Moved from NYC to Denver with NYC based company, what do I need to take into consideration before tax season?

[lrieland]

Hi there! I lived in NYC from Jan 1 - June 20th, and from June 20th - Dec 31st this year I will live in Denver, CO. My employer is based in NYC, I make an NYC salary, and since they have not yet changed me to a Colorado based employee, NYC taxes are still being withheld from my paycheck.

How do ensure I am complying with Denver-based tax regulations and also make sure I don't get screwed with double-paying taxes come tax season? Can I just pay NYC taxes for the year since >50% of the year was spent in NYC? Or do I need to ask my employer to stop withholding NYC taxes so that I can pay Denver taxes for the rest of the year?

Thanks so much!

[Corrlich44]

Hi IrieLand,

Thank you for posting your question in the forum today.

Under normal circumstances, when you know you are about to move from one locale or state, you are required to notify your employer's HR department immediately so that payroll can be properly notified to make the necessary adjustments for income tax withholding. In your situation, unless you have not notified either department, please do it immediately.

But first, here is how it will and should be addressed for 2020 and 2021:

1) Since you were legally a NYC resident from January 1 through June 20, 2020, you would be required to note that change of address within your TurboTax program for 2020. When moving from state to state, you must always prepare your year-end residency state's tax return LAST. This way, you may either receive state income tax credit for that portion of the time your lived in NYC, so income earned and tax withheld from another state will be applied on the new state's tax return. Alternatively, you may only be required to report that specific income earned on each state's tax return, where your dates of residency take precedence.

Since the employee is expected to notify their employer in advance of any move, this would have been required in June of 2020.

2) With regard to 2021, there is nothing more you can do change the amount of withholding nor the locale of of your current address on your current paycheck, if your employer has not already done it for you. What will happen as in point # 1 above, as long as withholding tax is being withheld for NYC and NYS from your current paycheck, you will be required to file a FINAL 2021 NYS tax return, if not 2020 as well, to obtain a tax refund on the money that was incorrectly withheld. You will then prepare a 2021 Colorado income tax return and properly reflect all the income that was correctly reported on your 2021 year-end Form W-2 as being noted for NYS, which will most likely show a tax liability due Colorado. The state income tax refund you will eventually receive from NYS will eventually be turned over to Colorado when the funds are received.

Under some circumstances, you can avoid penalty for the non-payment of state income taxes by sending a letter to appeal any backlash from Colorado by stating the late response by your employer, since no taxes would have been paid all year long to Colorado.

It's a very awkward position to be in but, your employer must do their job and correct the state withholding tax tables for you as quickly as possible.

I hope this is helpful to you.

[drc845443]

Hello there,

If I understand your statement correctly: Your primary office location is in NYC, but you relocated to Denver and have been telecommuting from a home office in Denver. Which means that you now live in Denver but work in NYC?

If this is the correct scenario, then you should continue to pay NYC taxes. You will also need to file a Colorado part-year resident state tax return and report the same income that you earned from your NYC job during the second half of the year. The income is subject to Colorado taxes, but Colorado will give you a credit for taxes paid to NY.

The applicable rules for NY are available on this link: 

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

If on the other hand, your employer considers that your primary office is no longer in NYC, but is now in Denver, and you are in Denver because your employer needs you to be in Denver, then you should ask your employer to stop withholding NYC taxes, and start withholding Colorado taxes.

[KochuK]

Hi Irieland, thank you for joining the "Ask the Experts: Moving" special forum today. I am happy to assist with your questions.

You moved from NY to CO on 6/20/2021.

From 1/1/2021 - 6/20/2021, you are a NY part year resident, reporting what you earned during this period to NY tax return.

From 6/20/2021 - 12/31/2021, you are a CO part year resident, but also a NY nonresident. Due to the telecommuter rule, this period income is reportable/taxable to NY tax return, and at the same time, taxable to your CO part year tax return.

My primary office is inside New York State, but I am telecommuting from outside of the state due to the COVID-19 pandemic. Do I owe New York taxes on the income I earn while telecommuting?

If you are a nonresident whose primary office is in New York State, your days telecommuting during the pandemic are considered days worked in the state unless your employer has established a bona fide employer office at your telecommuting location.

There are a number of factors that determine whether your employer has established a bona fide employer office at your telecommuting location. In general, unless your employer specifically acted to establish a bona fide employer office at your telecommuting location, you will continue to owe New York State income tax on income earned while telecommuting.

https://www.tax.ny.gov/pit/file/nonresident-faqs.htm#telecommuting 

To prevent double taxation, you can claim "credit for taxes paid to other states ," in this case, credit for NY taxes paid in CO part year tax return. TurboTax program will do the calculation. However, NY tax paid won't come through completely as credits on CO tax return because NY tax rates (4% - 8.82%) are much higher than CO flat rate of 4.55%. You also have New York City tax to consider.

https://answerconnect.cch.com/document/jyc0109013e2c83c2542d/state/explanations/new-york-city/nyc-ta... 

Based on the above, you will need to file CO part year return, but probably will not have a large balance due because of the credit.

Hope this helps.

[drc845443]

I just want to clarify one thing - my comments above were mainly based on NY state - if your job is deemed to be in NYC, and you are telecommuting, you are still required to pay NY state taxes, but if you do not live in NYC you are not required to pay city taxes.

Even if you live in NY state, but not in NYC (within the 5 boroughs), you are not required to pay city taxes.

Since you have moved to Denver, you can fill in the paperwork to stop your employer from withholding NYC taxes going forward, but still continue to withhold NYS taxes.