New York taxes remote workers if they work remotely for their own convenience. New York does not tax remote workers if they work remotely for their employer's convenience.
For example, a graphic designer working for an NY firm is probably working remotely for their own convenience, since graphic design could easily be done if you lived in NY and the company has an office you could work at if you wanted to. A repair technician or salesperson whose territory is in the West is working remotely for the employer's convenience since it puts you closer to your clients or customers.
Here's a quote from a law blog:
Naturally, this law has been challenged. In Huckaby v. New York State Division of Tax Appeals (04-1734), a New York state court found Thomas L. Huckaby liable for taxes on 100% of the wages he earned from a New York employer while working from his home in Tennessee, which has no state income tax. Although Huckaby, a computer programmer, worked approximately 25% in his employer’s New York office, he admitted he worked from home most of the time for personal reasons. The New York Court of Appeals, the state’s highest court, upheld the decision. To be exempt from New York taxation, such wages must entail “duties … which by their very nature, cannot be performed at the employer’s place of business,” the court said.
While most states apply a “physical presence” test, New York applies a “convenience of the employer test.” In other words, in New York the income must be earned by work performed out of New York State for the necessity of the employer, rather than out of convenience.
As you can imagine, there aren’t a lot of reasons why it’s necessary to work for a New York company outside of the state of New York. However, imagine working for a New York company that requires you to spend all of your time in Alaska working on an oil pipeline. In that scenario – or any scenario where your employer requires you to live outside of New York – you shouldn’t be subject to New York State income taxes. But if you’re living in Florida because it’s sunny and a great place to be a freelancer? That’s just convenient for you (and it turns out, convenient for New York too).
Here is an NY tax memo on the situation
https://www.tax.ny.gov/pdf/memos/income/m06_5i.pdf
Assuming you are subject to NY income tax, this is how you will file your return:
First, you file a NY non-resident return that reports your NY income only, and pays NY tax.
Second, you file a CO resident return that reports all your world-wide income, and computes and pays tax on the entire amount. CO should give you a credit against NY taxes paid that will reduce any double taxation, but the net amount of tax you pay will basically be whatever state has the higher rate. (For example, if the NY tax on your income is $3000 and the CO tax is $4000, CO should give you a $3000 credit, making your CO tax $1000 and your total tax $4000. But if NY tax is $5000 and CO tax is $4000, the maximum CO credit will be $4000, making your total tax $5000.)
This also means that only your job for an NY company is NY income. Investment income, lottery prizes, and so on, are not NY income unless you were actually living in NY when they were paid.
In Turbotax, prepare the non-resident return first so the credit computes correctly.
CO's income tax rate is lower than NY, so I would have your employer withhold NY taxes only, since the NY taxes you pay will probably result in a credit that zeroes out your CO tax on the same income. You would then only need to make quarterly estimated payments to cover your CO tax for non-NY income, if any.
Or, if you are definitely working in CO for the employer's convenience, then you won't owe NY tax and just have CO tax withheld.
