Paying state income taxes in the USA

Paying state income taxes in the USA

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I'm aware that there's no getting around paying federal income taxes on $$$ earned by a U.S. citizen, but what about paying state income taxes? My income is from the pension I earned while living and working in California. I continue to pay through the nose since I still own a home and have vehicles registered there. I plan to detach myself completely from California by the end of the year. Can I end my California residency to stop paying income taxes there? If so, how? Or, am I stuck feeding there coffers for the rest of my life? Anyone know? TIA - G

"What we've got here is a failure to communicate."

(This post was edited by Demonio on Jul 9, 2010, 11:04 AM)

Jul 9, 2010, 12:24 PM

Post #2 of 26 (35020 views)

Re: [Demonio] Paying state income taxes in the USA

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Been there..done just that. Gov. pensions from CA. First remove any withholding of state taxes. Do not file a state tax return unless you have income apart from your pension which is exempt. California is very aggressive and at some time may do an audit and inquire why you haven't filed especially if you still have a mailing address there. Auto registration is not a trigger since so many expats living in Baja continue to keep there cars registered. I found them to be very reasonable and they accepted my proof of Mexican residency in the form of FM3, utility bills and house deed. Because you still have a house in CA, you will have to attest that you neither live in it nor derive rental income.

Brian

Hound Dog

Jul 9, 2010, 3:31 PM

Post #3 of 26 (34979 views)

Re: [Demonio] Paying state income taxes in the USA

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First of all - have no California address whatsoever and resident no assets there to the extent you can avoid it. . We retired to Mexico in 2001 having earned most of our income in that state for over 30 years. We sold our California property and moved to Mexico with absolutely no California address nor any assets in that place. Our IRA investments are managed out of Orlando. We still vote in federal elections in Sonoma County California without tax implications. Had we not been subject to such arbitrary and disgusting confiscatory tax assessments we might have retired in Central Coastal California around San Luis Obispo. We have paid U.S. income taxes for nine years in Mexico and never have and never will pay California state income taxes because federal law overrules the thieves in Sacramento who would appropriate your jockey shorts if they could figure out how to so do.

California was good to us but it is time to close that chapter of our lives and and I´m damned if the Sacramento thieves will pick my pocket.

NEOhio1

Jul 9, 2010, 4:11 PM

Post #4 of 26 (34964 views)

Re: [Demonio] Paying state income taxes in the USA

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Our home state, Ohio, has a procedure for 'divorcing' the state when you leave and have no valid new address in the US with which you would then become some other states' taxable citizen.

Ohio Sec'y of State will take a notarized letter of intent to leave and not return to the state. If you return within 5 years and take up residence you will be liable for the back taxes for the years you were gone. They say they can continue to tax you if you aren ot a legal resident of another state, can they? who knows, we just filed that paper to eliminate the question.

Jul 9, 2010, 6:02 PM

Post #5 of 26 (34940 views)

Re: [NEOhio1] Paying state income taxes in the USA

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OK, here is what we did. Moved from California to Mexico. Then got a Laredo mailing address, registered car in Webb County, and got a Texas DL. Voila, no state income tax. This, along with the Mexican documentation referenced earlier, was sufficient to convince the California Franchise Tax Board that I no longer came under it's jurisdiction.

"I wasn't born in Texas, but I got here as fast as I could"

Popular bumpersticker

(This post was edited by Brian on Jul 9, 2010, 6:43 PM)

DavidHF

Jul 9, 2010, 7:00 PM

Post #6 of 26 (34918 views)

Re: [Brian] Paying state income taxes in the USA

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We come from Oregon. We maintain an address there, our car is registered there and we have OR drivers licenses. We file as "Non-residents" since we spend less than 31 days a year there. So, we're still legal residents but have no income tax liability except for the property tax on our vacation home at the coast. It's amazing how different the states are in this regard.

Papirex

Jul 9, 2010, 10:14 PM

Post #7 of 26 (34892 views)

Re: [Hound Dog] Paying state income taxes in the USA

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My home state is now Alaska. Fortunately, Alaska has no state income tax so living here in México in my retirement, I owe them zero, zip at tax time every year. I do need to file and pay a little in federal taxes every year, no getting around that. I file using my residence address in Fairbanks, Alaska, I also vote in every federal general election using that address via fax, quick and simple.

