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This is a bit of a followup to my earlier question...

I'm a US citizen, working for a US company, and paying US income taxes. I've switched my banking records and all to use my sister's address in Kansas. As such, I continue to "pretend" to live in Kansas, for the purpose of voting, paying taxes, etc.

But I'm really living in Mexico.

Is it possible to change my US tax status somehow, such that I would no longer pay state income taxes, unemployment insurance, etc, while continuing to pay US Federal income taxes? Perhaps by changing my address to somewhere in Guam, or some other US state/territory that doesn't charge such things? :)

I realize I could also change my tax status to paying taxes in Mexico, but then I would pay more, and it would make my immigration status much more complicated. And the Mexican government is completely content with me working in the US and paying US taxes. And no doubt the US is happy taking my tax money as well. So I don't feel I need to start paying taxes in Mexico to be "above board."

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IANAL, but isn't what you're asking about formally illegal? –  vartec Mar 23 at 19:41
    
@vartec: If it is, that would be a reasonable answer to the question. But I don't think it is. I know there are some states that don't have income tax (Texas, for instance), so having a Texas address would make it possible, I believe, to pay US Federal income tax without state income tax. Although in Texas I would still be paying for unemployment insurance which I won't use... so that's part of the question, too. –  Flimzy Mar 23 at 19:44
    
I'm also wondering if it's possible to pay US Federal income taxes with a foreign address.... which would be more in line with what I'm actually trying to do. –  Flimzy Mar 23 at 19:45
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@Flimzy I think that vartec's point (and certainly my opinion as well) is that it could be illegal under Mexican law. You do really live there, wouldn't it only be right to do it with a proper visa and pay local taxes? It's a bit telling that you only seem to care about US law (still +1 as it certainly seems to be a question that could interest many people). –  Gala Mar 23 at 19:59
    
@GaëlLaurans: I have a proper visa, and they did not ask me to pay taxes. The condition of my visa is that I continue to receive income from my US job, and that I don't use Mexican government services (like their socialized health care). They essentially consider me "self-sufficient," the same, I believe, as if I were retired and living here off of my U.S. bank account. At least that's my understanding of the situation. –  Flimzy Mar 23 at 20:02

5 Answers 5

In the United States, individual States tax residents and non-residents. Many States tax residents on worldwide income, but non-residents are generally taxed on income sourced in that State only.

So if you're not a Kansas resident, then you only pay KS taxes on income you received in KS.

Kansas defines tax resident as follows:

A Kansas resident for income tax purposes is anyone who lives in Kansas, regardless of where he or she is employed. An individual who is away from Kansas for a period of time and has intentions of returning to Kansas is a resident.

The last sentence is the most interesting in your case. Generally, it is hard to prove intentions. You may want to keep your address and voting in Kansas, but I'm not sure if it shows that you have intentions of returning there. It may be just to keep you having any driving license and exercising your right to vote as a citizen.

You might want to consider not registering to vote in Kansas and give up your driving license (if you have another one in Mexico) to demonstrate that you don't have intentions of returning. But I am not sure if it is actually legally required of you.

In California (which I'm more familiar with), it is up to the FTB to prove your intentions if you stayed outside of California for more than 2 years (or even less, if I remember correctly). I believe in Kansas it would be similar - if they want to claim you're a resident, they'll have to prove your intentions.

Keep in mind, that if you're in Mexico on a temporary assignment (i.e.: You're not a Mexican citizen or emigrant into Mexico), then you do have intentions to return to Kansas by default. In this case - you are Kansas resident. Also, if you claim that you're non-resident for Mexican tax purposes and use a tax treaty (which it sounds like you do), it also shows your intentions to return.

If it is more than a trivial case - I'd suggest talking to a EA or a CPA licensed in Kansas to get a proper tax advice.

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My only intention ever to return to Kansas is to visit family... :) And my employer is based out of Georgia. It sounds like I really just need to talk to an international accountant. –  Flimzy Mar 23 at 21:01
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@Flimzy you might have to pay taxes to Georgia then. –  littleadv Mar 23 at 23:09
    
@Flimzy You really do. –  Karlson Mar 24 at 13:29

If you are employed through a company in Georgia you most likely have to pay taxes there. See this from Georgia's Department of Revenue website FAQs.

Q: What are the filing requirements for a nonresident who works in Georgia and/or has other Georgia source income?

A: Nonresidents, who work in Georgia or receive income from Georgia sources and are required to file a Federal income tax return, are required to file a Georgia income tax return. Some examples of Georgia source income are wages, Georgia lottery winnings, income from flow through entities (s-corporations, partnerships, LLC’s, trusts, and estates), rents, etc. If you are a legal resident of another state, you are not required to file a Georgia income tax return if your only activity for financial gain or profit in Georgia consists of performing services in Georgia for an employer as an employee when the compensation for services performed does not exceed the lesser of five percent of the income received in all places during the taxable year or $5,000.

