancel your voter registration in your old state. Voter registration is strong evidence of domicile intent.

Step 5: Obtain a Street Address (Not a P.O. Box)

You need a physical street address in your new state for your driver's license, voter registration, and official documents. Your Tax Base provides residential addresses in Florida specifically designed for expats, including lease documentation and mail forwarding.

Step 6: File a Declaration of Domicile (If Available)

States like Florida allow you to file a Declaration of Domicile with the county clerk—a sworn statement that you intend to make Florida your permanent home. This costs about $10 and provides strong evidence of your intent.

Step 7: Update All Financial and Legal Documents

• Update your address with banks, credit cards, brokerage accounts
• Update IRS Form W-9 (substitute address) with your new state address
• Change your address with Social Security Administration
• Update your will, trust, and estate planning documents to reflect your new domicile
• Update professional licenses (if applicable)

Step 8: File Part-Year Resident Returns

For the year you change domicile, file a part-year resident tax return with your old state, reporting:

• All income earned while you were a resident of the old state
• Only state-source income (if any) after you changed domicile

Clearly indicate your date of departure from the old state.

Special Considerations for Expats

Can You Establish Domicile in a State and Then Immediately Move Abroad?

Yes, but it's risky. If you establish Florida domicile and move abroad within days or weeks, your old state (e.g., California) may argue the move was a "sham" designed solely to avoid taxes.

Best practice: Spend at least 1-3 months in your new state before moving abroad, and establish genuine ties (lease, utilities, local bank account, etc.).

What If You Don't Establish Domicile in Any State?

Some expats attempt to argue they have no U.S. domicile because they've abandoned their old state and don't intend to return to the U.S. This strategy is extremely risky and rarely succeeds. Courts generally presume your last U.S. domicile continues until you establish a new one.

Bottom line: Establish domicile in a zero-tax state before moving abroad, even if you don't plan to return to the U.S. for years.

What About State Taxes on Passive Income?

Even if you successfully terminate domicile, some states may still tax state-source income, such as:

• Rental income from property in the state
• Income from a business operating in the state
• Wages for work physically performed in the state (if you return for business)

However, investment income (dividends, interest, capital gains) is generally not taxed by the state if you're a non-resident.

State-by-State Summary: Do Expats Pay Taxes?

State	Expat Tax Risk	Notes
California	Very High	Aggressive audits; must formally terminate domicile
New York	High	Requires clear evidence of domicile change
Virginia	High	Presumes continued domicile unless proven otherwise
South Carolina	Moderate-High	Must establish new domicile in another state
New Mexico	Moderate-High	Requires formal abandonment of NM domicile
Massachusetts	Moderate	Taxes domiciliaries on worldwide income
Connecticut	Moderate	Scrutinizes domicile changes
Oregon	Low-Moderate	Easier to terminate domicile than CA/NY
Florida	None	No state income tax
Texas	None	No state income tax
Nevada	None	No state income tax
Washington	None	No state income tax (capital gains tax on high earners)
Wyoming	None	No state income tax
South Dakota	None	No state income tax; expat-friendly

FEIE Does Not Eliminate State Taxes

This is a critical point that many expats miss: the Foreign Earned Income Exclusion only applies to federal taxes. It does nothing for state taxes.

Example: You earn $120,000 working in Germany. You claim the FEIE and exclude the full amount from federal income tax. However, if you're still domiciled in California, California will tax you on the full $120,000 at CA rates (up to 13.3%), costing you ~$12,000-16,000 in state taxes.

The solution: Establish domicile in a zero-tax state before moving abroad.

