State tax basics
US states (most) impose their own income tax on top of federal. State tax residency is determined by state rules, NOT federal rules.
States with NO income tax: AK, FL, NV, NH (interest/div only), SD, TN, TX, WA, WY. Filing here means federal-only.
The three biggest states for NRIs: California, New York, New Jersey.
California — toughest state for NRIs
CA state tax: up to 12.3% + 1% mental health tax (above $1M) = up to 13.3% top rate.
CA residency tests:
- Domicile in CA, OR
- "Closer connection" to CA than other locations
CA aggressively pursues part-year residents and former residents claiming they moved.
Key cases (NRIs leaving California):
- Bindley v. Franchise Tax Board (2017): Even after moving, CA can tax based on factors like maintained home, family, professional license, vehicle registration
- The FTB is famous for audit aggressiveness
To clearly leave CA:
- Sell or rent out CA home
- Change driver's license
- Change voter registration
- Move family
- Update professional licenses
- Document everything
CA non-resident filing:
- Source income (CA-based salary, rental, business) still CA-taxable
- File Form 540NR (non-resident return)
- No CA tax on non-CA-source income
New York — strict statutory residency
NY state tax: up to 10.9%. NYC adds another ~3.876%.
NY residency tests:
- Domicile in NY, OR
- Statutory residency: 183+ days in NY AND maintains permanent place of abode
The 183-day rule is strict — any presence in NY on a day counts as a full day for these purposes.
Permanent place of abode:
- Could be your apartment, parents' home, even hotel suite over time
- NY courts have found "available abode" even when you don't own it
NY non-resident filing:
- File IT-203 if NY-source income
- Source: NY-located rental, NY-employer wages allocated by workdays, NY business activity
- Convertible bond income, stock sales — see specific rules
Moving out of NY:
- Establish domicile elsewhere
- Spend < 183 days in NY
- Avoid maintaining permanent abode
- File "Change of Domicile" indication on final NY return
New Jersey
NJ state tax: up to 10.75% (effective top rate).
NJ residency tests:
- Domicile in NJ, OR
- Statutory residency: 183+ days in NJ AND maintains a permanent home in NJ
Similar to the NY structure.
NJ non-resident filing:
- Form NJ-1040NR
- Source income (NJ rental, NJ wages allocated, NJ business)
Reciprocity with PA:
- Wages earned in NJ by PA residents (and vice versa) are taxed only in the resident's state
- Doesn't help NRIs (no India reciprocity)
State treatment of FBAR / foreign income
States vary:
- Federal tax positions (treaty tie-breaker, etc.) NOT automatically followed by states
- Most states tax based on federal AGI + state adjustments
- Some states (CA, NY) heavily scrutinize foreign income disclosures
For NRIs who claimed treaty non-resident on federal but lived in CA/NY: States can still treat you as state resident. Pay state tax even while federally non-resident.
State tax on NRI investments
Indian bank interest:
- Federal: taxable
- State: typically taxable (follows federal AGI)
- No state-level FTC for Indian tax (unlike federal)
Indian capital gains:
- Federal: taxable
- State: typically taxable
- Significant state tax on top of federal
Indian property sale:
- Federal: gain on Schedule D
- State: depends on state rules; some states tax foreign capital gains
Pre-move planning (leaving CA, NY, NJ)
If you're an NRI leaving high-tax states:
- Document your move date rigorously
- Sell or rent out US home (don't keep as second home)
- Change all registrations: DMV, voter, professional
- Establish new domicile clearly
- Sever financial ties: close state-based bank accounts (or convert to other state)
- File final state return as part-year resident
- Don't return for 183+ days in early years
Worked example — leaving California
You earn $200K in CA in 2024, move to India July 1, 2024.
CA part-year:
- 6 months income: $100K
- CA tax: ~$10,000
Federal part-year + treaty non-resident:
- $100K CA-side income
- $100K India-side (treaty non-resident)
- Federal tax on $100K with FTC
If CA aggressive on residency:
- Claims you were CA resident full year
- CA tax on full $200K: ~$20,000
- Subject to FTB audit
To defend:
- Documentation of move (travel records, India lease/property, India work contract)
- US assets divested
- Strong India ties documented
Common state tax mistakes for NRIs
- Forgetting state return when filing federal
- Not changing driver's license / voter registration before move
- Selling US home AFTER move (state may claim full-year residency)
- Returning for 183+ days first year out
- Failing to file part-year return
Practical advice
- Plan state exit at least 12 months before
- Hard-cut all state ties by move date
- Don't keep "second homes" in high-tax states
- File part-year return in move year
- Document return visits carefully (under 183 days)
- Engage state-aware CPA — federal CPAs sometimes miss state nuances
State summary
| State | Top Rate | Key Test | Aggression |
|---|---|---|---|
| CA | 13.3% | Domicile + closer connection | Very high |
| NY | 10.9% + NYC | 183 days + abode | High |
| NJ | 10.75% | 183 days + abode | Medium |
| TX/FL/WA | 0% | N/A | N/A |
For NRIs with flexibility, becoming a Texas or Florida resident before the international move can save 10%+ tax on US income years before final exit.
Explore our complete US Tax Return Guide to understand refunds, filing rules, and IRS procedures for NRIs.