How to Eliminate State Taxes

Even when you move to Panama, you may still need to pay state income taxes and file an annual state income tax return.

Some states in the United States do not have a state income tax. But some states, like California, have very high state income taxes, which will not disappear just because you move to Panama. You could be required to pay taxes on your pension and/or Social Security in some states even after you move to Panama.

But there is a solution!

Before you move to Panama, establish residency in a different state that does not have a state income tax. You’ll also get a driver’s license in that state, and you’ll be able to vote as a resident of that state. Watch the replay of this Livestream about how you can establish residency in just ONE DAY in South Dakota.

All United States citizens must file an annual Federal tax return and pay taxes on their worldwide income. However, if you have active income, you may qualify for the Foreign Earned Income Exclusion, which currently (2022) allows you to exempt $112,000 in income.

The Foreign Earned Income Exclusion is a HUGE bonus when you live outside of the United States full time. Here’s an example:

Let’s say you earned $150,000 in income. You work remotely and move to Panama. You can deduct $112,000 from the $150,000 income, so you only need to pay taxes on $38,000!

Jackie Lange

Jackie Lange is the founder of Panama Relocation Tours and lives in the highlands of Boquete Panama. She has helped thousands of people relocate to Panama.

Reader Interactions


  1. Roy Schlaudt says

    Hi Jackie,

    The video on SD residency was very informative,but I was wondering if you did one with a Florida mail forwarding service? I have not researched it completely but their license renewal is 8 years and if your needing to keep a US health insurance policy, it’s a lot closer. If this is covered in your guide, please let me know. Thank you, Roy

  2. Cindy Fernau says

    Hi Jackie, I couldn’t find any past info on bringing medicines into Boquete.
    Some are prescription, some are OTC, some have original bottles with labels, some do not. Do you know what the rules are for bringing medicines into Boquete from the U.S.? We are going in June for a test and staying up to 6 months to see if this is where we want to live.

    • Jackie Lange says

      You can bring legal medications into Panama. They can be in a pill organizer or original bottle. It’s best to keep them in your carry on luggage

  3. Joe R. says

    Hi Jackie,

    In regards to state taxes isn’t SD the only state where you don’t have to own property to have residency status? So unless your maintaining a residence in the states is this SD solution the only option? I was wondering if there were any additional options in between, if they ever change the law in SD regarding residency and you don’t have the resources to maintain a property in the states what do you do?

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