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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 12511
Experience:  Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
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Dear Mr. Grizey, I saw your answer explaining that any US

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Dear Mr. Grizey,
I saw your answer explaining that any US citizen, doesn't matter where he/she lives, is tied to a state and hence may be liable of paying income taxes on foreign income. My situation is somewhat different: I am not a US citizen but a permanent resident working abroad. The last state I lived in was NJ. I still keep a postal address and a car registered there. Does this mean I have to pay NJ income tax on the foreign earned income? Can I file NJ taxes as a part year resident?
Submitted: 1 year ago.
Category: Tax
Expert:  Stephen G. replied 1 year ago.

Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

Stephen E. Grizey :

As far as I know, as a permanent resident you are treated in the same manner (income tax wise) as any US Citizen is treated. Since I am not familiar with the NJ rules & how they treat the foreign income exclusion, I am going to "opt out" & let another CPA/expert from or near New Jersey answer your question. Thanks for asking for me.

Customer:

OK, thanks.

Customer:

May I clarify: do I need to do anything at this point for other experts to see my question?

Expert:  Megan C replied 1 year ago.
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Thank you for your question. Unfortunately, you will owe tax on your worldwide income to the state of New Jersey. This includes your foreign earned income. Also, the state of New Jersey does not give you credit for taxes paid to a foreign country on this income (which differs from if you were living in New Jersey but working in New York - you'd pay tax to New York State, then New Jersey would give you a credit based on the tax you paid to New York - not the case with a foreign country.)

CLICK HERE for the source - page 42 directly states that "Income subject to tax by any foreign country, U.S. possession, or territory" is not included on line 1 of schedule A of the New Jersey state tax return. This means the answer to your question is unfortunately YES! You have to pay taxes to NJ for your foreign earnings.

If you're going to live out of country for a while, you should consider setting up domicile in a state without income tax, such as Tennessee or Florida (there are others but those are the ones on the top of my head.)

The only way you can claim that you were a part year resident is if you lived in another state for the rest of the year. However, as a US Citizen you must also have a US resident state.

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Customer: replied 1 year ago.
Hi! As I explicitly stated in my question I'm not a US citizen but a permanent resident. Hence the question: am I also tied to a state while abroad? can I file as part time resident if I spend most of the year working/living abroad?
Expert:  Megan C replied 1 year ago.
Yes, the answer is still the same - you still have the same tax obligation to the United States - both at the federal and state level.

The only way to get around this, and to get around your liability to the state, would be to renounce your US Residency. That's probably not necessary at this point.

The part year argument won't work for New Jersey because New Jersey tax obligation is directly tied to your US residency; you could only file a part year New Jersey Return if you lived in another state for a part of the year.

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Customer: replied 1 year ago.
Thank you for the clarification. There seems to be a substantial difference between state and federal income tax when it comes to foreign income. The IRS website http://www.irs.gov/newsroom/article/0,,id=108276,00.html says permanent residents may have tax home in a foreign country. Although I'm not exactly sure what constitutes a tax home, I would think a similar story might be true for NJ tax as well: if my tax home is abroad I might escape paying state tax. Please, tell me if I'm wrong.
Expert:  Megan C replied 1 year ago.
Yes, you are wrong. The state will not give you a credit for taxes paid to a foreign country. That is the information that is provided on page 42 of the document that I linked to in my initial response.

The only way to get around paying state tax is to become a resident of a state with no income tax (which usually takes at least 6 months of physically living in a state), unless you renounce your US Residency, which is not advisable.

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Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 12511
Experience: Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
Megan C and 6 other Tax Specialists are ready to help you
Expert:  Anne replied 1 year ago.
Hi

While the above expert is correct that you must file a NJ tax return, I do believe that you qualify to file as a Non Resident of NJ. Please see the explanation on page 8 of the instructions that the above expert referred to: CLICK HERE

I've highlighted it below for your convenience:



Nonresident — File Form NJ-1040NR

a(Nonresident Return) as a nonresident if:

New Jersey was not your domicile, and you spent 183 days or less here;

or

New Jersey was not your domicile, you spent more than 183 days here,

but you did not maintain a permanent* home here.

You may also be considered a nonresident for New Jersey income tax

purposes if you were domiciled in New Jersey and you met all three of

the following conditions for the entire year:

♦ You did not maintain a permanent home in New Jersey; and

♦ You did maintain a permanent home outside of New Jersey; and

♦ You did not spend more than 30 days in New Jersey.


Please note that one of the requirements for residency is that you have a permanent home established in NJ that you intend, at some point in the future, to return to. This would be your permanent home. A PO Box with a car registered in NJ would not make you a Resident.


Unless your employer is NJ based and you have NJ withholdings, your filing a 2011 Form NJ-1040NR - State of New Jersey will not result in any tax due, but you will have to file the form to prove to NJ that you do not owe tax to them.

I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me."


Customer: replied 1 year ago.
This is interesting, thank you. What do I do if I lived in NJ up until now but will spend the rest of the year abroad? I stayed more than 183 days in NJ this year but I'm confused if the place I had/have is my permanent home. The definition of "permanent" is confusing. I'm not owing a place, just renting it. Does it mean it's not permanent because "it's accomplishing a particular purpose", say I use this place as a storage for my belongings?
Expert:  Anne replied 1 year ago.
Yes, as long as you are paying the rent while living abroad, then NJ could argue that you still have a home that you obviously plan to come back to since you didn't break your lease and continued to pay the rent.
Customer: replied 1 year ago.
Sorry, do you mean, yes, it's a permanent place because, one can argue, I'm planning to return to it? Or, yes, it's not permanent because "it's for a particular purpose only". Please, clarify.

More generally, given possible ambiguity with interpretation, is it a viable strategy to stick with a favorable interpretation by default? Or the state can impose substantial fines for a wrong interpretation?
Expert:  Stephen G. replied 1 year ago.
Anne is offline at the moment:

She meant "yes it is a permanent home".

Yes NJ can impose substantial fines, back taxes, penalties & interest. I wouldn't advise that you attempt to avoid the taxes, the risk is just too great. I clearly wouldn't rely on any possible ambiquity that you have. It is just too expensive to fight it if it were to arise & NJ will never agree as an unfavorable ruling for them would affect way too many people.
Expert:  Megan C replied 1 year ago.
Sorry for the confusion here - I was on my way home from the office, and had planned on addressing your follow up as soon as I got home.

The key is that you are a US resident. As a US resident, you have somewhere in the US that you live when you are here. That's your state of residence. You say that your state is New Jersey. Therefore, you owe tax to New Jersey.

Even though you live abroad, you're still a New Jersey resident for tax purposes. Although you do have a "permanent home" abroad, it doesn't count because it's not related to your US residency. Therefore, to be a "non resident" in New Jersey you would need to live in another state.

If it doesn't matter to you where you live when you are in the US, I would recommend next year relocated somewhere without income tax, like I stated before.

A "permanent" home is one that you live in - you don't have to own it. Your apartment is your permanent home.

As Mr. Grizey stated above, it's not worth the risk to try to skate by and argue that you're not a New Jersey resident. You will most likely lose that argument, which could be costly. I urge you to read the document I linked to in my first response, as that will answer most of your questions.

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