California State Taxes For US Expats

California isn’t all sun, surf, and sand. Unfortunately, the Golden State is also home to the highest state tax rates in the US. On top of that, the state of California’s Franchise Tax Board (FTB) is known as one of the biggest sticklers among state tax bodies. As a result, some former California residents are still subject to state taxes even after moving abroad.

If you used to live in California or maintain ties there, you may need to file (and potentially pay) California state taxes. While the rules about expats’ California tax obligations can be tricky, we’re here to help you navigate them. 

Below, we’ll go over everything you need to know about California state taxes while living abroad. Read on to learn the answers to questions like “are nonresidents taxed by California,” “do I need to file a California nonresident tax return,” “can I file the California tax form online,” and more.

California residency determination

California considers anyone who meets either of the criteria below to be a resident:

• Present in California for any reason other than a temporary or transitory purpose
• Domiciled in California, even if they’re outside California for a temporary or transitory purpose
  • Note: “Domiciled in California” means that you have chosen to make California your true, fixed, permanent home, and the principal establishment for yourself and your family. In other words, even if you leave temporarily, you plan to eventually return

A nonresident, on the other hand, is somebody who doesn’t meet either of the criteria above. It is also possible for someone to meet resident criteria for part of the year, and nonresident criteria for the other. In this case, they would qualify as a part-year resident.

Factors that influence residency

The theory underpinning California’s residency definition is that you are a resident of wherever you retain the strongest ties. If you’re still unsure whether or not you’re a California tax resident, consider where: 

• Your spouse/partner & children (if applicable) live 👨‍👩‍👦
• Your principal residence is 🏠
• You are registered to vote 🗳
• You received your driver’s license 💳
• You maintain active professional licenses 🎓
• Your vehicle is registered 🚗
• Your financial accounts, property, & investments are based 💰
• You seek medical & professional services (e.g. attorneys, accountants, financial advisers) 🏥
• The center of your social life is (e.g. place of worship, professional associations, organizations, country club membership) 🏌

A few other questions to consider include:

• How much time do I spend inside vs. outside California? 🗓
  • Note: Generally, spending more than nine months in California in a given tax year will qualify you as a resident for tax purposes
• Are my work assignments in California temporary or permanent? 💼
• Where do most of my financial transactions originate? 💸

Having one particular tie to California usually isn’t enough to classify you as a California tax resident on its own. However, the more ties you have to California, the more likely the FTB is to consider you a resident.

Safe harbor

A safe harbor provision allows those who leave California for at least 546 uninterrupted days under an employment-related contract to qualify as nonresidents, unless:

• Their California-source passive income exceeds $200,000 in any of the taxable years in which they are absent, OR
• They left California primarily to avoid personal income tax 

You can visit California for up to 45 days each taxable year the contract is in effect without losing nonresident status.

Expat residency scenarios

Now that we’ve discussed the rules of California state residency, let’s determine the likely residency status for a few Californians who move abroad. 

Example 1: Cat

Cat is a Southern California native who has recently graduated from San Diego State University. She will be moving to Toulouse to teach English through the Teaching Assistant Program in France (TAPIF). Her initial contract lasts seven months — from October 1st to April 30th — and she can renew it up to two times. 

She plans to work in Toulouse through TAPIF for three different school years: 2024-2025, 2025-2026, and 2026-2027. At the end of the 2027 school year, she will move back to her parents’ home in Orange County, California to look for a permanent job as a teacher in the Los Angeles metro area.

Even though Cat will be living in France for three years, she is domiciled in California. She considers California to be her true, permanent home — any move abroad would only be temporary. As such, she qualifies as a California tax resident. Furthermore, because none of her work contracts will meet the 546-day threshold, she does not qualify for safe harbor.

Example 2: Diego

Diego is an American citizen who works as a Senior Product Manager at Amazon’s San Francisco office. The team he works for is trying to expand its market share in Asia, and he has the opportunity to move to South Korea on a two-year contract. From November 5th, 2024 to November 5th, 2026, Diego will work in Seoul. After that point, he will return to San Francisco. 

Ordinarily, Diego would remain a California tax resident since he plans on returning to California. However, because his work contract exceeds the 546-day threshold, he may be able to claim nonresident status under the safe harbor provision — provided that he:

1. Earns less than $200,000 per year in California-sourced passive income, AND
2. Spends no more than 45 days per tax year in California

Example 3: Dev

Dev, a freelance SEO consultant, has lived in San Luis Obispo, California his whole life. Seeking a change of pace, he decides to apply for a digital nomad visa in Peru. Within a few months of living there, he decides to make the change permanent. 

