Does California accept the Foreign earned income exclusion?

[GeoffreyG]

The answer to your question, unfortunately, is no.  California does not recognize the same foreign earned income exclusion that the federal government (IRS) does.

Essentially, California does not allow a foreign tax credit, or a foreign earned income exclusion, for income earned abroad, unless you fall under the "safe harbor" exclusion (explained below).

If you claimed the foreign earned income exclusion on your federal return (via IRS Form 2555), then the amount of this foreign earned income exclusion will be added back onto your California state income tax return (by California state law, and by the TurboTax software).

However, if you've resided overseas long enough, and can thus qualify for the California "safe harbor" provisions for being a nonresident of California on that basis, then you wouldn't need to file a California state tax return at all.  In this instance, your foreign income would be excluded from California income taxes, by default.

You can read more about this "safe harbor" exception on Page 3 of the following California Franchise Tax Board website:

https://www.ftb.ca.gov/forms/2013/13_1031.pdf


Please see also the following webpage for a lucid explanation:

http://usexpatriate.blogspot.com/2012/10/avoiding-california-state-income-taxes.html

Thank you for asking this important question.

[bine22]

CA is one of the states making  it very difficult for expats to "lose" state residency, especially if you still have ties to CA, like drivers license, property, bank accounts etc, or plan to return there.