Freelance and regular job, filing from multiple states?

[ledisko]

Hi! So I'm in a bit of a pickle. I work/live in NJ where I have a consistent job and make most of my money, but I also do inconsistent freelance work. There's a company I freelance for is in Texas (I made some money in November to December). Also I just recently got a work from home temp position for a company in New York (literally, midway through December. Only made like $270 last year, but it's a recurring position where I help them out like once a month).

So I have a W2 from my NJ job, a W2 for December for my NY job, and a 1099 from the Texas Company. If I understand correctly, even though I work from home, I need to do the allocation form where I only put in the $270 and fill out the nonresidental form for NY, right? The Texas company earnings I also report but do I need to add that state to my State Taxes too? Or does the 1099 technically charge it to my "office" in NJ?

Thank you! Any insight is greatly appreciated!

[RaifH · Accepted solution]

Yes, you do need to fill out a nonresident tax return for New York. Even if you never set foot in NY, you are still required to pay NY income tax on income earned from an employer there. It's called a "convenience of the employer" rule and NY is one of the states that requires its employers to withhold and the employees to pay NY income tax even if the employees are based elsewhere. Annoyingly, you are required to file in NY even though you only earned $270 as long as your federal gross income exceeds the NY standard deduction for your filing status.

Texas does not have a rule like this, and it would not matter if they did because they don't have an income tax. You are not required to file anything for Texas state taxes. 

The freelance work is considered self-employment and would have to be reported on your return as such. On the plus side, this means that any ordinary and necessary business expenses you incurred as part of this freelance job would be deductible as a business expense. The downside is you have to pay self-employment taxes on this income in addition to the state and federal income tax you normally pay.

As your resident state, NJ taxes all your income. The $270 from NY, the 1099 from TX, all of it. Whatever tax you pay in NY will be credited to your NJ taxes so you will not double-pay tax on the $270 of income even though both states tax it. 

[ledisko]

Gotcha, thank you! I have a follow up question then. I'm kinda confused about "allocating" on the NY taxes? The only NY earnings I have are the $270 on my W2, but am I supposed to add my NJ earnings and my freelance earnings and set them to "do not allocate?" Or just delete them entirely off the NY State tax return? 

[RaifH]

You can delete them entirely off your NY state nonresident return. 

1. Under New York Income Allocation, answer No to Were all of your wages and/or self-employment earned in New York State.
2. Your W-2 with NY withholdings should already appear on the W-2 summary. Select Done.
3. For any self-employment income or other forms of income, like dividends and capital gains, you can leave the New York Source Portion field blank.
4. Answer No to both questions about business allocation assuming that you never performed any of your freelance work within New York.

When you get to the summary screen for New York, it will look like they are taxing your entire income on the Amount taxed by New York entry. However, the NY income factor a couple lines below that shows only the portion that is attributable to NY.