DoD civilian working overseas, do I file MD state taxes as resident or non-resident?

[heascook]

Moved to Germany in Sept 2016. Have no properties in MD (previously lived in Mother's home)... still have MD driver's license, will probably renew through MD. But when turbotax asks for address at end of year, do I put German address, APO address or address of mother's home in MD?

[GeoffreyG]

You actually have (2) really good questions here:  which mailing address to use, and what is your residency status.

As to the first question, you can actually use whatever address you like, as long as you can receive mail there.  That decision doesn't affect your residency for tax purposes at all, so you can think of this choice independently of anything else.  Simply for administrative purposes, if you have a family address in Maryland, that may be easier to enter into the software; and also quicker for the revenue authorities to reach you with any future notices (letters, refunds, etc.), so you could use that one simply as an expediency.  In other words, official mail will simply reach a Maryland address faster than an APO address or a German address.  Someone at that Maryland address (your mother, for instance) could then promptly alert you to the arrival of any government letter or correspondence.

With respect to the second portion of your question, Maryland residency, I've gathered together some materials for you to read.  They can be found at the following (2) Maryland webpages:

http://taxes.marylandtaxes.com/Individual_Taxes/Individual_Tax_Types/Income_Tax/Filing_Information/D...

http://taxes.marylandtaxes.com/Resource_Library/Tax_Publications/Administrative_Releases/Income_and_...

My own reading of those materials would lead me, as a CPA, to conclude that you are a full-year Maryland resident for the 2016 tax year.  For future tax years you will remain a Maryland resident, even if living year-round in Germany, until such time as you establish residency in another US state (or if you cease to become an American citizen, and emigrate to a foreign country . . . but that's a drastic step to take to rid oneself of Maryland residency simply for tax reasons).

Thank you for asking these important questions.

[heascook]

Thank you! Different from the mailing address - when I input my county and physical address in MD (TurboTax titles it where I lived on December 31 2016), I should simply list my mother's address? Since that is where I lived for 9 out of 12 months in 2016. For future years, I would still use that address even if I had not technically lived there at all?

[GeoffreyG]

Hello heascook:

If you can receive mail there, then yes, please use your mother's address in Maryland for your 2016 tax returns.  That would seem to make the most sense.  Of course, if you have an alternative Maryland address (like another family member or a trusted friend) then you could use that as well.

Essentially, according to Maryland state law, you will retain your Maryland "domicile" (which is a well-established legal concept) for state tax purposes, unless one of two things happen.  One, you establish a tax "domicile" in another US state; or two, you become the citizen of a foreign country and give up your US citizenship.  It doesn't matter if you continue to physically live in Germany, or elsewhere, for years and years -- you cannot rid yourself of your Maryland state tax domicile, except in one of the two ways just described.

Yes, it's a pretty tough standard and a burden to meet.  If you were able to utilize the Foreign Earned Income Exclusion (see the rules for IRS Form 2555 at the following link: <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i2555.pdf">https://www.irs.gov/pub/irs-pdf/i2555.pdf</a> ) then your Maryland taxes wouldn't matter as much, because you could exclude much or most of your overseas income for state tax purposes too.

However, since you work for the United States government (whether in a civilian capacity or a military capacity it doesn't matter), you aren't eligible for the foreign earned income exclusion.  So, that's not an option.  Civilians not working for the US government, or those who are self-employed, can take advantage of the Foreign Earned Income Exclusion as long as they meet certain tests.

Realistically, you could return to the United States at some point, on let's say a very long vacation for example, and attempt to establish residency in a state with no income taxes, like Florida for example (get a Florida drivers license, register to vote there, have all of your bank accounts and credit cards transferred there, etc.).  That could allow you to change your state tax domicile, and would be a way to avoid Maryland taxes in future years, as well as the obligation to file future tax returns there -- but this is a big step to take.

Unfortunately, the Maryland state tax system is fairly difficult to avoid, and doesn't favor expats.

Thank you for asking these follow-up questions, and good luck to you.