Q. Isn't this double-taxing?
A. No, because you claim a credit, on your California state tax return, for the tax paid to NY.
Q. Does this (paying NY tax) sound right?
A. No, but maybe yes. NY (and a handful of other states) taxes telecommuters. It's usually based on the employer being located in NY. This the first time I've heard of it based on the employer's client being located in NY. But that question may be academic. The NY tax does not apply, if she never physically worked in NY, during the year. Discuss it with your employer. I believe they are mistaken by withholding NY tax. If they have documentation for their position, please share it with this forum.
Q. Should she just pay taxes on the her state of residence?
A. Yes.
