A Utah County Election office employee puts mail-in ballots into a container to register the vote in the Nov. 6, 2018 midterm elections in Provo, Utah.
George Frey | Getty Images News | Getty Images
As we approach the Nov. 3 presidential election, Americans living overseas question if they can vote and whether they should do it. One of the most frequently asked questions by these U.S. citizens who live abroad is: “Will voting from overseas in federal elections affect my U.S. tax status?”
The short answer is “no.” If you vote for federal offices only, the act of voting will have no impact on your liability to pay state income tax or any other tax.
The U.S. is unique in that it taxes its citizens on their worldwide income, even when they live abroad and even if they are tax residents of a foreign country. Understandably, many U.S. expats worry that voting from overseas will result in them owing additional U.S. income taxes, and this makes them reticent to vote.
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According to the U.S. Department of State, Americans abroad can vote by absentee ballot, and voting for candidates for federal offices will not affect a voter’s federal or state tax liability. Federal elections include elections for president and vice president and for members of Congress. The right of a U.S. citizen to vote is a constitutional right that is not contingent on having filed or having paid U.S. income taxes. Voting for federal offices will therefore not create an additional federal or state income tax liability on the U.S. expat.
What about voting for state offices?
Some states consider voting in state/local elections as an indication that you remain a resident of the state although abroad, and therefore may be subject to state taxes. Therefore, if you vote for state or local offices, under state law, the act of voting could result in higher state income tax. This is due to how certain states tax former residents who maintain state domicile.
Domicile is a person’s fixed, permanent and principal home in which they reside, or to which they intend to return after a temporary absence. States and countries generally agree that a person can have multiple residences, but they can only have one domicile.
U.S. expats are generally registered to vote in the last state where they lived before moving abroad. This is the state from which they will request their absentee ballot. They could, therefore, potentially vote for the state candidates for office listed on their absentee ballot. These offices include governor, attorney general and state representatives, for example.
When a foreign move is temporary, U.S. expats generally retain their state domicile. They keep their homes, which they may temporarily rent out, and keep ties to their communities, church, social circles, doctors, etc. Temporary U.S. expats usually want to vote for state offices. These ties, including their state votes, are considered evidence of state domicile.
At present, 41 U.S. states impose state income taxes. States that impose an income tax will tax non-residents on their state source income and residents on their worldwide income. State source income is income earned within the state, such as wages earned while physically present in the state.
Worldwide income is income earned anywhere in the world, such as wages earned in a foreign country. Being taxed as a state resident versus being taxed as a state nonresident can therefore mean many thousands of dollars in additional taxes.
Most states define who is a tax resident based on days of physical presence in the state or based on domicile. Since voting for candidates for state office is an indication of state domicile, such a vote can be potentially costly for U.S. expats.
By not voting for state offices, U.S. expats who are unsure if they will return to their former state of residency or have decided to remain abroad permanently can avoid the risk of having state income tax assessed on their worldwide income.
States like New York and California, for example, have safe harbor rules that allow certain individuals domiciled in the state but temporarily absent to avoid being taxed as state residents by spending a limited number of days per year in the relevant state. Americans temporarily living abroad who would like to vote for state offices they care about, may still be able to avoid being taxed by their state on their worldwide income by meeting their state safe harbor rules.
Understanding these rules allow civic-minded expats to fully exercise their voting rights without increasing their U.S. tax burden.
— By Marina Hernandez, cross-border wealth manager with Swiss American Wealth Advisors