Lived part time in NY state, overpaid state/city income tax, now corrected W2 seems incorrect

[nhulz]

Hey there, 

I lived in NYC for a couple of months in 2023 before moving to Washington state. When I moved, my employer continued to take withholding for NYS and NYC income tax for about 4 pay periods. So I overpaid by a couple thousand dollars. When I was trying to enter my part-time resident info in Turbotax, I was getting an error because I was telling it I made less in NYC than stated on my W2.

I requested a corrected W2, however it looks like the corrected W2 is just showing that overpayment switched over to my income in Washington. So it's showing how much I should have paid in NYC if I hadn't had that extra withholding. I guess it is theoretically showing what the numbers should have been all along, but the reality is I know I overpaid. So this feels wrong to me? Now with my corrected w2 Turbotax is telling me I have $0 federal refund and a much lower NYS refund even though I know I overpaid by several thousand dollars in new york. 

Happy to answer any clarifying questions. Really feeling stumped here. Thank you in advance!!

[tagteam]

I'll page Champ @Mike9241 

[Opus 17]

First, the withholding (box 17) should be what was actually withheld, regardless of whether it was right or wrong.  It can't change unless the employer refunds it to you.  The state wages (box 16) would be what the company considers to be wages subject to state tax.  If it is not accurate, you can fix it on your tax return, but you may get an assessment from the state and need to have an explanation ready of the change.

Second, and possibly more important, did you continue to work for the same employer?  If you are working for a NY employer out of state for your own convenience, NY taxes all your income from that employer.  If you are working out of state for the employer's convenience, then you are only taxed on income earned while physically living or working in NY.

For example, suppose your employer has an office available for you in NY, but you ask for permission to work remotely for your own reasons.  You are subject to NY taxes on all your wages from the NY employer. On the other hand, suppose you are a sales rep for the western states, and the company wants you to live close to your customers.  You are working remotely for the employer's convenience, and your wages are not subject to state income tax.

Also note, that even if you are working remotely for your own convenience, your wages are not taxable in NY as long as you never set foot in the state during the tax year.  That does not apply to 2023 since you started the year there.  But if you are still working remotely in 2024, and you never return to NY for meetings, training, etc., then your 2024 wages are not subject to NY tax.  But if you return to the company HQ for even one day of training or meetings, then all your wages for the year are taxable in NY.

You haven't told us what you do or if you are still working for that company, although it seems that you might be from the wording of your question.  If you are subject to the convenience of the employer rule, then all your income might be taxable in NY, not just the part reported on the W-2.  If you are not subject to the rule, you can manually adjust the amount that you report as part-year income, if it is different than the W-2.

@TomD8 is also an expert on the convenience of the employer rule. 

[nhulz]

@Opus 17 thank you so much for such a thorough response. Let me respond to a few things:

Box 17: Originally my Box 17 for NYS was 2,332.86 and WA was 0. Now it is 1,166.43 in both boxes. Presumably because I was only living in NYS for 3 pay periods of 2023, but my company withheld for 6 of them. So its just now the full amount split among the two states even though WA doesn't collect state income tax.

I did work for the same company the entire year, it was my own convenience. I don't know all the particulars of this, but my company is global and across the US. I know my company had to do something on their end to have the company established in WA or something (admittedly I am lacking understanding here, maybe I'm naive about this). I can get more info on that, but based on what you're saying, I did work for the same company throughout 2023 and because I did live there at the beginning of the year it sounds like I am subject to that convenience. Although I did go through the process of filling out the part time residency information through TurboTax 

[Opus 17]

"I don't know all the particulars of this, but my company is global and across the US. I know my company had to do something on their end to have the company established in WA or something"

It's not clear to me if you are subject to the convenience of the employer rule or not.  Here are some documents that discuss the issue.

https://www.benefitslawadvisor.com/2024/06/articles/state-income-tax/new-york-expands-rationale-for-...

https://www.tax.ny.gov/pdf/memos/income/m06_5i.pdf

In particular,

Note: Under this rule, days worked at home are considered New York work days only if the employee’s assigned or primary work location is at an established office or other bona fide place of business of the employer (hereinafter, a bona fide employer office) in New York State.

I don't want to over-think the situation or alarm you needlessly, but I don't know your situation.  Just because the main corporate office is in New York, doesn't mean your assigned place of work is in New York.  It was easier to figure out in the days before there was so much remote working.  If you worked for Kodak (a NYS employer) but you were assigned to a distribution center in WA, then your work location is in WA, and you only owe NY tax on wages earned for any days you lived or worked in NY.  If you are an in-house graphic designer for Kodak products, and your assigned location is their corporate headquarters (or you have no assigned location but other people in the product development department work at the HQ), then you are working in WA for your own convenience and all your wages are subject to NY tax.  

Only you know the circumstances of your work, and can make a determination.  If you aren't sure, we would need more details of what you actually do for the company and why you moved.

If you are subject to the convenience rule, then you file a part-year NY resident return for 2023, reporting all your world-wide income up to the time you moved out, and you report all your wages from that employer as a non-resident for the rest of the year.  But income not connected to NY (other jobs, investment income, etc.) is not taxed by NY (and WA has no income tax, of course.)

If you are not subject to the convenience rule, then you file a part-year NY resident return for all your world-wide income up to the day you move out of state, and you add any income earned in NY for the rest of the year as a non-resident (but this would only be income earned on days that you physically worked in NY's borders.).  If your W-2 does not split the income correctly, you can manually assign a different income split in turbotax.