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  1. #1

    Default Do States Offer Foreign Earned Income Exclusions

    My question involves tax law for the state of: North Carolina and Ohio

    I'm currently a student in Ohio who has kept my permanent residence in North Carolina for the duration of my stay (I vote in NC, I pay income taxes to NC, my driver's license says NC, I don't have a car registered in OH, etc.). However, starting from the middle of October or so, I will be in Luxembourg working on my doctorate for about three years. Because of when I'm leaving, I figured I should get all of my income tax stuff in order to avoid any nasty tax headaches come April.

    The big question in my planning, though, is this: do Ohio and NC recognize the foreign earned income exclusion that the federal government does? My research suggests yes, but I don't want to make a costly mistake in assuming that such is the case.

  2. #2
    Join Date
    Oct 2014
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    Default Re: Do States Offer Foreign Earned Income Exclusions

    Quote Quoting bloodbath
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    My question involves tax law for the state of: North Carolina and Ohio

    The big question in my planning, though, is this: do Ohio and NC recognize the foreign earned income exclusion that the federal government does? My research suggests yes, but I don't want to make a costly mistake in assuming that such is the case.
    Not expressly, but they do so indirectly. Both states have a high degree of conformity to the federal tax code. They both start with your federal adjusted gross income (AGI) to compute your state tax. The federal earned income exclusion is an an adjustment you make in determining your AGI. So, since it reduces your AGI, it also reduces the baseline for computing your state tax, too. From there, you make certain adjustements to your AGI to determine your state taxable income. But neither state requires an addition back to state income for the foreign earned income exclusion amount you took on your federal return in computing your AGI, so the end result is that this amount is excluded from your state income tax returns, too.

  3. #3
    Join Date
    Oct 2006
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    16,474

    Default Re: Do States Offer Foreign Earned Income Exclusions

    Quote Quoting Taxing Matters
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    Not expressly, but they do so indirectly. Both states have a high degree of conformity to the federal tax code. They both start with your federal adjusted gross income (AGI) to compute your state tax. The federal earned income exclusion is an an adjustment you make in determining your AGI. So, since it reduces your AGI, it also reduces the baseline for computing your state tax, too. From there, you make certain adjustements to your AGI to determine your state taxable income. But neither state requires an addition back to state income for the foreign earned income exclusion amount you took on your federal return in computing your AGI, so the end result is that this amount is excluded from your state income tax returns, too.
    I agree, but will add (even though it should be obvious) that 2015 will be somewhat more than complicated for you since you will have resided in the US for most of that year. A prorated foreign income exclusion will be possible since your stay in Luxemburg will exceed 12 months, (assuming that you earn income while in Luxemburg) but income earned while in the US will still be treated the same as always.

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