Do expats from Missouri still need to pay state taxes?
Have you moved out of Missouri and now live abroad? You might be wondering if you still owe taxes to Missouri.
In the United States, most states, including Missouri, have an income tax.
But what happens to this tax obligation if you move away?
TLDR:
-You weren't a resident (and didn't earn Missouri income)
You likely owe Missouri taxes if:
- You were a resident (lived in Missouri for most of the year)
OR
- You earned income from Missouri sources (even as a non-resident).
Understanding Missouri's tax residency rules
Unlike some states, Missouri separates the concept of domicile (your permanent home) from simple residency for tax purposes. This can be especially relevant for expats.
Here's how Missouri treats expats based on their residency status:
Full-Year Resident
You're considered a full-year resident if you lived in Missouri for the entire tax year (January 1st to December 31st). Just like any resident, you'll need to file a Missouri tax return and pay taxes on all your income, regardless of where it came from (wages, investments, etc.).
Part-Year Resident
Like other states, if you lived in Missouri for part of the year and then moved away, you're considered a part-year resident. In this case, you'll only file a Missouri tax return and pay taxes on the income you earned while you were a resident of Missouri.
Non-Resident with Missouri Domicile
This is where things get interesting for expats. Missouri has a unique rule for people who maintain their domicile in Missouri even if they live outside the state for most of the year.
Here's the key: If you can prove Missouri is your permanent home (even while living abroad), you're considered a non-resident with a Missouri domicile.
The good news is that you'll generally only pay taxes on income sourced from Missouri (similar to a non-resident without domicile).
Non-Resident without Missouri Domicile
If you didn't live in Missouri at all during the tax year and don't consider it your permanent home, you're considered a non-resident without a Missouri domicile. Generally, you won't owe taxes on income earned outside the state.
However, similar to other states, there's an exception: if you earned income from sources within Missouri, such as rent from a property you own there, you might still need to file an Arizona tax return and pay taxes on that specific income.
What constitutes Missouri-sourced income?
Understanding what constitutes Missouri-sourced income is essential for nonresidents and part-year residents to accurately determine your tax obligations.
Missouri-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 Missouri.
- Business Income: Income from business activities conducted in Missouri.
- Real Estate: Rental income from property located in Missouri.
- Capital Gains: Profits from the sale of real estate or tangible property in Missouri.
- Dividends and Interest: Dividends from Missouri-based companies and interest earned from Missouri financial institutions.
- Pensions and Retirement Plans: Retirement income from Missouri institutions or for services performed in the state.
Why should you move domicile to a state with zero state income tax?
Avoidance of estate tax
Missouri imposes an estate tax on the transfer of the taxable estate of every decedent who was a resident of Missouri at the time of death. Moving your domicile to a state without an estate tax, such as Florida or Texas, can significantly reduce the tax burden on your estate, ensuring more wealth is transferred to your heirs. This is particularly beneficial for individuals with substantial assets, as Missouri’s estate tax can significantly impact the value of the estate passed on to beneficiary.
Tax benefits and exemptions for expats from Missouri
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 Foreign Earned Income Exclusion (FEIE) allows U.S. taxpayers residing overseas to exclude a specific amount of their income earned in foreign countries 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 helps individuals avoid double taxation by allowing them 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, especially if you live in a country with high tax rates.
Foreign Housing Exclusion (FHE)
The FHE allows you to exclude certain housing expenses from your federal and state taxable income, including rent, utilities (excluding telephone), and other reasonable expenses related to housing abroad.
The amount you can exclude is limited to a base amount plus housing expenses exceeding 16% of the FEIE limit.