I Am a native of California born and raised in Napa, and sometime in the 1970s I believe, California passed a state law that any pension earned in that state was subject to California income taxes, regardless of where the retiree had moved to. Some retired federal employees that had left California challenged that law in court and lost.

They must have won on an appeal since California doesn't try to extract those taxes from out of state retirees anymore. I earned one of my pensions in California and at retirement, I checked with my union there, and they told me that the state was no longer trying to collect income taxes from people that earned a pension there, but didn't live there anymore. It's a small pension, but it is nice that I don't need to mess with California anymore.

One of my daughters gave me an old car just before I retired so I wouldn't need to rent cars when we visited México. She sent the title to me after putting me on as the new owner and I registered the car in Alaska, using an out of state waiver so I didn't need to bother with any smog tests. There is no statewide smog test required up there, only 2 cities require smog tests, Fairbanks and Anchorage, and you may get a waiver if it is located outside of the state.

Even though the car was now an Alaska registered vehicle, California kept sending me letters for the next 4 or 5 years threatening that I would be hung by my thumbs if I didn't pay the current, and past years registrations. The folks at the California DMV could all suck lemons as far as I was concerned.

They stopped sending those letters at about the same time I nationalized the car down here. We still have it, it is our second car here.

My own opinion is that any state that has an income tax, or a state sales tax doesn't know how to manage their finances. That fits California since Reagan served 2 terms as Governor of that state.

Rex
"The supreme happiness of life is the conviction that we are loved" - Victor Hugo

Jul 10, 2010, 4:57 AM

Post #8 of 26 (34866 views)

Re: [Papirex] Paying state income taxes in the USA

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You are correct in that, by court decision, California is prohibited from taxing retirement benefits from recipients who earned their pensions there but live elsewhere now.

Hound Dog

Jul 10, 2010, 8:21 AM

Post #9 of 26 (34831 views)

Re: [Papirex] Paying state income taxes in the USA

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Rex writes:

One of my daughters gave me an old car just before I retired so I wouldn't need to rent cars when we visited México. She sent the title to me after putting me on as the new owner and I registered the car in Alaska, using an out of state waiver so I didn't need to bother with any smog tests. There is no statewide smog test required up there, only 2 cities require smog tests, Fairbanks and Anchorage, and you may get a waiver if it is located outside of the state.

Even though the car was now an Alaska registered vehicle, California kept sending me letters for the next 4 or 5 years threatening that I would be hung by my thumbs if I didn't pay the current, and past years registrations. The folks at the California DMV could all suck lemons as far as I was concerned.

When we moved from Sonoma County, California to Ajijic in 2001, we notified neither the Franchise Tax Board (the California state income taxing authority) nor the California DMV. We really never gave the need for notification that we were moving to a foreign country any thought. While we have faithfully paid our U.S. federal income taxes every year since, we never even contacted the Franchise Tax Board at all nor have we ever heard from them which may be because they have no idea where we live. I now have this vision of re-visiting California on vacation and ending up in Folsom Prison even though my crime is simple oversight. I remember back in the 70s when I returned to live in Alabama after working in California for a couple of years and they tracked me down relentlessly until I paid them some taxes owed of which I was unaware. Those folks are creeps with whom not to trifle.

The real reason for my post is to warn readers of what happened to me when I returned to the U.S. to sell my California plated car back in 2003. I was planning to sell the car to a reputable corporate used car buyer in San Antonio because I did not trust some sleazy Laredo used car dealer to pay me with a legitimate warrant after I signed off title at sale. Well, when the proposed buyer ran a title check, the California DMV claimed I owed them for a couple of years back registration fees so the buyer refused to go through with the deal even though the state had no legitimate lien on the car. I returned to Ajijic but later returned and registered the car in Texas which solved that problem but only after considerable pain.

My point is that it is important to let your state DMV or taxing authority or voter registrar in your county know you are leaving the country. Maybe I´m the only clown who didn´t think of this when leaving the U.S.

