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

[lemonswee]

In August 2025, I accepted a job with an employer located in New York City. I live in Ohio and work 100% remotely. I have never physically worked in or traveled to New York for this job.

My employer does not withhold Ohio state income tax. They indicated that setting up Ohio payroll withholding would require executive approval and additional cost, and they currently have no plans to do so. Instead, they withhold New York state tax, stating that not doing so could trigger additional tax obligations for them in Ohio.( company has about 500 employees)

Based on my understanding, I should file a New York nonresident return (Form IT-203) and allocate my New York–sourced income to zero, since all of my work is performed in Ohio.

However, I am receiving the following error in TurboTax:

“Allocation worksheet for PY/NR: wages, salaries, etc., column D (New York) were reported on federal Form W-2, but no wage income has been allocated to New York. This will cause the e-filed return to be rejected by New York State.”

Additionally, my federal filing status is Married Filing Jointly. On Form IT-203, TurboTax appears to be using our combined income (mine and my husband’s), which does not seem correct. My husband’s income and our other income should  not be attributed to New York.

Has anyone experienced a similar situation? How did you resolve it?

Additional context: I am aware of New York’s “convenience of the employer” rule, but I believe this should not apply to me since I have never worked physically in New York and my work is fully remote from Ohio.

Please  help!

[maglib]

@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.

[lemonswee]

Hi, thank you so much for the thoughtful reply.

I will list my New York-sourced income as zero and see if I receive any audit letters.

thank you!

[maglib]

  If your agreement says you don't have to go to NY and you never do, your employer should NOT withhold NYS taxes.  The sheer fact that they do withhold, is a warning that they feel that your employment setup does not meet the rules so be careful.

The BETTER ROUTE:

Contact Employer First: Request that your employer stop withholding NY taxes, refund the incorrectly withheld amount, and issue a Form W-2c (Corrected Wage and Tax Statement). Employers can adjust errors in their quarterly payroll tax returns  FORM NYS-45.

They may tell you why they withhold and they disagree.  Probability of an audit is high if you allocate 0.

The convenience rule is a difficult one.

@lemonswee

[lemonswee]

Hi, thank you. I asked my employer not to withhold New York State tax, but they said that if they stop withholding New York tax, it would trigger Ohio state tax withholding, which they are not currently set up to file. They also mentioned that it would cost more to set up payroll for Ohio.

I’m wondering if this is accurate.

Additionally, the company has locations in New York, DC, Boston,, and San Francisco—those are the only locations they operate in.

[maglib]

Ohio  you should be paying estimated taxes to if employer wont withhold. So no mattter what make sure to pay estimated taxes to Ohio. 

Have them assign you to DC office would as Nonresident remote workers for DC-based employers do not owe DC income tax on wages earned while physically working outside the District. 

.

[lemonswee]

Thank you for all your help.

I just discovered this whole chain of communication regarding New York State nonresident  tax.

https://ttlc.intuit.com/community/state-taxes/discussion/your-employer-has-reported-this-correctly-n...

[maglib]

Yes, main is accurate. Some comments not. Example, we worked from home in NJ and while we got audited proved income was not NY sourced. It took back and forth 3x to win but we did. Had to site specific rules, get letter from employer, etc. Then, for simplicity, they just assigned him to a different office. For many years we did not allocate to NY though his employer did. Then COVID, si many did that everyone was audited.

[lemonswee]

Thank you for all the information. 

I have filed a New York nonresident return reporting zero New York–source income. I am considering asking my employer to prepare a letter. If so, what specific language should it include (e.g., no requirement to report to New York, no services performed in New York, and work performed entirely outside New York)?

BTW, are you a tax professional?

thank you!

[maglib]

The letter has to mirror the requirements in detail and give specifics.    
I am retired now. No longer licensed.
NY is a difficult state to deal with. They give you deadlines to respond yet fail to respond timely to your responses, normally exactly close to last day they must respond by. 
i know partners at largest firms who failed their audit who worked from home for a NY employer as part of a retirement package but, as those partners spoke with NY clients and came into NY for the holiday party, even admitted driving through, they failed. 
the Firm letter was short and documented exact office requirements and job location and that we did not go to NY office, had no desk at the NY office, and were not working on NY clients and specified offices we did go to, and did not have the option to work at the NY office. 
Our letter: 
We basically copied the requirements you meet, ensure you have your documentation. 
For us, we worked on out of NY clients, never went into NY and did not have any office in NY. We also had an office in the home for meeting clients. We were not officers of the Firm. 
letter started with the exact NY Rule:

must meet Primary or 4 Secondary and 3 others. 
then I listed each one. And responded to it. ones under each category we met with specific details.   We met more than required but, listed all even if NA, gave very detailed responses. 

first round was 1 sentence to each, we failed. It took a few times and excessive detail, photos of business card, photos of dedicated office space, even a letter from a client stating they visited the home office.