For reasons given by littleadv I doubt you owe any Kansas state income tax because you don't reside there. If you would like to continue to vote, you might want to get a Georgia address (if you can get one for free) as it appears you have to pay taxes there anyways.

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The "intent to return" is state specific. Some states are tough on this. Without evidence you have established a residence elsewhere in the USA before you moved overseas some states won't give up their claim to such taxes. People, including a large number of active duty military establish (or attempt to establish) a domicile in a state without state income tax before moving overseas.

This link from the American Foreign Service Association includes some details

http://www.afsa.org/domicile.aspx

I tend to be a stickler for following the rules so I am sure plenty of others decide they have established a new domicile without really doing so. But I think the legal requirement are that you really do move to a new state. Just saying I live in "tax free place" while you are overseas is not really legal (it doesn't legally create a new domicile for you officially). If you don't rent and live in a new state for a reasonable amount of time it is questionable to claim you have a new domicile. Flying to your friend's state and staying at their house the week before you leave almost for sure doesn't. Moving to a new state and signing a new lease, getting a new driver's license, registering to vote, living there for a year and then moving overseas does.

In between those two situations is questionable. The closer you are to one than the other the more clear it is. I would also imagine practically the more money involved the more it matters (as does how vigorously the state in question polices this). I would imagine the more money involved the less a state is going to accept questionable claims of new domicile while the less money involved the more willing they will be to take a more forgiving approach. One of the truths is there are grey areas and the factors that come into play include how much money is at stake.

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This is for Foreign Service, not expats.... Foreign Service is by definition temporary absence. If I'm a dual citizen and established a domicile in a foreign country - what right does a US State have to tax my income? –  littleadv Mar 26 at 19:56
    
The "right" is based on state and federal law. If you are USA citizen it applies. The foreign service just provides good details on what you need to know. You may not think the laws are fair, but the law is where the right comes from. I don't think this would apply to non-USA citizens. But if you are USA + something else I imagine it does, but I could be wrong. –  curiouscat Jun 7 at 13:00
    
I think you misunderstood my question. The "right" is based on a state and Federal law. Both, in the scenario I described, will say "NO RIGHT". This is differed from your "Foreign Service" scenario, that's exactly why it is irrelevant. I suggest you read more on the subject. –  littleadv Jun 7 at 18:58

With the new law US citizens have have to pay taxes on any worldwide income.

Whether you will need to pay state taxes depends on whether you are still considered a legal resident of that state. As far as paying taxes in Mexico if you have a visa there you will need to check with the Mexican government.

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This is not a new law. US Citizens had to report and if necessary pay taxes on income earned out of the country for quite a while before FATCA, which I think you're referring to. And your answer still doesn't provide an answer to the question. –  Karlson May 21 at 2:12

hmm..isn't what you really want a foreign earned income exclusion?

if you stay outside the country for most of the year, you are eligible for a large income tax break. the federal government accepts this and many states do as well. it doesn't matter if you are paid by a us-based firm or a firm elsewhere.

http://www.irs.gov/uac/Five-Facts-about-the-Foreign-Earned-Income-Exclusion

it doesn't matter where your legal home is, it matters where you physically are. if you stay outside the united states for ~330 days, you get a federal tax break of $96,700.

http://www.irs.gov/pub/irs-pdf/p54.pdf#page=19

some states also allow this exclusion, others don't

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I'm pretty sure that doesn't matter to me, since I'm not earning any foreign income, and my tax home is not in another country. It's good information, but not relevant to this question. –  Flimzy May 14 at 3:02
    
repeating myself here: doesn't matter if you are paid by a us-based firm or a firm elsewhere if you are out of the country for 11 months, your issue is moot. maybe you won't be, but other readers might like to know ;) –  Anthony Damico May 14 at 4:39
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Foreign earned income excludes foreign earned income (the OP is earning his income in Georgia), and only from Federal taxes (the OP is asking about State). It does matter very much if you're paid by a US-based firm. If you're paid by a US-based firm - your income is not foreign. –  littleadv May 14 at 6:12
    
ugh. you are wrong. unless you work for the us government that is not true. quoting the irs document i mentioned. Foreign earned income is income you receive for working in a foreign country. Where or how you are paid has no effect on the source of the income. For example, income you receive for work done in Austria is income from a foreign source even if the in- come is paid directly to your bank account in the United States and your employer is located in New York City. –  Anthony Damico May 14 at 9:21
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By the way, just as an anecdote about quoting IRS docs... Just this February the US Tax Court ruled that despite that IRS wrote in its instructions that something is allowed, the IRS was in their full right to demand tax and penalties from a person doing what the IRS said was allowed in its instructions. Because it was against the law. –  littleadv May 15 at 4:19

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