As a US expat or digital nomad, you may be enjoying the benefits of federal exclusions like the FEIE. But many Americans forget one massive, persistent problem: state tax domicile.
While the IRS taxes you based on citizenship (worldwide income), many states—most notably high-tax states like California, New York, and Massachusetts—tax you based on domicile. Domicile is the place you consider your permanent home, the place you intend to return to.
And these states don’t let go easily.
The Indicia of Domicile: What the State is Looking For
To prove you have officially broken domicile, you need far more than just a flight out of the country. State tax authorities look for a clear, documented, irrevocable intent to abandon your former state home.
They examine the “indicia” (proof) of your life:
- Voter Registration: Did you cancel it?
- Driver’s License: Did you surrender it or switch to a non-income tax state (like Texas or Florida)?
- Bank Accounts/Safe Deposit Boxes: Did you close state-specific accounts?
- Family/Pet Location: Where are your immediate family members and pets?
- Real Estate: Did you sell or rent out your former home? If you own property, is it available for use?
Crucially, states like California and New York often perform “domicile audits,” looking at your social media, utility bills, and even medical records to determine where your “center of vital interests” lies. If they find you haven’t made a clean break, they can retroactively tax you on all your worldwide income for years, often resulting in massive tax bills.
The True Cost of State Tax Risk
You might successfully use the FEIE to zero out your federal tax bill, but if you haven’t formally broken domicile, you could still be on the hook for a state tax rate as high as 13.3% on that same income.
The risk is real and the financial cost is enormous. Residency is not self-declared; it is proved by documentation and intent.
Are you sure you’ve truly left your high-tax state behind?
Your tax residency status is complex and governed by two layers of law: Federal (IRS) and State (Domicile). Our ResidencyCheck Validation Test provides a comprehensive, unified report on both your Federal status (SPT/PPT) and your State Domicile risk, helping you identify and fix gaps in your break documentation.
Don’t let state tax domicile catch you years from now. Get your $499 ResidencyCheck Compliance Agent for certainty today.