Error message when zero New York source income entered on IT-203 form and incorrect income allocation

@lemonswee   Your employer would have to 

 Remote workers who are 100% remote from outside New York State and NEVER come to the New York office are not subject to the convenience rule. See Matter of Hayes v State Tax Commission, 61 AD2d 62, 64 [3d Dept 1978]; Therefore, if you are an employee working remotely from outside of NYS, make sure your agreement states that you have no obligation to report to the New York office at all. All meetings should be held remotely.

2. The agreements MUST Comply with the bona fide employer office rule in TSB-M-06(5)I found here chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.tax.ny.gov/pdf/memos/income/m06_5i.pdf

3. The convenience rule applies when the employee is assigned to a New York office, regardless of the state he works remotely from. If a business has multiple offices and it’s possible to reassign the employee to a different office, the New York convenience rule would not apply. 

If you are a nonresident and your primary office is in NYS,  and your employer withholds NYS taxes then you most likely do NOT meet the convenience rule nor the rule that you never have to come to NYS.  Then all days telecommuting are days worked in NY unless your employer established a bona fide employer office at your telecommuting location. “The policy justification NYS utilizes is that since a New York State resident would not be entitled to special tax benefits for work done at home, neither should a nonresident who performs services or maintains an office in New York State” (Speno v Gallman, 35 NY2d at 256).

New York State established rules in Technical Service Bulletin TSB-M-06(5)I, which states that if the employee’s home outside of New York qualifies as a bona fide office of the employer, then the days worked at this home office will be treated as days worked outside of New York.  Please see TSB-M-06(5)I for details on what constitutes a bona fide employer office. It can be found here: https://www.tax.ny.gov/pdf/memos/income/m06_5i.pdf

You would get a credit for taxes paid to NY when you complete your resident state return.  You should be paying estimated taxes to your residential state if they are taxable.

If you still believe your employment agreement and set up meets the NYS onerous rules and  your employer refuses to make the correction, you can file a New York nonresident tax return and allocate zero income to New York. But since your W-2 shows New York income, you will probably have a letter audit from the NY Department of Taxation questioning why your tax return shows zero and you will have to proved based on the requirements why you should not be subject to the tax and your employer will be required to write a letter on your behalf. You will have to explain to them that you never lived or worked in New York, and that your employer erroneously withheld New York tax and showed New York income on your W-2. 

(added INFO: Many companies have offices outside of NY and will often assign employees to those offices to eliminate this burden.  Do note anyone who works in NY for more than 14 days would also be subject to non-resident NY withholding taxes.).

To do the allocation.  You must first do your Federal return.  Input your W-2 as given. Then work on your Non-resident NY return.  During the interview under the "New York Income Allocation" screen to set New York wages to $0. Under "Allocate Wages to New York," select methods such as "Allocate by Percentage" or "Days" and set them to zero. You will also have to allocate all other income outside of NY such as dividends, interest, capital gains, etc.  

Upon completing the Nonresident return, only then can you complete your state tax return, where you will get a credit for taxes paid to another state based on doubly taxed income at the lower tax rate of the 2 states.