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March 1, 2013

Expats Avoid State Taxes -Five States with Highest Income Tax Rates

As an US expatriate living and working or retired abroad, you can avoid paying state taxes and save substantial amounts of  income taxes.  It is very important because state laws do differ, that you take the proper steps to abandon you state tax domicile. Some states often allege you have still maintained that status if you keep sufficient contacts with the state or have an intent to return to that state in the future. It is only after you return from your assignment abroad, and that state asks about your unfiled state tax returns, that this issue usually arises.  By then, it could be too late to take the proper precautionary steps to avoid the problem.

CNBC has named the five states with the highest state and local income taxes as California, Hawaii, Vermont, Oregon and New Jersey.

California has a rule which allows you to claim non-residency status  for state tax purposes while living abroad even if you keep contacts with the State which is known as the "safe harbor rule."  To qualify you must:

  • Live and work under a written contract abroad for at least 545 days
  • Not earn more than $200,000 in investment income
  • Not return to California more than 45 days during any calendar year.
Under states have other various schemes to determine if they can still hit you with state income tax while you are abroad. You need to review the rules of the state you live in to determine how difficult it will be to cut state income tax ties.  Need help with this important tax planning step?  Email us at 

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