(CALIFORNIA) Indian-origin professionals leaving the United States 🇺🇸 for jobs and family life back in India are being warned that state taxes can follow them home if they depart but leave key ties behind. Tax rules in California, New York, New Jersey, and Virginia can treat returnees as continuing residents for state purposes, potentially taxing worldwide income earned in India after departure. The risk is immediate for those planning moves in 2025 and 2026, especially families who relocate in stages.
How states determine residency: domicile and ties matter
California’s rules draw particular attention because the state does not rely solely on day counts. Residency turns on where a person is domiciled—their true, fixed home—and whether they keep meaningful links to the state.
Common ties that can indicate continued domicile include:
– A home or active lease in the state
– A spouse or children still living there
– A state driver’s license
– Voter registration
– Frequent visits that create the appearance the person never really left
New York, New Jersey, and Virginia apply similar concepts. People who break federal ties but leave state footprints can still face state-level tax bills.
“When a person ‘leaves ties,’ the state may argue they never changed domicile at all.”
Real-world examples and risks
Analysis by VisaVerge.com shows many people who thought they had wrapped up U.S. affairs later discover a state revenue department still considers them residents because of lingering ties—an active apartment lease, a California driver’s license, or a U.S. address on bank and payroll records.
Example scenario:
1. Rohit moves back to India from California in July 2025 after several years on an H-1B.
2. He keeps his Los Angeles apartment “just in case,” continues using his California driver’s license, and lists his California address on U.S. bank accounts.
3. California may view him as domiciled in the state and tax his full-year income, including salary earned in India for the second half of 2025—even if he spends fewer than 183 days in California after leaving.
New York and New Jersey similarly tax worldwide income for residents and require part-year residents to file on income earned while resident plus state-source income after departure. Virginia can treat someone as a domiciliary resident, or as a resident if they maintain a place of abode for more than 183 days.
Families who relocate in stages—one spouse and children staying to finish the school year, for instance—are particularly at risk because a continued “center of life” in the U.S. can pull the whole family back into residency.
Steps that reduce the risk of being treated as a resident
Tax professionals say the most important steps are simple but often delayed. The cleanest evidence of a domicile shift includes:
- Terminate a lease or sell the home (strongest proof)
- Surrender the state driver’s license
- Update payroll and bank addresses to an Indian address
- Close out voter registration
- Document time spent abroad (keep travel records, visas, work contracts)
- Avoid frequent returns that reinforce U.S. ties
Note: One or two trips for work or emergencies rarely decide a case. But frequent trips combined with active housing and community ties make it much harder to claim nonresident status.
Filing for the departure year: part-year returns
For departures midyear, filing a part-year resident return is critical.
- In California, use Form 540NR for part-year and nonresidents. This lets taxpayers allocate income to the period before and after leaving and separate California-source income from foreign income.
- Official guidance on residency and part-year filing criteria is published by the California Franchise Tax Board. See the state’s residency overview on the California Franchise Tax Board website: https://www.ftb.ca.gov/individuals/moving-to-and-from-california.html
Failing to handle state filing correctly can trigger letters, audits, and unexpected assessments months later.
Why families with H-1B backgrounds are especially exposed
Families with H-1B experience often have deep roots in the U.S.—property leases, school enrollments, long-held bank accounts, and active driver’s licenses are common. When families leave in stages:
– One spouse may keep the home for practical reasons
– Children may remain through the school term
– Small details (e.g., a family cellphone plan billed to a U.S. address) can be cited as part of an overall pattern indicating continued domicile
How states apply tests and what to watch for
- California: focuses heavily on domicile and intent. Days in state is not a shield if domicile points to California.
- New York: applies domicile and statutory residency tests and taxes worldwide income for residents.
- Virginia: distinguishes domiciliary and actual residents, with a 183-day threshold for those maintaining a place of abode.
- New Jersey: follows a similar framework to New York and Virginia.
The test is fact-intensive and considers:
– Where the person works
– Where family lives
– Where important belongings are stored
– Where health providers are located
– How the person describes their home on official documents
Important: The 183-day rule can cut both ways — fewer than 183 days is not an automatic safe harbor if other indicators point to continued domicile.
Practical checklist before leaving (recommended timeline)
For those planning a move this year or next, consider taking these actions before the final flight:
- End housing: sell the home or terminate the lease.
- Move family if possible, or reasonably consolidate the family’s center of life in India.
- Surrender the state driver’s license.
- Update addresses on payroll, bank accounts, tax filings, and official documents.
- Close voter registration and cancel local memberships/subscriptions tied to a U.S. address.
- Document presence in India (employment contracts, rental agreements, utility bills).
- If leaving midyear, file the appropriate part-year resident return and keep copies.
Doing these actions together builds a coherent record that matches the reality of a life moved overseas and reduces the chance a state will claim the person remained a resident.
Final takeaway
Return migration to India has accelerated, particularly among technology workers and families, making state residency questions more than a technical puzzle—they affect paychecks, retirement and savings plans, and the first year of resettlement.
- Warning: Leaving ties behind can create unexpected state tax exposure.
- Best practice: Create a consistent, documentable record of the move and file the correct part-year returns for the year of departure to minimize the risk of state tax claims.
This Article in a Nutshell
U.S.-based Indian professionals returning to India must carefully sever state ties to avoid being taxed as continuing residents by California, New York, New Jersey, and Virginia. States use domicile, statutory residency, and day-count tests to determine residency; California emphasizes domicile and intent rather than day counts alone. Families relocating in stages face heightened risk because remaining household links (leases, driver’s licenses, U.S. addresses) can signal continued residency and trigger taxation of worldwide income. To reduce exposure, taxpayers should terminate leases, surrender driver’s licenses, update payroll and bank addresses, close voter registration, document time abroad, avoid frequent returns, and file part-year returns like California’s Form 540NR. Proper, coordinated documentation and timely filing minimize audits, letters, and unexpected assessments.
