Are New York expats still on the hook for state taxes?

Are New York expats still on the hook for state taxes?

Navigating state taxes for New York expats is complex due to the state's nuanced tax laws. Understanding residency status and tax obligations can have big consequences because, while you may be living abroad, New York's tax liabilities can extend globally.

Compliance with New York’s domicile rules and legislation is required to avoid unexpected legal and financial consequences (remember, ignorance of the law doesn’t exempt you from the law!). This knowledge not only helps you adhere to regulations but also assists in efficient financial planning for expatriates living their best lives abroad.

TLDR:

Yes, if you are a New York expat, you may have to pay state taxes depending on your domicile status and whether your income is considered “New York-sourced.”

If you haven't established a new domicile in another state, you may still be considered a New York resident for tax purposes (even if you haven’t been there all year).

Understanding your residency status in NY

In New York state, your tax obligations are significantly influenced by your residency status. There are three main types: resident, nonresident, and part-year resident. Each status carries distinct criteria and tax implications.

Resident

You're considered a resident if New York is your domicile, meaning it's your permanent home—the place you intend to return to after absences. Additionally, if you maintain a dwelling in New York for more than 11 months and spend at least 183 days in the state within the tax year, you're deemed a resident. Residents are taxed on their worldwide income, regardless of where it's earned.

Nonresident

Nonresidents are those who do not meet the criteria for being considered residents. You might work in New York or earn income from New York sources but live elsewhere.

Nonresidents are only taxed on income earned from New York sources, such as wages for work performed in the state or income from property located in New York.

Part-year resident 

If you move to or from New York during the tax year, you might be classified as a part-year resident. This status applies if you change your permanent home from New York to another location or vice versa.

Part-year residents are taxed on all income received while a resident and only on New York-source income received during the portion of the year they were nonresidents.

For those who moved abroad 

If New York was your last state of residency before moving abroad, you might still have tax filing obligations to consider, even if you no longer live there. New York employs a concept called "domicile" to determine tax residency, which is more complicated than simply where you spend your time.

If New York was your domicile and you haven't established a new one in another state or country, you may still be considered a New York resident for tax purposes.

What constitutes New York-sourced income?

New York-sourced income includes, but is not limited to:

  • Wages and Salaries: Money earned for services performed in New York, regardless of where your employer is based or where you reside.
  • Business Income: Income from business activities conducted in New York, including partnerships and sole proprietorships.
  • Real Estate: Rental income from property located within New York State.
  • Capital Gains: Profits from the sale of real estate or tangible property located in New York.

Why should you move domicile to a state with zero state income tax?

State income tax savings

For retirees and high-income individuals from New York, moving to states without income taxes, such as Florida, Texas, or Nevada, can offer significant financial advantages. Without the burden of 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 with substantial assets who wish to maximize the inheritance for their beneficiaries.

Flexibility and mobility

Relocating your domicile 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 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 and making financial management more straightforward.

Florida Residency information

Leaving New York state tax residency (11 steps)

Changing your New York State residency involves several calculated steps to ensure a clear-cut transition.

1) Establish new residency

Secure a residential address in the new state. If you buy a home, you may want to look into available credits, like Florida’s homestead exemption. You may want to consider filing a Declaration of Domicile with the state, as suggested in Savvy Nomad’s domicile guides.

South Dakota vs Florida vs Texas vs Nevada vs Wyoming Domiciles

2) Transfer IDs and registrations 

Swiftly update your driver's license and vehicle registration.

3) Register to vote 

Register to vote in your new state, if possible.

4) Update documents

Ensure all identification, medical, insurance, and financial documents reflect your new address.

5) Notify your employer

It’s important to notify your employer of your residency change. This can also help convert some of your income from being “New York-sourced” if your employer recognizes that the work you complete is no longer done within NY state lines.  

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

Document all relocation actions diligently. Maintain records of flights, short- and long-term rentals, and travel dates. In the event of an audit, the burden of proof falls on the taxpayer to prove they are no longer a taxable resident of New York.

8) Acknowledge key factors 

New York considers multiple factors for domicile status, including home, time spent within the state, business ties, location of valuables, and family location. Make sure you feel confident on as many of these as you can.

9) Anticipate an audit

Be audit-ready with comprehensive proof of your move’s permanence.

Tax benefits and exemptions for expats from New York

Living abroad as an expat comes with various federal tax benefits and exemptions that can help reduce your overall tax burden.

Here are some of the key federal tax advantages available:

Foreign Earned Income Exclusion

The FEIE allows U.S. taxpayers living abroad to exclude a certain amount 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.

