Do expats from Idaho still need to pay state taxes?
Are you an expat from Idaho? You might wonder if you still need to pay Idaho state taxes.
This article explains when you need to file an Idaho income tax return, even if you live abroad.
TLDR:
- You’re not domiciled in Idaho and meet the 445-day absence rule.
Likely owe Idaho taxes if:
- You are domiciled in Idaho.
- You have a permanent home in Idaho with a family staying over 60 days.
- You claim Idaho as your tax home for federal purposes.
- You are employed by a U.S. Senator or Representative or hold a U.S. Government office (excluding armed forces).
Understanding Idaho's tax residency rules
Definition of domicile
A domicile is where you have your permanent home and intend to return whenever you’re away. It is the center of your personal and business life. Once you establish a domicile, it remains until you move to a new place and intend to stay there permanently.
In Idaho, you are considered a resident for tax purposes if you are domiciled in Idaho for the entire year or if you have a home in Idaho and spend more than 270 days in the state during the tax year. Additionally, if you maintain a home in Idaho and consider Idaho your permanent home, you are considered a resident.
Criteria for maintaining Idaho residency
To maintain Idaho residency, you must either:
- Live in Idaho for more than 270 days in a calendar year, or
- Have a permanent home in Idaho where you return after being away.
General requirement for filing Idaho income tax
If you are domiciled in Idaho, you generally need to file an Idaho income tax return. This applies even if you live abroad, as long as Idaho is considered your permanent home.
Exception: Absence from Idaho for 445 Days
If you are absent from Idaho for at least 445 days within a 15-month period, you may be treated as a nonresident and not required to file an Idaho income tax return. However, this exception has conditions and limitations.
Situations that invalidate the 445-day exception
- Having a permanent home in Idaho with a spouse or minor children living there for more than 60 days in a calendar year. If your spouse or minor children live in your Idaho home for over 60 days in a calendar year, the 445-day rule does not apply.
- Claiming Idaho as your tax home for federal away-from-home expenses. If you claim Idaho as your tax home on your federal tax return, you cannot use the 445-day exception.
- Employment on the staff of a U.S. Senator or Representative. Being employed on the staff of a U.S. Senator or Representative means you must file Idaho taxes regardless of the 445-day rule.
- Holding an elected or appointed office in the U.S. Government. Holding an elected or appointed office in the U.S. Government, other than the armed forces or career appointment in the U.S. Foreign Service, also disqualifies you from this exception.
Maintaining non-resident status after meeting the 445-day rule
- Limitation on spending time in Idaho: not more than 60 days in any calendar year. After meeting the 445-day absence test, you cannot spend more than 60 days in Idaho in any calendar year to maintain your non-resident status.
- Consequences of staying in Idaho for more than 60 days after meeting the initial absence test. If you return to Idaho and stay for more than 60 days, you will once again be considered an Idaho resident and will be required to file an Idaho income tax return.
Why should you move domicile to a state with zero state income tax?
No need to wait for the 445-Day Rule
You don’t need to wait for the 445-day rule to benefit from moving your domicile to a state with zero state income tax. By establishing a domicile in a state without income taxes, you can immediately start enjoying the financial benefits and avoid the complexities associated with Idaho’s tax rules.
State income tax savings
For retirees and high-income individuals, relocating to states without income taxes, like Florida, Texas, or Nevada, can lead to significant financial benefits. Without state income taxes, you can retain more of your earnings, allowing you to invest more or enjoy a better lifestyle.
By residing in a no-income-tax state, you can protect more of your income from taxation, increasing your financial freedom and investment opportunities.
Inheritance tax benefits
States such as Florida and Texas not only do not have state income taxes but also do not levy state estate taxes. This can reduce the tax burden on your estate, ensuring more wealth is transferred to your heirs. This is a considerable advantage for individuals with substantial assets.
Flexibility and mobility
Relocating your domicile to a state without income taxes enhances your ability to travel and live in different locations without the concern of hefty state tax bills. This is ideal for high-income earners with business interests across various states or countries and for retirees who want to spend their later years exploring new places.
Additionally, the absence of state income taxes simplifies your tax filing process. You will only need to file federal taxes, reducing the complexity and potential for errors in your tax returns and making financial management more straightforward.
Tax benefits and exemptions for expats from Idaho
Living abroad as an expat comes with various tax benefits and exemptions that can help reduce your overall tax burden.
Here are some of the key tax advantages available:
Foreign Earned Income Exclusion (FEIE)
The FEIE allows U.S. taxpayers living abroad to exclude a portion of their foreign-earned income from U.S. federal income tax.
For the tax year 2024, this exclusion amount is up to $126,500.
To qualify, you must pass either:
- Bona Fide Residency Test: You qualify if you are a resident of a foreign country for an uninterrupted period that includes an entire tax year.
- Physical Presence Test: You qualify if you are physically present in a foreign country for at least 330 full days during a 12-month period.
Foreign Tax Credit (FTC)
The FTC is designed to prevent double taxation by allowing you to claim a credit for foreign taxes paid on income that is also subject to U.S. federal tax.
This credit can significantly reduce your U.S. tax liability, particularly if you live in a country with high tax rates.
The FTC helps ensure that you are not taxed twice on the same income, providing relief and making international work more manageable.
Foreign Housing Exclusion (FHE)
The FHE allows you to exclude certain housing expenses from your federal and state taxable income. These expenses can include rent, utilities (excluding telephone), and other reasonable costs related to maintaining a household abroad.
The amount you can exclude is limited to a base amount plus housing expenses exceeding 16% of the FEIE limit.