Dev buys an apartment in the capital city of Lima, registers his SEO business there, and joins a club for American expats. He will only return to California on occasion to visit his friends and family.

Because Dev has no plans to return to California, he has grounds to claim that he’s a nonresident. However, he will need to actively prove that he has abandoned his prior domicile (California) and therefore no longer is a Californiaresident (more on that in a bit).

California tax & reporting obligations

2023-2024 California state income tax rates

Marginal tax rate	Single filers & married/RDP filing separately	Married/RDP filing jointly	Head of household
1%	Up to $10,412	Up to $20,824	Up to $20,839
2%	$10,413 – $24,684.	$20,825 – $49,368	$20,840 – $49,371
4%	$24,685 – $38,959	$49,369 – $77,918	$49,372 – $63,644
6%	$38,960 – $54,081	$77,919 – $108,162	$63,645 – $78,765
8%	$54,082 – $68,350	$108,163 – $136,700	$78,766 – $93,037
9.3%	$68,351 – $349,137	$136,701 – $698,274	$93,038 – $474,824
10.3%	$349,138 – $418,961	$698,275 – $837,922	$474,825 – $569,790
11.3%	$418,962 – $698,271	$837,923 – $1,396,542	$569,791 – $949,649
12.3%	$698,272+	$1,369,543+	$949,650+

Those whose income is less than $100,000 can use a simplified tax table to calculate their tax liability. Note that anyone whose income exceeds $1 million is subject to a 1% surcharge. Additionally, there is a 1.1% tax on payroll income, effectively making the top income tax rate 14.4%.

Do I have to pay California income taxes if I live abroad?

California resident taxes

Expats who qualify as California residents must file state taxes every year. They are subject to California taxes on all of their income — even income earned abroad. A few forms they may need to file include:

• Form 540: The standard state income tax return for residents
• Form 540-2EZ: An abbreviated state income tax return for residents with straightforward tax situations. To be eligible for Form 540-2EZ, you must meet certain qualifications, such as:
  • Filing as a:
    • Single filer
    • Married/RDP filing jointly
    • Head of household
    • Qualified surviving spouse/RDP
  • Claiming 0-3 dependents
  • Having an income of no more than $100,000 (single or head of household) or $200,000 (married/RDP filing jointly or qualified surviving spouse/RDP) 
  • Claiming limited income adjustments, exemptions, & credits
• Form 540-ES: The state tax return for anyone who expects to owe at least $250 in estimated tax payments. This may include:
  • Self-employed individuals & freelancers
  • Those with income not subject to withholding taxes (e.g. investment income, income from a rental property, alimony)
  • High-income taxpayers, or those who expect to owe a significant amount in taxes
• Schedule CA (540): For adjusting federal income & deductions according to California tax law
• Form 568: For reporting LLC income, tax liability, & fees
• Form 593: For reporting real estate withholding taxes
• Form 3514: For determining eligibility to claim certain tax credits (e.g. Earned Income Tax Credit, Young Child Tax Credit, Foster Youth Tax Credit)

Keep in mind that this is far from a comprehensive list of filing requirements, however. A licensed tax professional can help you figure out exactly which forms, schedules, and reports you need to file.

California nonresident taxes

California taxes for nonresidents are limited to income from California sources. This includes:

• Wages & salary earned in California before moving abroad or from a California-based company
• Rental income from real estate located in California
• Profits from the sale of property located in California
• Business income sourced from California
• Income from trusts, estates, & royalties linked to California

Fortunately, there are two types of California-sourced income that are generally not subject to nonresident state taxes in California:

• Investment income such as interest, dividends, & capital gains from stocks & bonds
  • Note: Investment income linked to ownership of California-based businesses, however, is taxable
• Retirement plan distributions not sourced to a California-based employer

Nonresidents will report any California-sourced income they earned over the tax year on Form 540 NR, the nonresident California tax return.

California part-year resident taxes

As you might imagine, part-year residents are subject to taxation on:

• All of their worldwide income earned during their time as a California resident
• All of their taxable California-sourced income earned during their time as a California nonresident

Like nonresidents, part-year residents will report their earnings on Form 540 NR.

