A nonresident tax return with New York (New York's Telecommuter Convenience Rule)

[Beth208]

Worked with a company for 4.5 years. At the start of 2024, they switched from Gusto to ADP. 

They never asked for an updated W4. 

I realize they did two things:

1. Filed me as single zero when I am married filing jointly.

2. Withheld NY State taxes and not Vermont state taxes, where I have lived and worked exclusively since 2020

I have not worked or lived in NYC. Ever. 

Prior to 2024, the company withheld VT State taxes and not NY State taxes. 

How do I fix this? The company is essentially giving a proverbial "FU Shrug" saying the situation is "complicated" and that I have to sort it out come tax time. 

Is there a specific form I have to file? What are the repercussions of what they did?

[TomD8]

A non-resident of New York who never physically works in New York, not even for a single day, has no income tax obligation to the state of New York for their work earnings.  New York's "convenience of the employer" rule does not apply in such a situation.

Unfortunately, the NY taxes already withheld from your pay have by this time been deposited with the state. In order to claim a refund of the incorrectly withheld taxes, you'll have to file a non-resident NY tax return at year's end, showing the NY withholding but claiming zero NY income.

Your income is 100% taxable by your resident state of VT.  Your employer should be withholding VT income tax for you.  Since no VT taxes have been withheld from your pay this year, you may want to make an estimated tax payment to VT in order to reduce or avoid any penalties. If your employer does not withhold VT income tax for you going forward, then you must make quarterly estimated tax payments to VT.  See this reference for more info:

https://tax.vermont.gov/individuals/estimated-income-tax

Finally, you should file NY Form 2104.1 with your employer, declaring your non-residence in NY and stating that zero percent of your work services will be performed in NY. Hopefully this will get your employer to cease withholding NY taxes. Here's a link to that form: https://www.tax.ny.gov/pdf/current_forms/it/it2104_1_fill_in.pdf

[rjs]

The federal tax withholding is easier to deal with than the state. You should give your employer a new federal W-4. If they have been withholding federal tax for the last 9 months as if you were single, you might have already had more federal tax withheld than necessary for 2024. You might want to reduce your federal withholding for the rest of the year, then give them another new W-4 in January to adjust your withholding to an appropriate amount for 2025. You might find the Tax Withholding Estimator on the IRS web site helpful.

[Opus 17]

You can't fix what wasn't withheld.  Your W-2 at the end of the year reports what actually happened, not what should have happened.

As stated by @TomD8 , you don't owe tax to NY.

Your immediate actions are:

1. File a new W-4 to correct your federal withholding.  You may have been over-withheld, depending on your spouse's income.  You can use the IRS withholding calculator to determine how to set your W-4 for the rest of 2024, but remember to run the calculator again in January to correctly set your withholding for 2025.  https://www.irs.gov/individuals/tax-withholding-estimator
2. File an IL-2104.1 with NY to declare non-residency and set your withholding to zero.
3. File a W-4VT to start Vermont withholding.  https://tax.vermont.gov/individuals/personal-income-tax/withholding
4. Make an estimated tax payment to Vermont to cover the taxes that should have been withheld.  Making an estimated payment will help reduce or eliminate any penalty for not having enough withholding for the first part of the year. https://tax.vermont.gov/individuals/estimated-income-tax

Then at tax season you will,

1. File a normal federal return.
2. File a NY non-resident return reporting zero state income, this will give you a refund of all the withheld taxes.
3. File a VT resident tax return.  You may be under-withheld and owe a tax payment with your return.  If VT wants to assess a penalty, you can try applying for a waiver for cause.