FEIE Guide

Foreign Tax Credit

The FTC helps you avoid double taxation by allowing you to take 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 reside in a country with high tax rates.

FTC Guide

Foreign Housing Exclusion (FHE)

The FHE allows you to exclude certain housing expenses from your federal 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.

FHE Guide

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Filing New York state taxes from abroad

Filing New York State Taxes from Abroad involves several important steps to ensure compliance and avoid penalties. 

Here's a streamlined approach:

1. Determine your residency status

First, establish whether you're considered a resident, nonresident, or part-year resident for the tax year. This status significantly influences your tax filing obligations.

2. Identify New York-sourced income 

If you have income from New York sources—such as wages for work performed in the state, income from business operations, rental income from New York properties, or capital gains from the sale of property in New York—you may need to file.

3. Understand filing requirements

For Residents: If you were a resident of New York and are required to file a federal return, you likely need to file a state return as well.

For Nonresidents: You must file Form IT-203 if your New York-sourced income exceeds your New York standard deduction or if you wish to claim a refund of New York State, New York City, or Yonkers income taxes withheld from your pay.

Additional filing requirements apply if you want to claim certain refundable or carryover credits or had a net operating loss for New York State personal income tax purposes.

4. Filing deadlines and forms

The typical deadline for filing New York State taxes is April 15. Expats are granted an automatic two-month extension, pushing back their deadline into June. Nonresidents and part-year residents should focus on Form IT-203, Nonresident and Part-Year Resident Income Tax Return.

5. Digital filing options

New York State offers e-filing services, which simplify the process for expatriates. These digital platforms guide you through filing, ensuring you meet New York State's requirements.

Penalties for non-compliance with New York state tax laws

Failing to adhere to New York State's tax obligations carries serious implications for expatriates and former residents. The consequences of such non-compliance highlight the critical importance of maintaining tax obligations.

Implications of failing to meet state tax obligations

Non-compliance can lead to various penalties that underscore the necessity of staying informed and compliant with state tax laws:

Fines and penalties 

Neglecting to file or pay taxes on time can result in substantial fines. These penalties increase with the length of the delay, adding a significant financial burden to the owed taxes.

  • Late filing and payment penalties: Failure to file or pay taxes by the deadline without reasonable cause attracts penalties. The penalties are calculated based on the unpaid tax and the period of delay.
  • Underpayment penalty: Taxpayers who underreport their income face penalties and interest on the amount underpaid, which can significantly increase their tax liability.

Interest charges 

Beyond fines, unpaid taxes accrue interest, further increasing the amount owed to the state.

In severe cases, such as tax evasion, the repercussions can extend beyond financial penalties to include legal action and possible criminal penalties.

Options for resolving tax issues

Recognizing the challenges that come with tax compliance, New York State provides mechanisms for taxpayers to address and resolve tax issues:

  • Voluntary disclosure program: This initiative allows individuals who have failed to file or have underreported their taxes to correct their tax affairs voluntarily. Participants can avoid criminal prosecution and may qualify for reduced penalties.
  • Payment plans: For those unable to pay their tax debt in full, the state may offer payment plan options, facilitating manageable payments over an extended period.
  • Offer in compromise: Under certain conditions, taxpayers demonstrating financial hardship may settle their tax debts for less than the full amount owed.

FAQ

What triggers the NY residency audit?

New York residency audits can be triggered by high income, a change in domicile or statutory residency, or many people moving out of the state. Audits often start with a questionnaire requesting proof of address​.

Does New York have an exit tax?

No, New York has no official exit tax for residents leaving the state. However, residents who move out of New York during the tax year are generally required to file a part-year resident tax return and pay income taxes on any income earned while residing in New York.

Does New York have a 183-day rule?

Yes, New York does have a 183-day rule for determining residency for tax purposes. According to the rule, individuals may be considered residents if they spend 183 days or more in the state during the tax year.

What is the residency test in NYC?

The New York City residency test involves two main criteria: the Domicile Test and the Statutory Residency Test. Under the Domicile Test, an individual is considered a New York City resident for tax purposes if they are domiciled in New York City or maintain a permanent place of abode there and spend more than 183 days there. 

On the other hand, the Statutory Residency Test deems an individual a resident if they maintain a permanent place of abode in the city for substantially all year and spend more than 183 days in New York City.

Can you leave residency and come back?

Leaving New York residency and returning involves documenting your break from residency via a tax return, specifically Form IT-203, as a part-year resident.

The state considers several factors to determine residency, including domicile status, maintaining a permanent place of abode, and presence in the state for more than 183 days.

To reestablish residency, you would need to demonstrate a permanent move back to New York, considering factors like the location of your home, family, business, time spent, and where you keep important possessions​.