Do expats from Oregon still need to pay state taxes?
When you move abroad, it’s important to understand your tax obligations. If you’re from Oregon, you might still need to pay state taxes even if you live outside the U.S.
This article will help you understand when you need to pay taxes to Oregon and what the rules are for expats.
TLDR:
- You lived outside Oregon the entire year.
- You did not keep a home in Oregon during any part of the year.
- You spent less than 31 days in Oregon during the year.
Likely owe Oregon taxes if:
- You earned income from Oregon sources (e.g., wages from an Oregon employer, rental income from Oregon property, business income from activities conducted in Oregon), even if you live elsewhere now.
Understanding Oregon's tax residency rules
Definition of domicile
In Oregon, your domicile is your permanent legal residence. It’s the place you consider your permanent home and where you intend to return after any absence. You can only have one domicile at a time, and it does not change until you move to a new location with the intention of making it your permanent home
Full-Year Resident
You are considered a full-year resident of Oregon if:
- You consider Oregon your permanent home.
- Oregon is the center of your financial, social, and family life.
- Oregon is the place you plan to return to after being away.
- You maintain an Oregon residence and spend more than 200 days in the state during the tax year
Part-Year Resident
If you lived in Oregon for part of the year and then moved out, you are a part-year resident. You need to report all income earned while you were a resident of Oregon. For income earned after moving, it should be reported to the new state of residence, if applicable. Filing as a part-year resident involves prorating your income based on the time spent in Oregon and the time spent outside the state .
Non-Resident with Oregon Domicile
Even if Oregon is your domicile, you are considered a nonresident if:
- You lived outside Oregon the entire year.
- You did not keep a home in Oregon during any part of the year.
- You spent less than 31 days in Oregon during the year
If you are a nonresident with Oregon domicile, you are taxed only on income sourced from Oregon. This includes wages from an Oregon employer, rental income from property located in Oregon, business income from activities conducted in Oregon, and other Oregon-source income.
What constitutes Oregon-sourced income?
Understanding what constitutes Oregon-sourced income is essential for nonresidents and part-year residents to accurately determine your tax obligations.
Oregon-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 Oregon.
- Business Income: Income from business activities conducted in Oregon.
- Real Estate: Rental income from property located in Oregon.
- Capital Gains: Profits from the sale of real estate or tangible property in Oregon.
- Dividends and Interest: Dividends from Oregon-based companies and interest earned from Oregon financial institutions.
- Pensions and Retirement Plans: Retirement income from Oregon 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
Oregon imposes an estate tax on the transfer of the taxable estate of every decedent who was a resident of Oregon 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 Oregon’s estate tax can significantly impact the value of the estate passed on to the beneficiary.
Tax benefits and exemptions for expats from Oregon
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 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.
Foreign Tax Credit (FTC)
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 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.
