Do expats from Mississippi still need to pay state taxes?
Understanding state tax obligations is essential for Mississippi residents living abroad to avoid unexpected financial burdens and ensure legal compliance. Residency and domicile status significantly impact tax liabilities.
Even after relocating, if Mississippi remains your domicile, you must still pay state taxes on your worldwide income. Recognizing these complexities helps manage your responsibilities effectively and avoid penalties.
TLDR:
If Mississippi remains your domicile, you are considered a Mississippi resident for tax purposes and must file state taxes on your worldwide income.
To avoid this, you must sever all ties with Mississippi, such as selling property, transferring your driver’s license, and registering to vote in your new state.
Understanding Mississippi's tax residency rules
Resident
Definition: A resident is someone whose permanent home, or domicile, is in Mississippi. This means that Mississippi is the state you consider your permanent home and intend to return to after any periods of absence.
Tax Implications: As a resident, you are taxed on your worldwide income, regardless of where it is earned.
Nonresident
Definition: A nonresident is an individual who does not have a domicile or significant presence in Mississippi. Nonresidents only pay taxes on income that originates from Mississippi sources.
Tax Implications: Nonresidents are taxed only on income earned from Mississippi sources, such as wages for work performed in the state or income from property located in Mississippi.
Part-Year Resident
Part-year residents are individuals who lived in Mississippi for part of the year and then moved out, or vice versa. You will be taxed on all income earned while you were a resident and only on Mississippi-sourced income when you were not a resident.
Americans abroad with Mississippi domicile
If you are an American living abroad but Mississippi was your last state of residency, and you still consider it your domicile, you may still be subject to Mississippi state taxes.
As long as Mississippi remains your domicile and you have not established residency in another state, you are considered a Mississippi resident for tax purposes.
This means you must file Mississippi state taxes on your worldwide income.
To change this status, you must establish a new domicile in another state, which involves severing all significant ties with Mississippi, such as selling property, transferring your driver’s license, and registering to vote elsewhere.
What constitutes Mississippi-sourced income?
Understanding what constitutes Mississippi-sourced income is important for nonresidents and part-year residents to accurately determine your tax obligations.
Mississippi-sourced income refers to any income derived from activities or assets located within the state.
Here are some key categories to consider:
- Wages and Salaries: Money earned for services performed in Mississippi.
- Business Income: Income from business activities conducted in Mississippi.
- Real Estate: Rental income from property located in Mississippi.
- Capital Gains: Profits from the sale of real estate or tangible property in Mississippi.
- Dividends and Interest: Dividends from Mississippi-based companies and interest earned from Mississippi financial institutions.
- Pensions and Retirement Plans: Retirement income from Mississippi institutions or for services performed in the state.
Why should Mississippi expats move domicile to a state with zero state income tax?
State income tax savings
For retirees and high-income individuals from Mississippi, moving to states without income taxes such as Florida, Texas, or Nevada can offer significant financial advantages. Without the burden of Mississippi state income taxes, you can keep more of your earnings, allowing for greater investment opportunities or an enhanced lifestyle.
Inheritance tax benefits
States like Florida and Texas not only lack a state income tax but also do not impose state estate taxes. This can considerably reduce the tax burden on your estate, ensuring that more wealth is passed on to your heirs. This is especially advantageous for individuals from Mississippi with substantial assets who wish to maximize the inheritance for their beneficiaries.
Flexibility and mobility
Relocating your domicile from Mississippi to a no-income-tax state enhances your flexibility and mobility, allowing you to travel and live in various locations without worrying about high state tax bills. This is ideal for high-income earners from Mississippi with business interests in multiple states or countries and for retirees who desire to spend their later years exploring new places.
Moreover, 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, making financial management more straightforward.
How to leave Mississippi tax residency?
Here are the key steps to help you transition:
1) Establish new residency
- Secure a Residential Address: Secure a residential address in your new location. This is the first and most critical step in establishing a new domicile.
- File a Declaration of Domicile if required: Some states, like Florida, require a formal declaration to confirm your new domicile.
Reference guides may provide additional help for specific states:
2) Transfer IDs and registrations
Update your driver’s license and vehicle registration to reflect your new address as soon as possible. This helps demonstrate your commitment to your new domicile.
3) Register to vote
Register to vote in your new location. Voter registration is a significant factor in establishing your new residency and showing your intent to remain there.
4) Update documents
Ensure all personal documents, such as identification cards, medical records, insurance policies, and financial documents, reflect your new address.
5) Notify your employer
Inform your employer about your residency change, especially if it affects how your income is taxed. This can help shift some of your income classification away from being Mississippi-sourced.
6) Notify IRS
Inform the IRS of your address change using Form 8822. Extend this notification to all personal and professional entities.
7) Keep records
Keep detailed records of your relocation, including receipts, bills, and any legal documents related to the move. These records are important in case your residency status is questioned during an audit.
8) Cut all ties with Mississippi
- Sell or rent out property: If you own property in Mississippi, selling or renting it out can help sever ties with the state.
- Close local bank accounts: Transfer or close bank accounts in Mississippi and open new ones in your new state of residence.
- Cancel local memberships: Cancel memberships in Mississippi-based clubs, organizations, and services.
9) Be prepared for audit
Be prepared to provide proof of your move’s permanence. Documentation showing that you have established a new domicile and severed ties with Mississippi is essential in the event of an audit.
Jameson Rader
Tax benefits and exemptions for expats from Mississippi
Living abroad can offer several tax benefits and exemptions that can help reduce your overall tax burden.
Here are some of the key tax benefits available to expats from Mississippi:
Foreign Earned Income Exclusion (FEIE)
The FEIE allows U.S. expats to exclude a certain amount of their foreign-earned income from the U.S. federal tax bill.
For the tax year 2023, you can exclude up to $120,000 of foreign-earned income.
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 helps prevent double taxation on income that is taxed by both the U.S. and the foreign country where you reside.
If you pay foreign taxes on your income, you can use those taxes as a credit to reduce your U.S. federal tax liability.
Foreign Housing Exclusion (FHE)
The Foreign Housing Exclusion allows you to exclude certain housing expenses from your taxable income. This includes rent, utilities (excluding phone), and other reasonable expenses related to housing abroad.
To qualify, you must meet the same residency tests as for the FEIE and have housing expenses that exceed a base amount set by the IRS, which is 16% of the FEIE limit.
Filing Mississippi state taxes from abroad
Here are the key forms you might need:
- Form 80-105: For full-year residents.
- Form 80-205: For nonresidents and part-year residents.
Deadlines and Extensions
- General Deadline: April 15, aligning with the federal tax deadline.
- Automatic Extension: Expats may receive an automatic two-month extension to file, extending the deadline to June 15.
- Additional Extension: You can request a further extension to October 15, but this only extends the filing deadline, not the payment deadline. Interest on unpaid taxes will accrue from April 15.
Consequences of non-compliance with Mississippi state tax laws
- Late Filing Penalty: 5% of the unpaid tax per month, up to a maximum of 25%.
- Late Payment Penalty: 0.5% of the unpaid tax per month, up to a maximum of 25%.
- Interest Charges: Interest is charged on any unpaid tax from the original due date until the tax is paid in full, compounded daily.
- Late Payment Penalty: 0.5% of the unpaid tax per month, up to a maximum of 25%.
- Interest Charges: Mississippi imposes an interest rate of 1% per month on any portion of a month when the payment is past due.
Audits and Assessments
Mississippi may conduct residency audits to verify your residency status and ensure proper tax compliance. During an audit, you must provide extensive documentation, such as proof of domicile and detailed financial records. Failure to provide adequate documentation can result in additional tax assessments and penalties.