Practical Steps: Timeline for Expats

If you're planning to move abroad and want to eliminate state taxes, here's a recommended timeline:

3-6 Months Before Moving Abroad

1. Research zero-tax states and choose your new domicile (Florida, Texas, Nevada, etc.)
2. Plan a trip to your new state to establish ties in person

1-3 Months Before Moving Abroad

1. Travel to your new state
2. Rent or purchase a residence (or use a service like Your Tax Base for a residential address)
3. Get a driver's license in your new state; surrender old state license
4. Register to vote in your new state
5. Open a bank account in your new state
6. File a Declaration of Domicile (if available, e.g., Florida)
7. Update your address with IRS, banks, and financial institutions

Upon Moving Abroad

1. Keep records of your new state ties (driver's license, voter registration, lease, etc.)
2. Use your new state address for all official correspondence
3. Avoid spending significant time in your old state when visiting the U.S.

Tax Filing (Following Year)

1. File a part-year resident return with your old state (if you changed mid-year)
2. File federal tax return claiming FEIE (Form 2555)
3. No state tax return needed if domiciled in a zero-tax state

Frequently Asked Questions (FAQ)

Do I have to pay state taxes if I live abroad for 10 years?

It depends on your domicile. If you're still domiciled in a high-tax state (California, New York, etc.), yes—you'll owe state taxes on your worldwide income for all 10 years. If you establish domicile in a zero-tax state, no.

Can I claim I have no domicile anywhere?

This is very risky. Courts generally presume your last U.S. domicile continues until you establish a new one. Most states will argue you're still domiciled there unless you prove otherwise.

What if I can't afford to visit the U.S. to establish domicile in a new state?

Some states like South Dakota and Wyoming allow more flexible domicile establishment, but it's still best to visit in person. Alternatively, you can use a service like Your Tax Base to help establish Florida domicile with proper documentation.

Will my old state audit me?

California and New York are notorious for auditing former residents, even years after they've left. If you're leaving CA or NY, assume you'll be audited and keep meticulous records of your domicile change.

Can I establish domicile in South Dakota or Wyoming without ever living there?

South Dakota and Wyoming have more lenient domicile rules, allowing you to establish residency with minimal physical presence (sometimes just one night). However, for audit protection, it's better to spend more time and establish stronger ties.

Does the IRS care about my state domicile?

The IRS cares about your U.S. residency status (citizen, resident alien, non-resident alien), but not your state domicile. State domicile is only relevant for state taxes.

What if my spouse stays in a high-tax state while I move abroad?

If your spouse remains domiciled in California while you claim to have changed your domicile, California will likely argue you're still a CA domiciliary. It's best to have your entire family change domicile together.

Can I be domiciled in one state for tax purposes and another state for legal purposes?

No. You can only have one domicile at a time, and it applies for all legal purposes (taxes, voting, estate, etc.).

What about state taxes on retirement income (pensions, IRA distributions)?

If you're domiciled in a zero-tax state when you retire, your retirement income is generally not taxed by any state (though your former employer's state may try to tax pension income in some cases—consult a tax professional).

How long do I need to keep records of my domicile change?

Keep all documentation for at least 4-6 years (most states have a 4-year statute of limitations for audits, but some can go longer if fraud is suspected).

Final Thoughts

The answer to "Do expats pay state taxes?" is: only if you let them. If you're domiciled in a high-tax state and move abroad without changing your domicile, you'll continue to owe state taxes on your worldwide income—potentially costing you tens of thousands of dollars per year. However, if you properly establish domicile in a zero-tax state like Florida, Texas, or Nevada before moving abroad, you can eliminate state taxes entirely.

Key takeaways:

• Moving abroad does not automatically terminate state tax obligations
• You must formally change your domicile to a zero-tax state
• The FEIE only applies to federal taxes, not state taxes
• California and New York are the most aggressive states for auditing expats
• Establish domicile in Florida, Texas, Nevada, or another zero-tax state before moving abroad
• Get a driver's license, register to vote, and obtain a physical street address in your new state
• Keep thorough documentation in case of an audit

Don't let state taxes eat into your expat lifestyle. Your Tax Base helps expats establish Florida domicile with a physical street address, lease documentation, utility bills, and mail forwarding—everything you need for IRS and state tax compliance. Plans start at $14.99/month. Contact us today to eliminate state taxes for good.