Strategies to minimize California tax

While California generally has high-income tax rates, there are ways to reduce your California tax bill. This includes:

Changing your residency status

In most states, you can stop filing state tax returns after you move abroad (although some will require you to file a part-year tax return first). After that, you’ll simply want to keep documentation of your new residence on hand in case of an audit. 

California, however, is one of five “sticky states” — along with New Mexico, New York, South Carolina, and Virginia — that make changing your residency a bit more complicated. After leaving California, the burden of proof is on you to prove that you’ve moved. 

The process to do this is usually twofold. To begin, you’ll want to cut any existing ties you have to California — this may mean:

• Selling in-state real estate or other property
• Limiting how much time you spend in the state — you may want to wait a few years before spending a significant amount of time in California
• Moving your belongings out of state
• Closing your California-based bank accounts
• Canceling your California IDs, registrations, memberships, & subscriptions

Then, you’ll want to establish ties to a different state (preferably one with low or no income taxes). You can do this by:

• Purchasing or renting a primary residence located there
• Applying for a state driver’s license or official ID
• Opening financial accounts based in that state
• Registering your business there
• Updating your mailing address
• Storing your belongings there
• Integrating yourself into the local community

Allocating your income appropriately

Nonresidents and part-year residents may be able to reduce their California tax bill by accurately categorizing their income. Remember, nonresidents are only subject to California state taxes on their California-sourced income. 

The first step will be identifying which periods you were and weren’t a California resident. As a nonresident, you don’t have to pay taxes on: 

• Wages, salary, & other earnings from non-California-based companies
• Rental income from real estate based outside of California
• Profits from the sale of property located outside of California
• Business income sourced from outside of California
• Income from trusts, estates, & royalties not associated with California

That said, you won’t need to pay California state taxes on:

• Most types of investment income (e.g. interest, dividends, capital gains from stocks & bonds) not related to ownership of California-based businesses
• Retirement plan distributions

Claiming California tax breaks

California tax residents have access to many different credits, deductions, and exemptions, but even nonresidents can claim certain tax breaks on California-sourced income. A few common examples of California-specific tax breaks include the:

• Standard Deduction: Up to $5,363 for single filers and married/RDP filing separately; up to $10,726 for married/RDP filing jointly, head of household, and qualifying widow(er)
• California Earned Income Tax Credit (EITC): Up to $3,529 for those with incomes of no more than $30,950
• Child & Dependent Care Expenses Credit: Up to $3,000 for one dependent or $6,000 for two or more dependents
• Exemptions: 
  • Married/RDP filing jointly & qualified surviving spouse/RDP: $288
  • Single, married/RDP filing separate, & head of household: $144
  • Dependents: $446
  • Blind & aged 65+: $144
• Renter’s Credit: 
  • Single & married/RDP filing separate: $60, provided CA AGI is no more than $50,746
  • Married/RDP filing jointly, head of household, qualified surviving spouse/RDP: $120, provided CA AGI is no more than $101,492

Timing

In some cases, timing your financial decisions may help you reduce your California tax burden. For example, you may choose to hold off on selling major assets like large portions of stock until you qualify as a California nonresident to avoid having to pay California state taxes on your capital gains.

Other considerations

While thinking about your California state tax obligations, it’s worth keeping a few things in mind:

• Federal tax breaks: You can’t apply most federal tax breaks to your California-sourced income. For example, an expat may be able to use the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC) to reduce their federal income taxes, but they can’t apply either of those tax breaks to their California tax bill
• Returning to California: Generally, you should only change your tax residency from California to another state if you don’t plan on moving back. Otherwise, the FTB could view your residency change as an attempt to deliberately avoid taxes. Upon your return, you could be hit with a large tax bill or in extreme cases, even criminal charges
• Professional assistance: As you can probably tell by now, California taxes are complex (to say the least). The best way to stay compliant and reduce your tax bill is to work with a knowledgeable, experienced tax professional who specializes in expat taxes

Resources:

1. 2022 Guidelines for Determining Resident Status
2. More Payroll Taxes on the Horizon for California Employees?
3. Forms and publications
4. 2023 Instructions for Form 540 2EZ | Personal Income Tax Booklet
5. Taxation of Nonresidents and Individuals Who Change Residency
6. 2023 California Tax Rates, Exemptions, and Credits