Most US citizens living in the UK focus on their federal US tax obligations — Form 1040, FBAR, FATCA — without realising that some US states continue to tax their former residents even after they move abroad. State taxation is one of the most frequently overlooked and costly aspects of expat tax planning.
This guide explains which states are problematic, how state domicile and residency rules work, and what steps to take to properly sever state tax residency before (or after) moving to the UK.
The Core Problem: State Domicile vs. Residency
Unlike the federal system, US states impose taxes based on domicile and statutory residency — not necessarily physical presence. Domicile is your permanent home: the place you intend to return to indefinitely. Moving to the UK does not automatically change your domicile in the eyes of aggressive states, particularly if you:
- Maintain a home, vehicle, or driver’s licence in the state
- Keep a bank account or investment accounts registered to a state address
- Have family members still living in the state
- Maintain professional licences in the state
- List a state address on your voter registration
- Use a state address on your federal return
The Most Aggressive States: Which to Watch
California
California is widely regarded as the most aggressive state for taxing departing residents. California’s Franchise Tax Board (FTB) uses a “safe harbour” test: you must be absent from California for an uninterrupted period of at least 546 days (approximately 18 months) to be presumed a non-resident — and even this does not guarantee non-residency if strong domicile connections remain. California income tax rates reach up to 13.3% — the highest in the US.
Free Tools for US Expats
Use our free checkers and checklists to understand your US tax obligations in minutes.
California also taxes deferred compensation (such as stock options that vest after departure) earned during a California residency period — which can result in California tax liability years after you have left.
New York
New York uses both a domicile test and a “statutory residency” test. You are a New York statutory resident if you maintain a permanent place of abode in New York and spend more than 183 days in the state during the year. If both conditions are met, New York taxes you on your worldwide income even if you claim a different domicile. New York City has an additional city income tax. Top combined state/city rate: approximately 12.7%.
New Jersey
New Jersey aggressively puRSUes departing high earners. It requires clear evidence of a change of domicile, including severing ties such as selling your home, re-registering your vehicles, and changing professional memberships. Top rate: 10.75%.
Virginia
Virginia requires you to file a non-resident return if you earn Virginia-source income. But domicile questions arise if you maintain a Virginia home after moving. Virginia is somewhat more reasonable than California or New York, but still requires positive action to sever residency.
Maryland
Maryland has both a state income tax and a county income tax, and applies its own residency and domicile rules. Maintaining connections to Maryland while living in the UK can result in continued tax obligations.
States with no income tax
The following states have no state income tax and are therefore irrelevant for this analysis: Alaska, Florida, Nevada, New Hampshire (on earned income), South Dakota, Tennessee (on earned income), Texas, Washington, and Wyoming. If your last US state of residence was one of these, you have no state income tax concern when living abroad.
How to Properly Sever State Tax Residency
Simply moving to the UK is not sufficient to end your state tax obligations in most aggressive states. The following steps are typically recommended:
- Sell or close your state home: This is the strongest evidence of a change of domicile. If you retain ownership, consider whether retaining it creates continuing domicile ties
- Obtain a UK driving licence and surrender your state licence
- Change your voter registration (though you retain the right to vote as an overseas voter — consider registering in a no-income-tax state if legally permissible)
- Update your bank accounts and investment accounts to your UK address
- Cancel or transfer professional licences
- File a final-year state return showing departure during the year
- Document the date you established UK domicile — keep records of your UK lease/purchase, utility connection dates, UK bank account opening
State Taxes That Catch Expats Off Guard
Stock options and RSUs
Many states apply an apportionment rule to stock options and RSUs: the state taxes the portion of the option gain attributable to the time you lived in that state, even if the options vest or are exercised years later, after you have moved to the UK. California in particular is known for aggressive application of this rule.
IRA and pension distributions
Some states attempt to tax IRA and pension distributions paid to former residents. Federal law (the Pension Source Tax Act) generally prohibits states from taxing pension income of non-residents — but the rules vary and professional advice is recommended before taking significant pension distributions.
Partnership and S-corporation income
If you own an interest in a US partnership or S-corporation that generates income from a particular state, that state may tax your share of the income as non-resident income — even if you live in the UK.
Frequently Asked Questions: State Taxes for Expats
Do I need to file a state return if I live in the UK?
It depends on your former state of residence and whether you have severed domicile. If you had income from your former state (eg, rental income, partnership distributions, stock option exercises), you may need to file a non-resident return even after severing domicile. A thorough state-by-state analysis is part of every good expat tax engagement.
Can I deduct UK taxes against my state tax?
State tax treatment of Foreign Tax Credits varies. Some states allow a foreign tax credit; many do not. California, for example, does not conform to the federal foreign tax credit for state purposes. This means UK taxes paid may not reduce your California liability — compounding the state’s high rate.
What happens if I have not filed state returns for years?
Non-filing in a state where you had an obligation creates a potentially unlimited statute of limitations, interest, and penalties. Voluntary disclosure programmes exist in most states for catching up on delinquent returns. These should be pursued proactively rather than waiting for state contact.
Get State Tax Advice as Part of Your Expat Tax Planning
State tax is a critical but often ignored component of US expat tax planning. The right approach depends on your former state, your current asset structure, your income sources, and your intentions regarding eventual return to the US.
Related guides: