A Guide to Filing California State Taxes as a US Expat

Federal taxes are an obligation for all Americans—even for those abroad—but does this apply to state taxes? The answer is: it depends on the state! It does not matter if you are halfway around the world; you may still have to file California state taxes, depending on your residency status. In this article, you will learn all about who needs to file, how to reduce the risk of penalties, and how to ensure you are state tax-compliant.

An Overview of California State Taxes

1. Residency Rules
2. Filing a State Return as a US Expat
3. California Income Taxes Rates
4. Foreign Tax Benefits in California
5. California Filing Forms
6. California State Extension
7. Penalties for Not Filing
8. Severing Ties with California
9. No Income Tax States
10. File Today!

Understanding Residency Rules in California

If you’re unsure whether you need to file California state taxes, you must first determine your residency status. Residency is often defined as living in the state permanently, but that is not always the case. If you live outside of California but intend to return, California could be considered your domicile meaning you could be taxed as a resident. On the other hand, if you left California with the intent to never return, you may be classified as a non-resident.

Safe Harbor Rule for US Expats

If you’re a US expat, you have a special provision known as the Safe Harbor Rule. If you have left California for employment-related purposes and are outside of the state for longer than 546 consecutive days, you may be exempt from California state taxes.

Do You Need to File a State Return in California as an Expat?

It depends on your residency status and whether you have California sourced income. As a US expat, you will likely be considered one of the two: a part-year resident or a non-resident.

In the year you move out of California, you will probably file as a part-year resident. You’ll report your worldwide income to California however only the income earned as a California resident is subject to California tax.

If you’re a non-resident and have California sourced income still, such as rental income, income earned on business trips, or even freelancing income from Californian based clients, then expect to continue to file state taxes. Again, you’ll report your worldwide income to California, however only the income from California sources will be taxable.

California Income Tax Rates

California has some of the highest income tax rates in the US. It ranges from 1% to 12.3%, depending on your earnings.

Income Bracket	Tax Rate
Up to $10,412	1%
$10,412 to $24,684	2%
$24,684 to $38,959	4%
$38,959 to $54,081	6%
$54,081 to $68,350	8%
$68,350 to $349,137	9.3%
$349,137 to $418,961	10.3%
$418,961 to $698,271	11.3%
$698,271 and over	12.3%

Source: California Tax Rate Schedules

How California Treats Foreign Tax Credits and Deductions

When you file your federal tax return as a US expat, you can claim foreign tax credits or exclusions, but this is not true for California state returns. You cannot offset any tax liabilities from the state using foreign tax credits. This means you could be subject to double taxation.

In addition to not allowing foreign tax credits, you are not allowed the foreign earned income exclusion or deductions for foreign housing expenses, unlike federal returns. Making it particularly challenging for expats to avoid large tax bills.

California State-Specific Forms You May Need

You’re likely familiar with the federal income tax return Form 1040. Well, in California, they have Form 540 and Form 540NR.

Make sure you use the correct form based on your residency status.

Filing a California State Extension

You should file your California state taxes by April 15th – the same as your federal tax return. If you feel that you require more time, California State will automatically grant you a six-month extension until October 15th. Note that this does not extend payment deadlines, you must pay any owed taxes by April 15th!

What Happens if You Don’t File?

Failing to file federal or state returns will almost always result in avoidable penalties, interest charges, and potential audits. California has a reputation for being strict in enforcing tax laws. Even when you’re abroad, the Franchise Tax Board (FTB) can legally pursue individuals who have not filed California state taxes.

If you were unsure about your filing status or any other factor concerning California taxes, you might be able to reduce your penalties by using the voluntary disclosure program.

Penalties for Not Filing

One might assume that not filing US taxes—federal or state—would result in one large fine. This is not the case; the California state and federal governments could impose two separate penalties.

Violation	Penalties
Failure to File	5% of unpaid taxes per month (up to 25%)
Failure to Pay	0.5% of unpaid taxes per month
Underreporting Income	20% of the underreported amount
Potential Audits	Tax returns can be audited for non-compliance.

How to Sever Ties with California and Avoid Future Tax Liabilities

To be considered a non-resident of California and avoid state taxes, you must sever all ties to the state. Here is a short list of what is recommended:

• Surrender your California driver’s license
• Sell any California property
• Switch your in-state banks
• Change your mailing address

If the state of California still requires you to file state taxes after completing this list, please look under ‘Guidelines for Determining Residency’.

In the end, determining residency is not black and white, even if you don’t complete the above list, if you can show proof that you don’t intend to return to California, then you can claim non-residency.

States Without Income Taxes

If you are from Florida, Texas, or Nevada, you can skip the state returns as these states do not require that from US expats. Once you have moved, you are no longer bound by state tax obligations. It is essential for you to limit your ties to states like California, or you will likely have state income taxes.

There are more states that do not require you to file state returns, so make sure to check with your state’s website.

File it All at Once With MyExpatTaxes!

Instead of filing state returns, federal returns, and foreign bank account reports (FBARs) separately, you can use the MyExpatTaxes software to limit some of the stresses of filing. With California being one of the stricter states, it is up to you to file on time or sever ties with California. If you would like help navigating your state taxes, consult one of our Tax Professionals at MyExpatTaxes!