Papirex

Jul 10, 2010, 8:23 AM

Post #10 of 26 (34831 views)

Re: [Brian] Paying state income taxes in the USA

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It's a good thing that in The US, a court decision sets a precedent. In México, a court decision never sets a precedent that must be followed in future cases.

Rex
"The supreme happiness of life is the conviction that we are loved" - Victor Hugo

ken_in_dfw

Jul 10, 2010, 9:30 AM

Post #11 of 26 (34807 views)

Re: [Papirex] Paying state income taxes in the USA

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In Reply To

It's a good thing that in The US, a court decision sets a precedent.

OMG, Rex! You violated the code of MexConnect! You admitted there is actually a good thing about the U.S. Wink

eyePad

Jul 10, 2010, 11:49 AM

Post #12 of 26 (34767 views)

Re: [ken_in_dfw] Paying state income taxes in the USA

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We spend half our time in Mexico and the other half in various other countries, which include Calif, USA. We can confirm that Calif State is very unreasonable about taxes. You invariably finally get ahold of someone who cancels/clarifies/closes some issue ONLY to go through it every year for the next 2-3 years. Puros pendejos que vayan a la chingada.

Nov 15, 2016, 12:58 PM

Post #13 of 26 (25478 views)

Re: [Brian] Paying state income taxes in the USA

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Re: "California is prohibited from taxing retirement benefits from recipients who earned their pensions there but live elsewhere now"
Brian,
What needs to be done in order to prevent California from taxing my pension? I will be retiring in a few months from my employment in La Jolla, Ca. Is it going to be enough if I notify my employer's retirement center of my Mexican address, or do I have to notify California government in some way as well?

Nov 15, 2016, 3:22 PM

Post #14 of 26 (25465 views)

Re: [viktoremski] Paying state income taxes in the USA

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Hi This is a really old message thread!
Notify the pension administrator of your Mexico address as well as any U.S. post box if you use one. Instruct them not to withhold CA tax from your proceeds.
File and pay your annual federal tax return. No obligation to file CA return.
I had an interesting situation that confirms this information.
Early in retirement while living in Tijuana, I commuted and worked part-time for the San Diego Padres. Since those earnings were in the US, I filed and sent copy of my 1040 to Sacramento. I paid CA tax only on the Padres income and not my government pension. After I quit working, I no longer filed CA. Hope this helps.

(This post was edited by Brian on Nov 15, 2016, 3:23 PM)

Nov 15, 2016, 3:33 PM

Post #15 of 26 (25461 views)

Re: [Brian] Paying state income taxes in the USA

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Perfect, thank you!

Apr 5, 2017, 12:23 PM

Post #16 of 26 (23979 views)

Re: [Brian] Paying state income taxes in the USA

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Hi Brian,
Sorry to go back to the old thread again. As you expressed then, I understand CA cannot tax my pension from (soon to be) former CA employer, since I reside in Mexico. But how about pre-tax retirement savings plans, like 403, 457, and DC? They will be paid out to me in September of this year, after I terminate my employment in CA this summer. Are they taxable by the state?
Today I spoke with Fidelity where I have these plans. I was told that when paying them out, Fidelity would either withhold or not CA tax, based on my address showing in their files. Right now they have my CA mailing box address, which means they would withhold the tax. If I provide them with my Mexican residency address, I think, they will not. But I don't want to end up owing lots of money to the state when filing taxes next year (I will have to file my return with CA, since I was, still am, employed in California, until the end of June).
Will appreciate your thoughts on this, or anyone else's thoughts as well.

RickS

Apr 5, 2017, 4:11 PM

Post #17 of 26 (23954 views)

Re: [viktoremski] Paying state income taxes in the USA

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Not Brian, but......

If you are not a resident of California (you said your bonafide residence is Mexico), then the State of Cal CANNOT tax your proceeds from a 457 etc account. I would make sure that "Fidelity" gets a formal and verifiable communications from you that your domicile is NOT california (or said positively, IS Mexico)!

