Only for purposes of residency with regards to tuition at the UoM. But, yes; wow.
I’d be pretty sure that is only with regard to tuition, though. That’s the situation my mother was in when she moved to Wisconsin to get her PhD at UW. She was still a Wisconsin resident for tax purposes, though.
If Michigan was the US state you lived in during 2008, then that’s where you file your taxes.
As mentioned upthread, you probably won’t actually owe taxes on the money you made in the Peace Corps…but you still have to file. I used to teach English overseas and wound up not owing any tax on the money I made then. IIRC if you are abroad for a full year and make under some certain amount, around $70,000, then you won’t owe any taxes on your overseas income. I couldn’t swear to those specific details, but your tax software or whoever does your taxes for you should know how to handle it.
Get some (free tax advice):
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Residency for tax filing purposes and residency for tuition purposes are two totally different things.
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Residency for tax purposes depends on where you intend to stay for the long term (or intend to return to if you are away from there). Based on your facts it sounds like IL is our resident state to me (i.e., you are a college kid who grew up in IL, went to school in Michigan, went to be a PCV for a while, are now back in school in Michigan, and after school will return to IL if you don’t make plans to go elsewhere (at which point you’d be changing our residence)).
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Almost every state income tax system keys off of the U.S. federal income tax system. So, your income for state income tax purposes will probably be your U.S. federal taxable income with some adjustments. Therefore, if you qualify for the exclusion for foreign earned income, you likely will owe no or very little state tax.
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The rules on whether you qualify for the foreign earned income exclusion are more complex than many people think they are. I imagine Turbo Tax or the like has a set of questions that will guide you through it. Anyway, just wanted to say that you shouldn’t assume you qualify for the exclusion just because you worked outside the country.
You do have taxable income if your in the Peace Corps, though probably not enough to need to file a return.
Calculating income for the Peace Corps is very simple: you’re sent a W2 that covers the readjustment allowance. You also have to go to their website and download the taxable allowance information (pdf). Page 9 has information for Bulgaria. There are three components: the living allowance (for Bulgaria, between $62.26 and $74.44 per month), the Walk-Around Allowance ($383.98 if you ended you service in June) and the leave allowance ($24 per month). Add the numbers up and that’s your taxable income.
In my daughter’s case, it’s not enough to owe state taxes, so she’s fine. Most likely, it won’t be enough for Michigan (though any additional income could put you over their minimum).
Similarly, the year I left graduate school and moved out of state, I had to file in three states. I was a resident of Wisconsin, who went to grad school in Minnesota. I did not earn income in Wisconsin but because I was a resident and there was a MN-WI reciprocity agreement for their state universities, this discount was essentially counted as income. Then I had taxes on the money I earned in Minnesota, and also what I earned in my new adopted state of Illinois.
So, definitely don’t assume that your state residency has a thing to do with where you’re supposed to be filing state taxes, among other potential assumptions you could leap to.