Tricky state-residency expat question

[xrywzy]

Hi! I'm having trouble figuring out which state I should be paying taxes to for 2021. 

From January 1 to June 24, I lived and worked in NJ. I then left NJ to live abroad. Now that I live overseas, I use an expat mail service, so I still have a US mailing address, which is in TX--I issued a change of address form to the IRS noting this. Also while abroad, I have been working remotely for a company based in NY. On top of that, my family resides in VA, which I know has tricky residency rules. (For example, I do go to VA every time I return to the states, which I've read could count as VA residency?) 

I don't meet the 183-day presence test for NJ, but I'm not sure where to go from there. Any advice would be appreciated!

[Anonymous_]

Not sure if @pk can help with this one.

[rjs]

You certainly have to file a New Jersey part-year resident tax return. You were a New Jersey resident from January 1 to June 24. It doesn't matter that it was less than 183 days.

[pk]

@xrywzy , having read through your post  and generally agreeing with @rjs  that you need to recognize the earnings sourced to NJ ( while you lived and worked there ) for 2021, the rest of the year residency  i.e. whether you have to file a NJ return covering the rest of the world earnings depends on your intent  ( i.e. whether you consider  NJ as your home state and whether you intend to return to NJ post your stay abroad) and closer connection. You generally show / prove these  by 

1. Your driver's license, state issued ID, voter registration etc.

2. Ownership of  significant assets  ( like home,  )

3. Bank accounts, family  staying back , kids in school etc. etc.

Each state hangs (or tries to hang) on to a resident-- tax revenue.   In my days  as an ex-pat, know of a lot of expats  from MI, who closed everything in MI, set up a PO box in TX and got a driver's license  from TX -- just so they did not have to pay State taxes.

The other thing to consider also is your purpose / employment -- if you are abroad as a transferree  by your employer in the USA to an entity abroad for a fixed period , then you may have  closer connection to that original/ home base ( unless you took action to change that like setting up shop in TX ); if you are a student, it is assumed that you intend to return to your original home base at the end; 

In your particular case , because you have set-up a PO Box  in TX,  and unless you take other steps to show your intent to be TX resident, you would still be an NJ resident ( assuming that your voter reg etc. are still with NJ).

Note that your  remote work for an NY based entity is foreign income  for US purposes  because the work is being done in-situ. Thus NY  has no claim to this income  for tax purposes.  It self-employed income  and you need to make sure that  NY entity does not withhold any taxes  --- you file a Schedule -C  recognizing the income , associated expenses and also Schedule-SE  for paying the  Self-Employment taxes ( SECA --15.3% on almost all of the  net income), even if the entity deposits the income into your US bank account.

Also note that you need  have 330 days of foreign stay in any 12 consecutive months to qualify for  foreign earned income exclusion.  TurboTax will take care of all of this for you.

There is no hard and fast rules here  -- it is all intent  and closer connection.

Does this help ? or create more confusion ?

pk

[xrywzy]

Hi pk, thanks very much for your thorough response. I realized soon after posting that there is an option for part-year residency for NJ, so thanks for confirming that. 

I am abroad indefinitely and possibly for good, and not at the behest of my employer. NJ is not my home state and I do not intend to return there, but I do have an NJ ID and bank account; perhaps that's enough to keep me tied to it?

NY entity has not withheld taxes and I'm classed as a 1099 contractor--do I still need to file Schedules C and SE? (This is all new to me.)

Thanks so much again for your help and insight!

[rjs]

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@xrywzy wrote:

NY entity has not withheld taxes and I'm classed as a 1099 contractor--do I still need to file Schedules C and SE? (This is all new to me.)

---

You haven't said what your citizenship or immigration status is. I assume you are a U.S. citizen or resident alien. You also haven't said what country you are living in.

You have to report your self-employment income on Schedule C. Whether you have to file Schedule SE depends on what country you are living in. See "U.S. Citizens or Resident Aliens Living Outside the United States" on page 2 of the IRS Instructions for Schedule SE.

[pk]

@xrywzy following up from your response  and good points made by @rjs ,  as a US person ( citizen/Green Card ), you have to recognize your world income ( both US and foreign)  by filing form 1040. 

Schedule-C  is used to report all self-employed income ( before foreign taxes ) and any allowable expenses associated with the income stream.  The New York entity does not need to  ( but nothing wrong with it either) provide information report on 1099-NEC.  Similarly any foreign earnings  ( i.e. in addition to the NY entity) also can be reported on Schedule-C.

How to treat Self-Employment taxes , mostly for countries with whom US has  Totalization Agreement -- thus allowing  only one country to tax you for "Social Security.  So please share the country where you are currently residing.

Another thing to note is that all your foreign earnings  is eligible for exclusion up to the yearly limit.  To achieve this  you tell TubroTax that you would want to Exclude Foreign Earned  ( wages  or self-employment ) Income. TurboTax will then walk you through preparing form 2555  ( to make sure you have been abroad for 330 days in 12 consecutive months for  Physical Presence Test ).  You just have to make sure that the form 2555 has the total foreign earnings  for the tax year.  Any  foreign income beyond the allowed exclusion amount, is taxable to the USA but  you can claim foreign tax credit ( or deduction if you itemize under SALT limits ).

The foreign country also may tax you for all your foreign earnings ( it is also world income in some countries ).

Hope this helps.

Is there more I can do for you.

pk