10-15 years ago California tried to tax 'earings made in California' even if you no longer lived in that state.... the claw back. The Courts shot them down big time. Taxes are only owed in the location where you receive the funds, not where you may have earned them. In your case (as is in Nevada, Texas, Florida etc) you will owe no STATE taxes... just the IRS.

Apr 6, 2017, 9:26 AM

Post #18 of 26 (23892 views)

Re: [RickS] Paying state income taxes in the USA

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Thanks for your reply. I hope you're right, although I still have some doubts about the pre-tax 403, 457, and DC. Since all of them were funded by pre-tax wages, CA never had a chance to get their hands on that part of my earnings. The other thing is, that even though I will notify them of my Mexican residence address, the payout will be to US Citi bank account...

RickS

Apr 6, 2017, 9:45 AM

Post #19 of 26 (23885 views)

Re: [viktoremski] Paying state income taxes in the USA

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Well, I know that I am correct about the pre-tax 457 type accounts. I just had that re-confirmed yesterday by my 457 pension administrator. It is the law. It makes no difference to the IRS or a state taxing authority where the monies were earned, it is where those earnings become 'income' (the moment you take a payout whether that be 'total' or via an RMD) that determines the tax status of that earned income. California cannot grab what is not theirs according to law. They tried that years ago and got their hands slapped (by the Courts!).

But this is just "Interent Forum Tax Guidance", so I guess you would be wise to check with your 457 Pension Administrator, who I assume is Fidelity. And, yes, you would be wise to make sure that they have your place of legal residence correct.

(This post was edited by RickS on Apr 6, 2017, 3:51 PM)

Apr 6, 2017, 10:31 AM

Post #20 of 26 (23878 views)

Re: [RickS] Paying state income taxes in the USA

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Thanks a lot Rick. I appreciate your input!

hunteradvisor

Apr 9, 2017, 12:45 PM

Post #21 of 26 (23777 views)

Re: [viktoremski] Paying state income taxes in the USA

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Hi Brian,
RE this part of your comment:
"But how about pre-tax retirement savings plans, like 403, 457, and DC? They will be paid out to me in September of this year, after I terminate my employment in CA this summer".
Unless it's a really small payout, I would suggest you open a self directed IRA (Individual Retirement Account) at Fidelity (make sure to use your Mexico or TX address) and have your employer do a non taxable transfer to your IRA. This way you will not have tax due on the entire amount April of 2018. You can make withdrawals as needed to control which tax bracket you end up in. Your retirement money is taxed as 100% income to you.
Keep in mind that taxes will be due someplace, so you still need to file a US 1040 tax return and claim your retirement distribution as income. If you use Mexico, TX or any other non state income tax state then you are off the hook for at least that portion.
Isabel
www.RanchoSolyMar.com

(This post was edited by RickS on Apr 10, 2017, 9:28 AM)

Apr 10, 2017, 9:12 AM

Post #22 of 26 (23693 views)

Re: [hunteradvisor] Paying state income taxes in the USA

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Thanks Isabel. That's certainly something worth consideration. However, there is a strong possibility that I will want to buy another property in Mexico, and I don't know if the self directed IRA account will give me that flexibility and immediate access to cash if I need it. I will have to think about it...

RickS

Apr 10, 2017, 9:33 AM

Post #23 of 26 (23689 views)

Re: [viktoremski] Paying state income taxes in the USA

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I'm not assuming that you don't have tax knowledge or advice, but...... I, like Isabel, suggest you give a lot of consideration to creating a huge 'taxable event' by withdrawing a large amount of your DC funds in one year. Without other off-setting credits in that year you will be putting yourself in a very high tax bracket and your Uncle is going to be the richer for that decision.

Apr 10, 2017, 10:22 AM

Post #24 of 26 (23683 views)

Re: [RickS] Paying state income taxes in the USA

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Hi Rick, you are certainly right if you think that I don't have a lot of tax knowledge. I understand though I would pay quite a lot in taxes by withdrawing the whole amount. I will read up on the self directed IRA account suggested by Isabel. Like I said, my concern is not being able to access the money if I decide to purchase a property this fall.

Gatos

Apr 10, 2017, 2:08 PM

Post #25 of 26 (23630 views)