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My wife is a freelance web developer, formerly residing and paying taxes in NY. She left her job in December 2011. We moved to Italy (where I am employed by the U.S. government) in January 2012.

Since arriving in Italy, she has accepted freelance work from U.S. customers, and has begun to receive payment for this income.

Obviously, we need to claim her income on Federal taxes.

The question is, does she also need to pay state taxes on this income?

  • She does not physically reside in any state.
  • She does not work for a business in any state.
  • I continue to pay IN taxes (it is where I began my federal employment) even while overseas.

Any ideas?

Clarification: This is concerning taxes we will pay for income earned in 2012

Mike Christiansen
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2 Answers2

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No state taxes, but Italy also has a favorable treaty with the US Federal Government. Look into to lowering your federal taxes to 5% ;)

its a thick read, http://www.irs.gov/businesses/international/article/0,,id=169601,00.html

and also try to determine if the Foreign Earned Income Exclusion applies to you, reducing your Federal tax to ZERO on the first $95,100 earned abroad.

http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html

but then you may be subject to a 20%+ italy tax. so maybe you should just try for the tax treaty

CQM
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New York will want to you to pay taxes on income from "New York sources". I'm not sure what this means to a freelance web developer.

If your wife is doing freelance web development under the same business entity as she did in New York (ie. a New York sole proprietor, corporation, etc), you probably do need to file.

From nonresident tax form manual:

http://tax.ny.gov/pdf/2011/inc/it203i_2011.pdf

If you were a nonresident of New York State, you are subject to New York State tax on income you received from New York State sources in 2011. If you were a resident of New York State for only part of 2011, you are subject to New York State tax on all income you received while you were a resident of the state and on income you received from New York State sources while you were a nonresident.

To compute the amount of tax due, use Form IT-203, Nonresident and Part-Year Resident Income Tax Return. You will compute a base tax as if you were a full-year resident, then determine the percentage of your income that is subject to New York State tax and the amount of tax apportioned to New York State.

duffbeer703
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