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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22749
Experience:  Taxes, Immigration, Labor Relations
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My question is about Michigan State income taxes. I have been

Resolved Question:

My question is about Michigan State income taxes. I have been transferred overseas and will be living there for at least 3 years. I have sold my house in Michigan and will not be returning after I complete my overseas assignment. Do I still have to have Michigan State Income tax withheld from my check and do I have to file returns with he state while I am working overseas? Thanks for your help
Submitted: 3 years ago.
Category: Tax
Expert:  Lev replied 3 years ago.

LEV :

Hi and welcome to Just Answer!

LEV :

You are considered a part-year resident if, during the year, you move your permanent home into or out of Michigan. You must pay Michigan income tax on income you earned, received, or accrued while living in Michigan. You must attach the Schedule NR (Michigan Nonresident and Part-Year Resident Schedule) to allocate your income to Michigan and other states.

LEV :

So if you move your permanent home out of Michigan - you will not be a Michigan resident and will not be responsible for Michigan state income taxes.

Customer:

OK, I understand that applies to this year. What about next year when I will be living overseas for the entire year?

Customer:

Do i still need to pay state taxes?

LEV :

Just living abroad doesn't mean that you move your permanent home out of Michigan. Be sure to change your driver's license, voting registration etc - so there would not be any ties with Michigan. Also be sure that you register in the foreign country as a resident – so your permanent home would be in this country.

LEV :

Please be aware that a Michigan resident who works abroad may elect to exclude his or her foreign income. This income is not included in federal adjusted gross income, therefore, is not subject to Michigan tax.

Customer:

OK - I have sold my house, but will need to keep my driver's license. I won't be able to register as a resident in the foreign country because of the agreement between my employer and the foreign country. I work for a US company and will be paid in US dollars, so I don't think that qualifies as foreign income, right?

LEV :

"I won't be able to register as a resident in the foreign country" - the question is - where is your your permanent home?

Customer:

also, if it matters, my company is not based in Michigan or has any other ties to the state

Customer:

i will be living overseas for 3 years or so and then returning to the US, but not to michigan

LEV :

Where is your your permanent home?

Customer:

I will be living and working in London for 3 years - not sure if that qualifies as permanent or not? My only "tie" to michigan would be my driver's license, which i have to keep in order to be able to drive in England

LEV :

"I won't be able to register as a resident in the foreign country" - I am asking the same question - will or will not be your permanent home in London? If yes - how could you proof that if MI DOT will ask?

LEV :

If you present yourself as a non-resident in London - that means your permanent home is not moved and you are remaining a Michigan resident. To change your residency - if that what you want - you move your permanent home out of Michigan. So far - I do not see your intention to do so.

Customer:

Well, i have sold my home, will not be returning or visiting michigan while i live in london. After i finish my assignment in London, I will be assigned to Illinois. I can't be considered a "legal" resident of London (i.e. British citizen). What other proof can I show that I no longer live in Michigan?

LEV :

To be a legal resident you do not have to be a British citizen, but you have to register as a resident and pay UK taxes as a resident. If you do so - that most likely will be accepted as a proof.

LEV :

But if you want to be a non-resident in London and a non-resident in Michigan - that will not work...

Customer:

OK - i'm just looking over the link you sent over.

LEV :

We will discuss foreign earned income exclusion after completing with residency issue. I do not think your situation is that bad – just need some clarity.

Customer:

the way i read it for a resident or part year resident i would be taxed on all income i earned while living in michigan - that i understand. for a non-resident, i would be taxed on income i earned for work performed in michigan. so for this year (before i move) i will pay on what i earned while i lived in michigan. but for next year, i won't be living in michigan nor will i be earning any income for work performed in michigan - all of the work will be overseas.

LEV :

All are correct except that it is not based on where you are living, but if you are a resident of Michigan or not. And - the same issue - to change your residency you should move your permanent home out of Michigan.

Customer:

so i guess it depends on the definition of permanent home - i will not have a physical home in michigan, will not be receiving any mail in michigan, will not have any belongings in michigan etc... is there a definition of permanent home anywhere?

LEV :

If you register as a resident in UK and pay UK taxes as a resident - that will be accepted as a proof. If you will be a non-resident in UK - MI DOT will tax you on all your income as a resident.

Customer:

ok

LEV :

Will you be in UK all the time without coming back to US?

Customer:

i may come back to visit family, but not in michigan

LEV :

If you will be in a foreign country for at least 330 days during 12 month period - you would qualify for foreign earned income exclusion.

LEV :

For the person to qualify for the foreign earned income exclusion - he/she should:
-- Work and reside outside the United States for at least 330 days during the year(Physical Presence test), or
-- Meet either the Bona Fide test. - that is not your situation because you will not be UK resident.

Customer:

ok, thanks

LEV :

you may exclude up to $92,900 (2011 in foreign wages -- plus housing allowances (limited to 30% of the earned income exclusion).


To receive that exclusion - the taxpayer should file either form 2555 or 2555EZ.


Here are forms you likely need:



Please be aware that - the exclusion above will not affect self-employment taxes - only income taxes. Only earned income is excludable - income from wages and self-employment. For instance - dividends, investment income, rental income, pensions, etc - are not excludable.


Please also be aware that this credit is not granted automatically - you need to file a tax return and claim the credit.

LEV :

If you qualify for the exclusion on the federal level - you may also exclude that income for Michigan - as I mentioned above. See thi sdocument - http://www.michigan.gov/documents/RAB2002-05_96120_7.pdf

Customer:

ok - and would my salary still be considered "foreign income" if i work for a US company?

LEV :

That will be additional overhead for filing, but saving in taxes may be substantial.

LEV :

Yes - unless you are working for US government.

Customer:

ok thanks

LEV :

You are welcome.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22749
Experience: Taxes, Immigration, Labor Relations
Lev and 5 other Tax Specialists are ready to help you

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