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What U.S. expats need to know about voting and their tax status

A Utah County Board of Elections worker puts mail-in ballots into a container to record the vote during the November 6, 2018 midterm elections in Provo, Utah.

George Frey | Getty Images News | Getty Images

As the November 3 presidential election approaches, Americans living abroad are wondering if they can and should vote. One of the most common questions asked by those U.S. citizens living abroad is, “Will voting from abroad in federal elections affect my U.S. tax status?”

The short answer is no.” If you vote only for federal office, voting will have no impact on your obligation to pay state income tax or any other taxes.

The United States 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 American expats worry that voting from abroad will force them to pay additional US income taxes, making them reluctant to vote.

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According to the US State Department, Americans abroad can vote by mail and voting for candidates for federal office will not affect a voter’s federal or state tax. Federal elections include elections for president and vice president and for members of Congress. A US citizen’s right to vote is a constitutional right that does not depend on having filed or paid US income taxes. Voting for federal office will therefore not create additional federal or state tax on the US expatriate’s income.

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 albeit overseas and therefore may be subject to state taxes. Therefore, if you vote for state or local offices, under state law, voting could result in increased state income tax. This is due to the way some states tax former residents who retain their domicile in the state.

Domicile is the fixed, permanent and principal domicile of a person in which he resides or to which he intends 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.

American expats are usually registered to vote in the last state they lived in before moving abroad. It is from this State that they will request their absentee ballot. They could therefore potentially vote for the state candidates listed on their absentee ballot. These offices include the governor, attorney general, and state officials, for example.

When an overseas move is temporary, American expats typically retain their state domicile. They keep their houses, which they can temporarily rent out, and maintain links with their communities, their church, their social circles, their doctors, etc. Temporary American expats generally want to vote for state office. These ties, including their state votes, are considered proof of state domicile.

Currently, 41 US states impose income taxes. States that impose income tax will tax nonresidents on their domestic source income and residents on their worldwide income. State source income is income earned in the state, such as wages earned while physically present in the state.

Global income is income earned anywhere in the world, such as wages earned in a foreign country. Being taxed as a resident of the state versus being taxed as a non-resident of the state can therefore mean several thousand 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 American expats.

By not voting for state offices, American expats who are unsure whether they will return to their former state of residence or who have decided to stay abroad permanently can avoid the risk of seeing the tax on state income assessed on their worldwide income.

States like New York and California, for example, have safe harbor rules that allow certain people domiciled in the state but temporarily absent to avoid being taxed as residents of the state by passing a limited number of days per year in the State concerned. Americans temporarily living abroad who want to vote for state offices they care about may still be able to avoid being taxed by their state on their worldwide income by following the rules of the sphere of security of their state.

Understanding these rules allows civic-minded expats to fully exercise their right to vote without increasing their tax burden in the United States.

— By Marina Hernandez, cross-border wealth manager at Swiss American Wealth Advisors