Whether you owe state taxes while living abroad depends entirely on your specific state domicile rules, which operate separately from federal provisions like the Form 2555 Foreign Earned Income Exclusion. While the federal government taxes based on citizenship, states tax based on residency and domicile.
Some states release your residency when you move overseas and sever ties. However, sticky states (such as California, New York, New Mexico, South Carolina, and Virginia) make it notoriously difficult to break residency. They may continue to treat you as a resident for tax purposes if you maintain a domicile. Conversely, if your last residence was in a state with no income tax, you generally will not face state income tax obligations abroad. Even after you break residency, a state can still tax income sourced there, such as rent or gains from US property you keep, and the year you move usually requires a part-year resident return.
States evaluate several factors to determine your domicile intent. Common ties include:
- Maintaining a state driver's license or voter registration.
- Owning property or keeping local bank accounts.
- The location of your immediate family.
Because each state applies its own criteria, you should confirm your specific state rules before moving. You might consider professional help with your US expat tax returns to ensure you handle both federal and state filing requirements correctly.